Increased spending on healthcare and defence could be met through a greater grab from the resource sector, without the need to raise income taxes, economist Ross Garnaut has told the Jobs and Skills Summit.
Garnaut’s comments, made to delegates over dinner on Thursday night, were followed on Friday by the Albanese government hinting that it may expand paid parental leave even as it ruled out tapping extra revenue from the booming mining sector.
On the morning of the second and final day of the summit in Canberra, Anthony Albanese told Nine’s Today, that his government was “going to have a look at paid parental leave”.
“We certainly would like to do more, but some of these issues, of course, are within the budget constraints which are there” including $1tn of “inherited debt”, the prime minister said. “It is a worthy idea and worthy of consideration.”
Garnaut, the former senior adviser to the Hawke Labor government during the 1983 Prices and Wages Accord, listed an extensive list of rising demands for public spending during his wide-ranging speech.
“Unlike western Europe and north-east Asia, Australia as a geographic entity has higher terms of trade when gas and coal prices rise,” he said. “But under current policies, average Australians are poorer.”
“We are kidding ourselves if we think no deep wounds will be left in our polity from high coal and gas, and therefore electricity prices, bringing record profits for companies, and substantially lower living standards to most Australians,” he said.
“The appropriate public policy response is mineral rent taxation and not pressures for higher wages.
“There are many opportunities for raising additional revenue in Australia while enhancing equity and improving or at least not damaging economic efficiency.”
The treasurer, Jim Chalmers, on Friday said Garnaut, now a professorial fellow at the University of Melbourne and an author of books on economic reform and clean energy opportunities, had “real standing in the economic community”.
“He made a lot of good points in that speech but I don’t propose to go down that path,” Chalmers told journalists outside the summit conference hall.
Albanese also dismissed a question on Today about whether the government would “bring back the mining tax”.
“No, that’s not on the agenda,” he said. “But it is a good thing that people are able to put forward ideas and Ross Garnaut, of course, is someone of great experience. He was Bob Hawke’s economic adviser during the last economic summit way back in 1983. Times have changed, of course.”
Major energy companies including Woodside Energy, Santos and Whitehaven Coal have seen their profits triple or more in their latest earning periods, prompting calls for a windfall profits tax or for jurisdictions to match Queensland’s move to increase new tiers to their royalty scheme.
Global energy prices have soared after Russia’s invasion of Ukraine in February.
Garnaut told the gathering that we should also “stop kidding ourselves” about the budget. Despite “immense budget challenges”, total Federal and State taxation revenue as a share of gross domestic product is 5.7 percentage points lower than the developed country average.
“We need unquestionably strong public finances to have low cost of capital, private and public, for our Superpower transformation [off fossil fuels to renewables], and to shield us from a disturbed international economy and geo-polity,” he said.
As the pandemic receded, the federal and most state governments were burdened with record levels of public debt and were posting “large deficits when our high terms of trade should be driving surpluses”, Garnaut said.
“Interest rates are rising on the eyewatering Commonwealth debt,” he said. “We talk about the most difficult geo-strategic environment since the 1940s requiring much higher defence expenditure, but not about higher taxes to pay for it.”
Pressure will likely worsen, too, as the population ages, with the ratio of those over-65 to the working age population set to rise by half over the next four decades.
Garnaut argued that economic conditions had changed since prior to the federal election. Back then, Treasury predicted real wages would decline by 3% in the two years to next June. Three months later, though, the projected decline has accelerated to 7%.
“The facts have changed, and we should be ready to change our minds,” he said.
