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Tuesday, October 11, 2016

You ain't done nothin' CEDA lashes Turnbull over deficit

Six months ago, the business-backed Committee for the Economic Development of Australia presented the Turnbull government with what it said was a clear and practical plan to return the budget to surplus.

There were five of them in fact, including different mixes of proposals such as better taxing superannuation contributions, halving the tax discount for capital gains, ending negative gearing, boosting taxes on luxury cars, alcohol and tobacco, and taxing the private health insurance rebate.

Although embraced by what CEDA chairman Paul McClintock calls the "commentariat", the response from the government and the opposition was "eerily quiet", what Mr McClintock calls "one of the quietest responses we have ever had to any CEDA report".

On Tuesday, six months on, he signalled that he would be making more noise, a change of tack for CEDA, which has in the past merely published reports and let others argue for them.

"There is, in our view, no believable end to the deficit in sight," Mr McClintock told the CEDA annual conference in Parliament House.

Whereas the CEDA balanced budget commission put forward savings that would amount to $17 billion by 2019, the so-called omnibus savings bill introduced as a result of the budget produced savings of just $6 billion over four years, most of which were spent again on measures including personal income tax cuts.

"They didn't make the case to say that substantial deficits are incredibly damaging to the country and they allowed the debate to drift. They are still totally inconsistent. After the election, the Prime Minister gave a speech to say this is the great moral dilemma of our time, and then for the next three weeks the subject wasn't mentioned.

"At least the Treasurer has now admitted that we have an earnings problem, in stark contrast to the previous assertions to the contrary, which was that you just have an expenditure problem."

Mr McClintock, a former cabinet secretary under John Howard, wants $15 billion of the $17 billion in annual savings to come from increased revenue.

"It's the only realistic way to balance the budget quickly," he told the conference. "The idea that you can quickly turn around the budget by savings not related to revenue, just defence or health or other things; our commission believed that to do that over the short term was not possible, and everything that's happened since tells me that judgment was correct."

Asked about the government's demonising of Labor proposals on negative gearing and capital gains tax similar to CEDA's, Mr McClintock said it was too easy to dismiss worthwhile proposals without saying what should be done instead.

How CEDA would save $17 billion per year

Option 1

  • Progressive superannuation contributions tax (15% discount)
  • Halve Capital Gains Tax discount
  • Cut fuel tax credit scheme by half
  • Raise taxes on luxury cars, alcohol and tobacco by 15%
  • Cut PBS drug subsidies
  • Cut budget assistance to industry by 10%

Option 2

  • Marginal tax on super contributions above $10,000
  • Halve Capital Gains Tax discount
  • Raise taxes on luxury cars, alcohol and tobacco by 20%
  • Cut private health insurance rebate by 25%
  • Higher education efficiency dividend

Option 3

  • Cut capital gains tax concession to 25%
  • Halve the fuel tax scheme
  • Raise taxes on luxury cars, alcohol and tobacco by 20%
  • Remove negative gearing on future purchases of assets
  • Remove tax exemption for private health insurance rebate
  • Cut public service headcount by 10,000

Option 4

  • Cut capital gains tax concession to 25%
  • Raise taxes on luxury cars, alcohol and tobacco by 20%
  • Remove tax exemption for private health insurance rebate
  • Cut industry tax concessions across the board by 25%
  • Increase petrol tax by 10 cents per litre
  • Lift capital gains on super fund earnings to 15%
  • Improve cost-effectiveness of medical treatments

Option 5

  • Cut work related tax deductions by $4 billion
  • Raise taxes on luxury cars, alcohol and tobacco by 20%
  • Remove tax exemption for private health insurance rebate
  • Cut capital gains tax concession to 40%, no grandfathering
  • Increase petrol tax by 10 cents per litre
  • Continue the Budget repair levy
  • Cut industry tax concessions across the board by 25%
  • Cut PBS drug subsidies
  • Cut budget assistance to industry by 10%

Source: Deficit to balance, report of the CEDA balanced budget commission, CEDA, March 2016

In The Age and Sydney Morning Herald