Australia’s taxes are “inadequate” to finance government responsibilities including for aged care and defence, a former head of the finance department has warned.
Michael Keating, the secretary of the Department of Finance from 1986 to 1991, will call for a review of revenue at the progressive thinktank the Australia Institute’s revenue summit on Friday. The call is aimed at sparking debate about methods to close the tax gap including congestion charging, lifting and broadening the goods and services tax and adjusting the stage-three income tax cuts.
Earlier in October the Australia Institute released modelling showing the income tax cuts could be reformed to save the budget up to $130bn while still delivering bigger tax cuts to 80% of income earners.
Despite the intergenerational report predicting a budget deficit of less than 1% until the mid 2030s, Keating argues there are “good reasons to doubt” that the current level of service provision is adequate.
In an advance copy of the speech, Keating cites “underfunded” commitments responding to the aged care royal commission, projected hospital and Medicare spending, the long-term aspiration to increase jobseeker payments, the “likely” need to increase defence spending to pay for Aukus and need to spend more to reduce greenhouse gas emissions.
“The Grattan Institute thinks the structural budget deficit will be close to 3% of GDP in ten years’ time,” he says, before revealing his “personal assessment” that the true figure is closer to 4% “if the government meets public expectations for adequate services and income support”.
Spending cuts are unlikely to fix the problem because two-thirds of the budget is “entitlement programs” and cuts in the Coalition’s 2014 budget had prompted fierce backlash.
Keating calls for a “a full-scale independent public review of the funding required for adequate service provision” to come up with an “authoritative estimate” of what is needed, before the conversation shifts to how to raise revenue.
He says he favours taxes that “improve efficiency, such as a carbon tax, congestion charging, and substituting a land tax for stamp duty”.
He also calls for “a resource rent tax so that the community shares some of the super profits that mining companies can make due to fortuitous circumstances rather than their effort or initiative”, echoing calls made by the Nobel prize-winning economist Joseph Stiglitz.
The assistant minister for the Treasury, Andrew Leigh, will also address the conference, updating on Labor’s efforts to tackle “accounting tricks and dodgy behaviour” by multinationals, including being one of the first jurisdictions to legislate for the global 15% minimum corporate tax rate.
In his speech, Leigh says that the new global minimum tax rate “will prevent the ‘race to the bottom’ on corporate tax rates”.
“It will reduce the tax rate differential between Australia and low tax countries, help protect Australia’s corporate tax base by reducing the incentive to shift profits abroad and make Australia a more attractive place to invest and boost economic growth,” he says.
“Our implementation of the global minimum corporate tax will allow us to apply top up tax on large multinational groups operating in Australia where their overseas income is taxed below 15%.”
“And, under the domestic minimum tax, it will give us additional taxing rights on the low-taxed Australian income of large multinational groups.”
Leigh also points to new “thin capitalisation” rules, which are estimated to raise $720m over the four years to 2025–26, and recommits to country-by-country tax reporting, although it is still considering the “appropriate level of disaggregated reporting”.
Leigh told Guardian Australia he wants “as many countries in as possible, but without imperilling the information sharing which is critical to the Australian Tax Office’s work”.
He said requirements to take effect from July 2024 wouild result in companies reporting in Australia on their operations in “probably more countries” than any other nation in the world and “a more detailed country breakdown than the European Union measures”.
Leigh said Labor had “costed all measures we’ve announced” and found savings for cost-of-living measures while delivering the first surplus in 15 years.
