Friday, August 17, 2012

More tax, new taxes - Treasury prepares the way

Treasury boss Martin Parkinson has raised the prospect of new taxes on presently-untaxed activities, saying the days of big budget surpluses are gone forever.

In a sombre assessment of Australia’s tax position - the second in a fortnight from a senior Treasury official - Dr Parkinson told a corporate audience in Brisbane Australia would soon be unable to meet demands for new government spending from its existing taxes.

“These are expected to deliver less revenue as a proportion of GDP, given capital and labour will become more mobile and the costs of securing that revenue will increase,” he told the Committee for the Economic Development of Australia.

“In addition, greater use of the tax bases we currently rely most heavily on - personal and corporate income tax - can adversely impact on productivity, participation and investment if not designed well.”

The Treasury Secretary's warning against attempting to squeeze more out of existing taxes did not extend the goods and services tax.

Earlier this month Rob Heferen, head of Treasury’s revenue group, told a Canberra audience Australia undertaxed the consumption of goods and services compared to other developed nations but said “a sustainable rebalancing” would need to gain community acceptance.

Dr Parkinson told CEDA in Brisbane that “with hindsight” it was apparent the Howard government’s run of surpluses during the mid-2000s were the result of “a temporary bubble”...

Australia’s terms of trade have since peaked and economic activity is shifting into forms that can not be as easily taxed.

“The takeout message is that the days of large surpluses being delivered by buoyant tax receipts are behind us,” he said.

“While economic activity rebounded quite quickly after the global financial crisis, tax receipts are expected to remain substantially lower - around $20 billion per annum lower at the Commonwealth level alone - than pre-crisis projections.”

This was happening at a time when rising incomes propelled Australians to demand more of government. So called “superior goods” such as health, disability care and education were rising were becoming more important. The aging of the population would only exacerbate the pressures.

“We will not be able to meet these demands for new spending by increasing the efficiency and effectiveness of existing government spending alone, although this is important in its own right,” Dr Parkinson said. “Nor can we rely solely on our existing tax bases.”

“What will be required to meet the community's demand for new spending will be more revenue or significant savings in other areas.”

“In short, the public will need to make thoughtful decisions about what it wants government to provide, and how it expects these things will be provided.”

Dr Parkinson said his own department was already attempting to do more with less.

“As with a number of other agencies, we have already started the process of downsizing. Indeed, we are reducing staff numbers by over 20 per cent by mid 2014, a reduction that some business stakeholders are already noticing,” he said.

Treasury has commissioned a panel of outside experts to review the quality of its macroeconomic and revenue forecasts.

In today's Sydney Morning Herald and Age

Related Posts

. How Australia compares on tax, graphically

. Wong's blunt message: We need more tax

. We need more tax. Penny Wong didn’t tell the half of it.