Treasurer Joe Hockey announced this week that he would like to promise tax cuts at the next federal election. Economists have been quick to react in issuing warnings to the Abbott Government, suggesting that taxes should not be cut until the budget returns to surplus or more revenue is raised.
John Daley from the Grattan Institute believes that without serious proposals to increase revenues, the budget could be put under more strain. Mr Daley also believes that without these new sources of revenue, the tax cuts would need to be funded by future surpluses.
Mr Daley noted that achieving a budget surplus by 2018–19 looks “extremely unlikely” and that further cuts to funds for state schools and hospitals would be the only way the government could cut taxes without negatively affecting the budget.
“The test for tax cuts should be not that we might be in surplus sometime in the distant future but that we are in surplus in the current budget year,” said Mr Daley.
Mr Daley’s comments were also reinforced by former Reserve Bank board member Warwick McKibbin who warned that it wasn’t a good idea to pursue tax cuts if those cuts would expand the deficit.
Read more at Sydney Morning Herald.
Australia’s budget deficit and financial troubles compared with other OECD countries may just be a drop in the ocean, but according to financial modelling carried out by PricewaterhouseCoopers, federal government debt is expected to reach $1 trillion by 2037 unless urgent action is taken to fix the federal budget.
Australia may be at the lower end of the debt to GDP ratio by country, but a 2014 IMF survey of 17 OECD nations showed Australia’s growth in net debt is the third highest of those nations surveyed.
Treasurer Joe Hockey has shown his true colours this week in suggesting the promise of a tax cut at the next federal election. It’s time to stop playing politics and to focus on building an economically sustainable Australia for the present and for the future.
What do you think? Is it reckless of Joe Hockey to announce his wish to promise tax cuts at the next election? Or is this a tactic you have come to expect of every treasurer heading into an election?