Treasurer Jim Chalmers says we need “a big national conversation about the structural position of the budget, how we fund the things that we value”. In fact he said it repeatedly yesterday, while revealing the budget deficit for 2021-22 would come in at about $30 billion instead of $80 billion as the Coalition forecast earlier this year.
That’s due to “windfall” revenue from fossil fuel profits, lower payments driven by a record low unemployment level — and the fact that the Morrison government preferred to announce spending rather than ever getting around to doing it (remember Alan Tudge’s carpark rorts?). That’s meant a lot of spending from the past financial year won’t happen until this year, or next, or even later.
The opposition’s response was to condemn the government for “big spending and big taxing”, somewhat predictably, despite it being the Coalition that locked Australia into permanently bigger spending government, pushing spending as a proportion of GDP permanently above 26% (at least that’s what its own budget papers showed). The Coalition’s plan was to permanently increase the size of government in Australia, and permanently increase taxes, but not by anywhere near as much as required by its spending plans, creating a permanent deficit into the mid-2030s.
Fixing the Coalition’s permanent deficit is a major policy task — one made all the more urgent by the fact we have a high inflation environment that demands a more rapid return to a balanced budget than we might have considered in 2021.
It does indeed require a “big national conversation”. But Labor might find such a conversation difficult given it chose politics rather than conversation when Malcolm Turnbull tried to pursue a similar debate about tax reform in 2015; the Coalition might feel perfectly entitled to respond with equal cynicism, even though it is the author of the structural budget problem.
Fixing the problem requires either less spending or more taxes. The government has few options on spending given that the five big areas of growth have little discretion: health will continue to grow as a proportion of GDP; aged care desperately needs more funding; Bill Shorten is leading the charge to transform the NDIS into a more user-friendly service; the cost of servicing debt is a given.
Only on defence spending does the government have some discretion, but with Richard Marles turning into Peter Dutton so fast you can see the hair falling out, the spendthrifts at Defence appear to have been given licence by China hysteria to ramp up spending.
The rest is, comparatively, rats and mice stuff. You’re not going to make up a permanent deficit of more than 1-2% of GDP — $20-40 billion in current dollars — by slashing even the most egregious Morrison-era rorts, especially when the government is continuing pandemic-related spending.
Which brings us to taxes. The Coalition planned to lift taxation back to 23.9% of GDP — compared with the 20-22% Labor had it at when last in government — but that only narrows rather than addresses the permanent deficit.
However, the government has taken several options off the table. No reversal of the stage three tax cuts and no proper taxation of multinationals selling our fossil fuels overseas for free. No windfall tax on energy companies enjoying a revenue boost from the invasion of Ukraine. No ending the rorts of negative gearing or franking credits.
So the “big national conversation” has a bunch of no-go areas before it kicks off. At least when Turnbull tried something similar, he refused to rule out politically damaging ideas like a rise in the GST.
But the Coalition’s permanent deficit is very real and will haunt budgets for years to come. Labor might need a much wider conversation than one it is comfortable with.
A tax summit, anyone?
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