Addressing the Sydney Institute last night, Treasury Secretary Martin Parkinson detailed a gloomy budget outlook with no return to surplus within a decade unless changes are made to the goods and services tax (GST).
Dr Parkinson’s calculations backup those of the treasurer Joe Hockey and point to a May budget of “hard decisions”. Dr Parkinson said that a return to surplus must be underpinned by hard, individual policy decisions.
Dr Parkinson suggested that boosting or broadening the GST would be less damaging than other alternatives, but that there is little to no short-term benefit that could be highlighted to convince the general public of the merits of a tax hike.
Former Treasury head Ken Henry last month said that a rise in the GST rate is inevitable and that this rise will be seen as necessary to underpin the fiscal sustainability for the federal and state governments.
“It is widely known that the National Disability Insurance Scheme and school reform funding will add $3.1 billion and $2.8 billion to total spending over the forward estimates, with the net cost to the Commonwealth of the of the NDIS to be $11.3 billion per annum by 2023-24,” Dr Parkinson said.
“What is less well understood is that total Commonwealth expenditure on health is anticipated to rise from $64.7 billion in nominal terms to $116 billion in 2023-24.” Dr Parkinson said.
“Similarly, our three main pension payments – the aged pension, disability support pension and carers’ payment – grow at an annual rate of 6 per cent per annum in nominal terms over the forward estimates, adding around $13 billion to annual payments by 2016-17, and another $39 billion by 2023-24.” Dr Parkinson said.
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While Australia’s debt to GDP level is the third lowest of any OECD country, Australia’s fiscal sustainability and ability to return to surplus is hanging in the balance. Without direct action now, it is estimated that we could continue our current trend of year after year of budget’s with no surplus for a further 10 years.
Some of Australia’s smartest fiscal minds, Martin Parkinson and Ken Henry, have both pointed to the inevitability of a rise in the GST or a broadening of the tax. A rise in the GST is the least attractive option for any politician, with any tax related increase not linked to benefits for the individual in the community having serious negative effects on polling results and popularity.
Joe Hockey’s first federal budget is expected to be a pain in the hip pocket for every Australian with Mr Hockey declaring that the whole nation needs to do the heavy lifting. Mr Hockey has declared the ‘age of entitlement’ as over and has taken aim at Australia’s welfare system as an avenue to reducing government spending. Despite promises from Social Services Minister Kevin Andrews that the aged pension was safe from cuts, Joe Hockey has indicated that the pension could yet face a cut.
No matter how you paint it, the road ahead looks to be paved with hard decisions which would affect our nation’s future for better or for worse. Is Mr Hockey the correct person to be making these critical decisions about our nation’s future? Do you agree that a rise in the GST is the inevitable step to getting the nation back to surplus? Would you be able to survive if the aged pension rates were reduced?