Going beyond instructions from Treasurer Wayne Swan that anything proposed at the summit should be revenue neutral, finance minister Penny Wong says in a paper prepared for delegates the government will be tens of billions of dollars short by 2050 unless it raises more.
The shortfall by the middle of the century should amount to 2.75 per cent of gross domestic product which by then will be around $3 trillion in today’s dollars. The $80 billion shortfall will be brought about by the relentless rise of pension payments which increase with male earnings, a doubling of the number of Australians aged over 65 and a quadrupling of aged care spending.
The finance minister’s calculations understate the need for more tax because they apply only to the Commonwealth, not to the states who will also need more revenue.
Many of the increased Commonwealth costs will be hard to avoid. Unless pensioners accept twice-yearly increases more in line with their living costs pension payments will climb from 2.7 per cent of GDP to 3.9 per cent over the next four decades... They are already the Commonwealth’s second-largest expenditure after grants to the states. Aged care spending is expected to climb from 0.8 per cent of GDP to 1.8 per cent.
The Commonwealth has agreed to lift its share of public hospital funding from 45 per cent to 50 per cent within the next decade. Population growth, aging and climbing private health insurance premiums will push up cumulative spending on the Private Health Insurance Rebate by $100 billion over the next four decades unless the parliament passes stalled means testing legislation.
The $6.5 billion per annum national disability insurance scheme agreed to by both sides of politics will add to funding pressures.
Discussion at the tax summit needed to be mindful of more than the government’s plan to return the budget to surplus, Ms Wong said in launching the paper.
“Any proposals for change need to be affordable and fully funded, not just in the next couple of years, but also into the future. Participants advocating tax cuts need to think about how those cuts will be funded.”
Minister Wong and the cabinet were briefed by Treasurer Wayne Swan on global economic developments yesterday in a call that took place at 2.00 am Washington time. Ahead of the briefing he told reporters in Washington the government remained determined to bring the Budget back to surplus in 2012-13 but that “commonsense says conditions have changed and that task gets more difficult because of global economic conditions”.
Ms Wong reiterated the government’s commitment to a surplus but said Australia was “not immune from what we are seeing globally”.
Published in today's SMH and Age
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