Everyone (well almost everyone) accepts the Australia has a public finance problem. Even those who have previously argued that our public debt levels are acceptable have begun to argue for changes to fix up our public finances.
And recently the loudest voices for public finance reform have been on the revenue side, not the expenditure side. As a result we have seen, or we may see if Labor win the next election in 2019:
- The Multinational Anti Avoidance Law and the Diverted Profits Tax, two very big sticks to raise tax from multinationals raising about $1 billion a year.
- A fundamental change to superannuation raising about $1 billion a year.
- The 2% temporary budget levy on the highest income threshold that Labor say they will reinstate on 1 July 2020 if they win the election raising about $1 billion a year.
- Labor’s proposed policy on reducing the CGT discount to 25% and limiting negative gear losses on everything other than new residential property, which will apply from 1 July 2020 and would raise a bit over $2 billion a year.
- Labor’s proposed change to the taxation of distributions from discretionary trusts which will raise about $1 billion a year (again to apply from 1 July 2020).
There are other changes that have been, or are proposed to be made to the tax system but these are the big ticket items and combined they see an additional ~$6 billion a year in todays dollars added to the revenue side of the government’s balance sheet.
And to be honest, other than fuel excise changes, there is not much left on the revenue side to go after to fix public finances. To quote from Bob Deutsch…
Both super and negative gearing seem to be in the firing line one way or another. That leaves you with the third leg of the tripod which is discretionary trusts.
The major revenue raising ideas for increasing taxes have all been done, or are proposed to be done (other than the political suicide of either raising the GST rate or base or removing work related deductions) and we have raised… $6billion. So is $6 billion enough?
While the current budget proposes our debt to reach its limit in 2021, there are almost no economists who believe this will happen. Most economists see a structural deficit of around $20 billion a year and so the $6 billion we have raised from these change does not even get us one third of the way.
So where do we find the other $14 billion a year? With the “pie” not growing fast (low inflation, low wage growth, low GDP growth) there is only one way left. Government expenditure control. Lets see who will propose this…