Simple? simple.
Australians will have to either pay more tax or expect poorer government services, the head of the Treasury has warned.
Dr Martin Parkinson told a post-budget function in Sydney the share of the economy devoted to tax had suffered its most dramatic slide since the 1950s.
“From its pre-crisis level of 23.7 per cent the tax-to-GDP ratio fell to 20.1 per cent in 2010-11,” he said. “This reflects both successive large cuts to personal income tax rates and a fundamental change in the relationship between the nominal economy and tax receipts.”
Weak tax collections were set to continue. Mining companies had become more economically important and paid less a low proportion of their profits in tax, around 5 to 10 percentage points less than for the corporate sector as a whole.
“Just to be clear, this is not a judgement about what the effective tax rate paid by mining companies should be, Dr Parkinson told the business economists. “It is simply a statement of fact.”
Non mining companies would soon need to take the place of miners in driving economic growth, but there was a risk the transition would “not be seamless”.
Right now their growth was “not much bigger than the recession of the early 1990s”.
Dr Parkinson's assessment came as the Fitch ratings agency endorsed Australia's AAA credit rating, describing the nation's public finances as “very strong”...
“We view Australia's public financial position as a source of strength,” the firm's global director of sovereign ratings Art Woo told investors in Sydney.
Its propriety measure of “general government debt” representing the amount owed by all levels of government came in at 26 per cent of gross domestic product. This was below Norway's and way below that of nations such as the United States which had general government debt of 100 per cent of GDP.
Dr Parkinson said Australia's weak tax take was colliding with growing expectations of government and the rapidly rising costs of healthcare and the aging population. Reforms to improve productivity would help to some extent and would be needed whichever party won the election.
“We have a big gap between what the community demands of government and what it is prepared to pay,” he told the business economists. “We have to think about savings or new sources of revenue.”
“I am not saying we have to find extra sources of tax. I have never said that. But we cannot just keep promising to spend more and more.”
“Long run our receipts bounce around at about 24 per cent of GDP. If we are to deliver surpluses over time such that we can deal with the demographic challenge we have got to keep outlays to 24 per cent or we have got to increase taxation. It's a mathematical truism.”
The Treasury secretary declined to be drawn on whether he whether he would support an increase in the goods and services tax.
Treasury will soon release its assessment of the 'structural' or 'underlying' budget position. Shadow treasurer Joe Hockey will make the structural deficit a key part of his address to the National Press Club on Wednesday arguing the budget position is weaker than it seems. He will again refuse to release detailed policy costings until the Treasury's updated pre-election fiscal outlook to be released during the campaign.
Dr Parkinson said the Treasury's views were those in the budget. If the pre-election outlook had been released on budget night it would have had exactly the same as the outlook in the budget.
In today's -Sydney Morning Herald and Age
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