Wayne's big forward revenue backfire

The Grattan Institue has shown Australia's financial problems run deep and stem from a gamble on taxation revenue. But the mining revenue shortfalls which surprised Wayne Swan are only the beginning.

Once again the disastrous combination of the Australian Treasury and our Treasurer Wayne Swan has misled the Australian population.

Mathematically Swan will be right that there has been a $7.5 billion fall in taxation revenue from earlier estimates but the problems of the Australian deficit go far deeper than the sudden fall in revenue that Swan talks about.

Today’s Business Spectator commentary from John Daley the CEO of the Grattan Institute, one of Australia’s top economic think tanks,  is essential reading for all Australians interested in our future (Australia's on track for a decade of deficits, April 22).

While Daley does not comment on the latest Swan statement, the Grattan research shows that while the Treasurer might highlight a current taxation problem caused by yet another miscalculation of forward revenue, the real Australian problem goes much, much deeper.

In the Costello years we began increasing our expenditure on health not so much because we are aging but because, as Daley describes, Australians of all ages began seeing doctors more often, having more tests and operations, and taking more prescription drugs. At the same time we also lifted education and social security payments. With mining revenue pouring in the Howard/Costello government could pay for the extra spending but, under Swan, not only did the government put the foot on the spending accelerator but they punted that taxation revenue would continue to pour in. They were wrong.

Mining booms come and go over the decades but we have potentially made the effects of the current decline much worse by spending money predicted from a mining tax that never had any chance occurring and spending carbon tax money on social causes and then effectively slashing the tax in 2015. The problem is that there has been a serious break down between the Treasury and the Treasurer (Five fractures in Swan's treasured friendship, March 4). 

Grattan’s conclusions are alarming because the latest drop in taxation revenue that surprised Wayne Swan is part of a longer term trend as a result of the rise in energy production and the changes in China, which will see long term growth in resource demand cut back. The share market understands this and has cut BHP shares from around $50 to just above $30 but the message has not reached Canberra. And if we have structural deficits of 4 per cent of GDP for the next decade – as Grattan predicts – then our cost of overseas borrowing will sky rocket and we will have a much lower standard of living.

Fortunately there are ways out of this problem other than slashing services and raising taxation dramatically. The medical system is currently like a cottage industry with massive state and federal overlaps. New technology and bureaucracy burning can slash expenditure without cutting services but it requires investment (Giving health a tech check-up, May 10).

Education is in just as much a mess and to be advocating a Gonski on the eve of entrenched structural deficits is simply irresponsible. But, as in health, there could be a way out. Writing in the Weekend Australian Adam Creighton shows how you can slash expenditure; better reward teachers and not reduce educational performance, by cutting class sizes.

You may not agree with Creighton but unless we tackle health and education in a different way both sectors will simply not deliver the services we have come to expect because we will not be able afford to keep wasting money on outmoded ways.

Meanwhile we can only hope that Tony Abbott and Joe Hockey understand what is happening. The present government does not.

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