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
Frequently Asked Questions about this Article…
What did the Business Council of Australia say about Australia's long-term budget position?
The Business Council of Australia warned the nation's long-term budget position is far worse than acknowledged, saying combined federal, state and local governments will need to raise an extra 5% of GDP in tax by the middle of the century. Their projection, expressed in today’s dollars, puts the nationwide shortfall at about $195 billion a year and assumes business-as-usual plus projected demands for health, aged care, superannuation concessions and pensions.
How does the council’s 5% of GDP tax shortfall compare with estimates from Senator Penny Wong?
Senator Penny Wong has previously pointed to a 2.75% of GDP shortfall by mid-century (worth more than $80 billion a year in today’s dollars). The Business Council’s estimate of an extra 5% of GDP is almost twice Wong’s figure, highlighting a bigger funding gap in the council’s research.
What were the key 2010–11 budget outcomes investors should know?
The 2010–11 budget outcome showed a small improvement on the May estimate: the deficit finished at $47.7 billion, a $1.6 billion improvement driven by lower-than-expected government spending. Treasurer Wayne Swan reiterated the government’s aim to return to surplus in 2012–13 and said he would outline taxation reform priorities after the tax forum.
Why will state governments bear much of the increased health spending pressure?
The council’s research says states will bear the brunt of increased health spending because they get most of their revenue from the GST (which is failing to keep pace with growth), exemption-ridden payroll taxes, and duties on conveyancing and gambling. Those revenue sources are less able to absorb rising health costs.
What tax reform options did the Business Council suggest to help states and reduce inefficient taxes?
The council suggested giving states a guaranteed share of Commonwealth income tax in return for a commitment to abolish inefficient state taxes, including insurance taxes. The council and the Australian Industry Group also called for a Commission of Budget Integrity or an ongoing Tax Reform Commission to map long-term solutions.
Did the council recommend lowering Australia’s overall tax take?
No. The council explicitly did not suggest lowering the overall tax take. Both the Business Council and the Australian Industry Group want the tax mix reformed and better long-term planning via a commission, rather than a reduction in total tax revenue.
What tax and superannuation ideas did other groups bring to the tax forum?
A range of organisations presented proposals: the Council of Social Service wants the senior Australians offset and tax-free super for over‑60s abolished to fund future needs; Uniting Care argued current superannuation tax concessions disproportionately benefit the top 5% of earners; Oxfam proposed a tiny 0.05% 'Robin Hood' tax on wholesale financial transactions; the union movement proposed raising the tax-free threshold to $25,000, a suggestion Treasurer Swan declined to endorse.
What did Treasurer Wayne Swan say about next steps after the tax forum and other tax issues like the mining tax?
Mr Swan said the government is determined to return to surplus in 2012–13 and that he would indicate the government’s taxation reform priorities after the forum. He also said addressing the hole in the mining tax created by compensation promises to mining companies (when states raised royalties) was not an issue for the forum and that 'the government will deal with that in time.'
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