Hockey looking in the wrong place for a budget fix
While Hockey hates to admit it, budget deficits in Australia are primarily caused by fluctuations in revenue rather than big increases in spending. Over the past 20 years, government spending has averaged about 24 per cent of gross domestic product (GDP) with a high of 25.3 per cent and a low of 23.1 per cent. Given the swings in the world economy, the unemployment rate and lumpy purchases of defence equipment, that is quite stable.
While government revenue has also averaged about 24 per cent of GDP, it has been much more volatile, peaking at 25.9 per cent of GDP and bottoming out at 21.5 per cent of GDP. Our tax/GDP ratio is currently well below its historical average and even well below the average level when John Howard was prime minister. Put simply, anyone who is really worried about deficits should be worried about tax.
Hockey is not really worried about the deficit. On the contrary, he loves the deficit, as it allows him to focus on the thing he is really worried about, which is public sector spending. His political problem, however, is that Australians like public spending on schools, roads, hospitals and income support for the vulnerable. That's why he tried to invent a "budget crisis" - he was trying to force us to take his unpalatable, and unnecessary, medicine.
If Hockey really wanted to reduce the budget deficit, he would dedicate as much time convening the Revenue Review Committee as he does overseeing the Expenditure Review Committee. When revenue forecasts from a particular tax were not met, he would demand detailed explanations and new collection options.
A government that was determined to restore the budget to surplus would be scrutinising all existing tax concessions, not just those for fresh food. An effective Revenue Review Committee would ask the simple question: "What is the taxpayer getting in return for this?" - for every tax concession.
Successive treasurers have been adamant that the $40 billion in forgone revenue that flow from the tax concessions we grant to superannuation provide a good return to taxpayers in the form of reduced spending on the age pension. While the argument is flawed and contradicted by all available evidence, the best place to test such a claim would be a fierce Revenue Review Committee.
A remote community using diesel to make electricity does not have to pay tax on that fuel. But it is unable to exchange the future cost of the subsidy for a one-off grant to install solar panels. The diesel fuel rebate now costs the budget $5.4 billion a year in foregone revenue. A thorough Revenue Review Committee would seek out opportunities to reduce revenue losses. A thorough Revenue Review Committee would ask hard questions about whether making fuel cheaper is the best way to increase the efficiency of remote towns, or remote mines.
In the past few weeks, backbench Liberals and a range of business groups have been calling for the extension of the GST to fresh food. It is not clear where this thought bubble originated, or why its proponents prefer to extend the GST to food rather than to private schools, private health insurance or financial services. But if we had a serious Revenue Review Committee, all of these options could be systematically compared, both with each other and with the current arrangements that allow superannuants with balances of $10 million to pay no tax.
But we do not have a powerful revenue review committee and we are unlikely to get one. This is not just because Hockey does not want one, but because Treasury does not want one, either. Herein lies the fundamental problem at the heart of the structure of Australian government.
While the Department of Finance is focused on reducing public spending, Treasury is focused on reducing government revenue. Despite Australia having one of the smallest public sectors in the developed world, for reasons best known to itself, Treasury believes even smaller would be even better.
http://www.canberratimes.com.au/com...g-place-for-a-budget-fix-20150116-12rjrl.html
Some of us have been talking about the ridiculous tax concessions in this country,as a means to balance the budget,all to no avail.
Raider
