Treasury chief pulls no punches

Australians will have to pay more tax or expect poorer government services, the head of the Treasury has warned.

Australians will have to pay more tax or expect poorer government services, the head of the Treasury has warned.

Dr Martin Parkinson told a post-budget function in Sydney the share of the economy devoted to tax had suffered its most dramatic slide since the 1950s.

"From its pre-crisis level of 23.7 per cent, the tax-to-GDP ratio fell to 20.1 per cent in 2010-11," he said. "This reflects both successive large cuts to personal income tax rates and a fundamental change in the relationship between the nominal economy and tax receipts."

Weak tax collections were set to continue. Mining companies had become more economically important and paid a low proportion of their profits in tax, about five to 10 percentage points less than for the corporate sector as a whole.

"Just to be clear, this is not a judgment about what the effective tax rate paid by mining companies should be," Dr Parkinson told the business economists. "It is simply a statement of fact."

Non-mining companies would soon need to take the place of miners in driving economic growth, but there was a risk the transition would "not be seamless". Now, their growth was "not much bigger than the recession of the early 1990s".

Dr Parkinson's assessment came as the Fitch ratings agency endorsed Australia's AAA credit rating, describing the nation's public finances as "very strong".

"We view Australia's public financial position as a source of strength," the firm's global director of sovereign ratings, Art Woo, told investors.

Dr Parkinson said Australia's weak tax take was colliding with growing expectations of government and the rapidly rising costs of healthcare and the ageing population. Reforms to improve productivity would help to some extent and would be needed whichever party won the election.

"We have a big gap between what the community demands of government and what it is prepared to pay," he said. "We have to think about savings or new sources of revenue.

"I am not saying we have to find extra sources of tax. But we cannot just keep promising to spend more and more."

He would not say whether he would support an increase in GST.

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