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Business warns of budget blues for decades

Australia's long-term budget position is far worse than has been acknowledged, according to Business Council of Australia research for next week's tax forum.

Australia's long-term budget position is far worse than has been acknowledged, according to Business Council of Australia research for next week's tax forum.

Australia's long-term budget position is far worse than has been acknowledged, according to Business Council of Australia research for next week's tax forum.

The council says combined federal, state and local governments will need to raise an extra 5 per cent of GDP in tax by the middle of the century - almost twice as much as conceded by Finance Minister Penny Wong.

The council's research - to be released today - comes as the outcome for the 2010-11 budget showed a small improvement on an earlier estimate in the May budget.

The deficit has finished at $47.7 billion, a $1.6 billion improvement on the May estimate, made possible by a shortfall in government spending.

Releasing the figures, Treasurer Wayne Swan reiterated that ''the government is determined to come back to surplus in 2012-13''. Mr Swan promised that following the forum, he would indicate the government's priorities on taxation reform.

The council's projection assumes business as usual plus projected demands for health, aged care, superannuation concessions and pensions.

Senator Wong has previously pointed to a shortfall of 2.75 per cent of GDP by the middle of the century, which would be worth more than $80 billion a year in today's dollars.

The research conducted for the council puts the nationwide shortfall across state, local and federal governments at $195 billion a year when expressed in today's dollars. It says combined state, federal and local tax revenue would have to climb from 28.5 per cent of GDP to 33.5 per cent - meaning the tax take would have to increase by one-sixth as a proportion of GDP.

The states, barely mentioned in Senator Wong's briefing paper for summit delegates, will bear the brunt of Australia's increased health spending.

States get the bulk of their money from a goods and services tax, which is failing to keep pace with economic growth, from exemption-ridden payroll taxes and from duties on conveyancing and gambling.

The council submission suggests giving the states a guaranteed share of Commonwealth income tax in return for a commitment to abolish inefficient state taxes, including those on insurance.

But the council does not suggest Australia's overall tax take be lowered, a position it shares with the Australian Industry Group. Both call for a Commission of Budget Integrity or an ongoing Tax Reform Commission to map out ways to deal with the challenges ahead - something the government will not accept.

Many organisations have presented wish-lists for the tax forum. The Council of Social Service wants the senior Australians offset and tax-free super for the over 60s abolished and the savings used for future spending on growing needs.

Uniting Care says absurdly generous superannuation tax concessions give more than a third of the benefits to the top 5 per cent of earners.

Oxfam will be arguing for a tiny ''Robin Hood'' tax on wholesale financial transactions of just 0.05 per cent at a time.

Mr Swan refused to be drawn on the union movement's proposal for the tax-free threshold to be raised to $25,000.

He also said that plugging the hole in the mining tax, which has been created by a federal government promise to compensate mining companies when states jacked up royalties was not an issue for the forum.

''The government will deal with that in time'', he said.

with MICHELLE GRATTAN


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