Thursday, May 10, 2012

Future Treasurers won't thank Wayne Swan


In yesterday’s address to the National Press Club Wayne Swan spoke of the “future” five times. But the measures in his budget appear to store up more financial problems than they solve.

The centrepiece is as good an example as any other. The “spreading the benefits of the boom” payments to families and Australians on welfare will cost around $1 billion per year, each and every year in perpetuity. The boom itself will end when demand for Australia’s minerals fades but the payments will continue ad infinitum.

The National Disability Insurance Scheme will cost just as few hundred million per year in the start-up phase approved in the budget, but eventually the cost will climb to an estimated $6 billion per year. If Wayne Swan or Penny Wong had any idea how they would meet the costs that will flow from the process they have begun, they haven’t shared it.

Our 30 per cent company tax rate, unaltered as a result of the decisions in the budget, will cost more than $1 billion per year to cut for each percentage point we tackle. Ken Henry wanted it cut to 25 per cent. It’ll have to be cut soon because as international tax rates continue to fall it will stick out like a sore thumb. Swan and Wong have put off the first step and appear to have no advice to offer their successors about where to find the money.

As our population ages we will need to collect more tax rather than less. We will need to collect it from the shrinking proportion of the population that is working in order to fund services for the growing proportion that is not.

Just last September in a paper prepared for the tax summit Penny Wong said by the middle of the century we would need to find an 2.75 per cent of gross domestic product...

The number Australians aged over 65 is set to double by the middle of the century. Spending on aged care is set to quadruple.

The states will also need topping up as goods and services tax turns out to be anything but the “growth tax” John Howard promised when he made it their sole source of untied grants at the turn of the century.

South Australian Treasurer Jack Snelling said said yesterday his state was facing the largest drop in revenue in its history. GST takings had been revised down $1.3 billion over four years, other takings $1.5 billion. The total - $2.8 billion - is what the state spends on schools.

The problems made worse by some of the measures in the budget will probably not become urgent for five or more years. The mining boom will most likely to continue, the National Disability Insurance Scheme will build up slowly. But beyond that, future Treasurers might not be thanking Swan and Wong. They might be thinking they were reckless about the future financial consequences of their actions.

In today's Sydney Morning Herald and Age

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