Before the election, the business press was terribly concerned about the decade of budget deficits and ever-rising public debt the Albanese government had clocked up. Something must be done! After the election, however, when the government pressed on with a move to save up to $3 billion a year by making rich men pay more tax on their superannuation, it was appalled. The sky would fall.
What the two contradictory positions have in common was that both are criticisms of a government few of its business readers would have much sympathy for. But the episode also shows the way voters’ attitudes towards the budget abound in wishful thinking – something the pollies encourage. “You want more, but don’t want to pay for it? Sure, I can do that.”
In Treasury secretary Dr Steven Kennedy’s speech to the Australian Business Economists last week, he showed a graph of the budget’s “structural” deficit stretching all the way out to 2035-36. (The structural component of the budget balance is the bit that’s left after you’ve allowed for the effect on the balance of where we happen to be in the business cycle of boom and bust.)
The structural deficit for next financial year is estimated to be 1.5 per cent of gross domestic product. Kennedy noted that spending on the National Disability Insurance Scheme is expected to reach more than our spending on defence. But he reminded us that (thanks mainly to our good friend Mad King Donald) defence spending is likely to grow a lot in coming years.
And that’s just the feds. The combined state and territory budget deficits are likely to be 1.8 per cent of GDP in the financial year just ending – which is 1.5 percentage points higher than their pre-pandemic long-run average, Kennedy said.
So the states have been really going at it, with their combined debt at the end of this month expected to reach 18.9 per cent of GDP, its highest in the 30-plus years they’ve had control over their own finances.
And yet politicians, federal and state, persist in running election campaigns where they promise bigger and better spending on this, that and the other, without any mention of how it will have to be paid for.
Worse, no matter how much they’ve promised, the Liberals always claim that their taxes will be lower than Labor’s, without this having any effect on their spending on “essential services”. (Perhaps this boils down to a promise not to rely on bracket creep – the “secret tax of inflation” – quite as much as Labor does.)
What the pollies never tell us is that, if you want it, it will cost you. But one woman who is game to tell us what the politicians aren’t is Aruna Sathanapally, boss of the Grattan Institute. In a speech a year ago she told the unvarnished truth: our governments are “not raising enough revenue for what we spend”.
No one wants to pay more tax. And the richest of us protest more and fight hardest when asked to cough up a little more. I meet people who tell me we’re already overtaxed.
Nonsense. “We are a relatively low-tax country with high service expectations. Pre-COVID, Australia was eighth-lowest ranked country in the Organisation for Economic Co-operation and Development for tax collections relative to our country’s size, five percentage points lower than the OECD average,” Sathanapally says.
“Yet, Australians expect high-quality healthcare, aged care, and disability care, among many other things. Like other rich nations, government spending has grown as a share of the economy, particularly in recent decades.
“But our tax base is going in the opposite direction: narrowing as the population ages with the growing cost of tax concessions.
“This leaves a structural gap,” Sathanapally says. “You can tackle the structural problem by reducing spending, increasing revenue, and by growing the economy.
“Growing the economy is the easiest solution to sell, but it is the hardest to achieve in practice. Australia, like other advanced economies, is expecting slower economic growth over the next 40 years than we’ve had over the past 40 years. Even if productivity growth exceeds expectations, it is still unlikely to close the structural gap.
“As a relatively low-tax country, we can afford to raise more revenue, but of course there are better and worse ways to do this. Broadening the tax base and reducing tax concessions tend to be much less economically damaging than simply raising the headline rates of tax.
“Australia’s tax mix asks workers and companies to shoulder most of the burden, while offering substantial concessions for wealth. Wealth in housing and superannuation gets particularly generous treatment.”
“Take superannuation tax breaks for example. They cost the budget almost $45 billion a year and are projected to cost more than the age pension by 2036. These tax breaks predominantly benefit the top 20 per cent of income earners, so they do little to actually reduce age pension spending.
“Meanwhile the combination of capital gains tax breaks and negative gearing encourages speculation in the housing market in place of other more productive uses of funds,” she says.
We know how hard politically governments find it to fix these problems, “but frankly, we are sitting on a wretched generational bargain, and it has gone on for long enough.
“Young people today already face the prospect of weaker wage growth, higher hurdles to owning a home [or more likely, a lifetime of renting] and a future shaped increasingly by extreme weather and natural disasters.
“Yet, we ask our young people – our children and grandchildren – to contribute more towards supporting older generations than our older generations ever contributed when they were of working age,” she concluded.
Phew. It’s not often people in public life say things of so frank, so honest, so disinterested good sense that I want to quote them at such length.
Next, why doesn’t the business press write a desk-thumping editorial explaining how Sathanapally got it all so badly wrong.
