Much weaker than expected company tax collections have forced the government to embark on round of budget cuts, Treasurer Wayne Swan declaring this year’s May budget will be “in some ways the hardest of them all”.
The warning came as Treasury boss Martin Parkinson told a business audience tax collections had fallen four percentage points since the global financial crisis and were not expected to recover “for many years to come”.
“Indeed, for both levels of government surpluses are likely to remain at best razor-thin without deliberate efforts,” he told the Australia-Israel Chamber Of Commerce.
Mining companies were paying much less tax than expected, providing one fifth of all company profits but paying just one-tenth of all company tax, primarily because of depreciation deductions flowing from the investment boom.
Mr Swan yesterday committed himself to announce a budget surplus budget night no matter how weak the revenue, saying a surplus would send a “very clear message to the world that Australia is in good nick”.
Yesterday’s national accounts showed company tax revenue up 4.5 per cent over the first six months of the financial year. The May budget had forecast an increase of 29 per cent over the entire year, revised down in the November to an increase of 21 per cent.
Mr Swan said company tax collections were increasing, but “not consistent with where we expected them to be increasing to”.
"They are already down on what we had forecast, of that there is no doubt” he said.
Losses accumulated during the global financial were being used to cut current taxable revenue “impacting severely on revenues, and more severely than the Treasury had forecast”.
Asked to quantify the spending cuts or tax increases that would be needed to deliver the promised surplus Mr Swan said it was too early to say. He had no doubt state budgets were also weak...
The national accounts show the Western Australia and Queensland economies racing ahead while those of NSW and Victoria barely grow and South Australia and Tasmania go backwards.
State final demand in Western Australia and Queensland grew 11 and 10 per cent in the year to December. Demand in NSW and Victoria grew 2 and 1.6 per cent.
National economic growth of 0.4 per cent in the December quarter and 2.3 per cent over the year to December is well below the most recent Reserve Bank forecast and well below the long-term trend which Mr Swan defined yesterday as 3.25 per cent.
“It certainly does reflect patchiness in our economy and pretty rugged global economic conditions at the end of last year,” he said.
“There's no doubt these numbers will have a detrimental impact on our budget bottom line.”
“Having said all that, there is nothing in these numbers that deters the Government from bringing down a surplus in 2012-13, although obviously this makes that task more difficult. When you consider the very severe turbulence and weak global conditions that marked the final months of last year, the result is pretty solid in the circumstances.”
The government’s expenditure review committee, unofficially known as the “razor gang” has already started looking for cuts. One unknown is the extent of the damage caused by this month’s floods. Parts of NSW and Victoria are still under water.
Mr Parkinson said capital gains tax collections had been “hit hard” in the wake of the financial crisis. GST collections were suffering from more cautious household spending, and non-mining tax collections were suffering at the hands of the high dollar.
“With muted growth in tax receipts projected for much of the next decade, Australia will need significantly greater expenditure restraint in the decade ahead than was seen in the first half of the 2000s,” he said.
By 2050 Australia would have only 2.7 people of working age for every person aged 65 or over, down from 5 people today, making the task of collecting tax and the need for tax much greater.
In today's Sydney Morning Herald
Martin Parkinson Address to Australia-Israel Chamber of Commerce
. Victoria on brink of recession; South Australia, Tasmania already there - Tim Colebatch
. Long ago and oh so far away... the budget looked good
. Alright for some. The two Australias drift apart
. Don't treat fiscal policy as a morality play - IMF