Cuts now or more pain later: audit head

Shepherd warns more savings necessary if govt does not adopt $70bn in cuts.

The head of the National Commission of Audit has warned that more savings will need to be found if the federal government does not adopt all of the $70 billion in spending cuts identified in the controversial report.

As the government considers the incendiary findings, commission chairman Tony Shepherd said there was no alternative to cutting outlays as soon as possible to avoid more drastic reform later.

Mr Shepherd sought to counter one of the strongest criticisms of the new plan -- that it seeks to cut the minimum wage -- by insisting that the audit proposal was only to slow future growth in the minimum wage over the long term.

And he declined to give a verdict on the mooted “deficit levy” to increase taxes on relatively wealthy taxpayers in the name of “sharing the burden” and balancing the impact of budget savings on people with lower incomes.

“We’ve had six years of deficit and if we don’t do anything we’ll have another ten years of deficit,” Mr Shepherd told a Senate hearing into the report this morning.

“So a do-nothing scenario is not really an option.

“The problem is that if, for example, the government doesn’t take one of our recommendations then they’ve got to find another solution to find the equivalent amount of money, if their target of a 1 per cent of GDP surplus by 2023-24 is to be achieved.

“So it is entirely up to government whether they accept the recommendations but if they don’t then there’s a hole that has to be filled.”

Labor senator Sam Dastyari challenged Mr Shepherd, a company director and former president of the Business Council of Australia, to justify deep cuts to families that relied heavily on government benefits.

“There are families who will see less services and support from the government that they rely on,” Senator Dastyari said.

“Is your message to them: ‘this is the price you have to pay to go into surplus’ -- is that what you’re saying?”

Mr Shepherd said the commission’s goal was to protect the very poorest.

“There’s nothing in this report which attacks the bottom. Let’s protect the bottom and let the rest of the society, where they can afford it, look after themselves,” he told the hearing.

“Because the way we’re heading at the moment is unsustainable and if we kick the can down the road for another 10 years we’ll have to act drastically, and then the shock will be real and then it will be large.”

The chairman of the Senate select committee into the audit commission, Greens senator Richard Di Natale, criticised the report for labelling the minimum wage as too high.

Mr Shepherd said the report did not call for the minimum wage to be cut and instead argued for a different benchmark over the long-term that would ensure it did not grow too fast.

Asked about the “deficit levy” likely to be in the May 13 federal budget, Mr Shepherd cautioned about its potential damage to consumer confidence but reserved judgment.

“If the government was to introduce a debt levy it would reduce the deficit more quickly, it would get to surplus more quickly, and to a certain extent that would be a good thing,” Mr Shepherd said.

Hammering one of the major attacks on the audit report, Labor senators challenged Mr Shepherd to explain why the commission did not examine the substantial cost of tax concessions on the budget.

Cutting fuel tax concessions for mining companies would save $10 billion over four years according to a costing for the Greens prepared by the Parliamentary Budget Office, while super tax breaks are estimated to sacrifice about $30 billion in revenue every year.

Mr Shepherd defended the report by saying the commission was not asked to consider tax breaks on diesel fuel used by miners.

The head of the commission secretariat, Peter Crone, noted that the final report acknowledged the cost of super tax breaks.

“The commission notes that many superannuation tax concessions disproportionately benefit higher income earners, when compared to taxation at marginal tax rates under the progressive income tax system,” the report states.

Mr Shepherd told the Senate hearing that he was concerned that the tax treatment of super did not seem to be having the desired public policy effect of reducing the burden on the age pension.