More tax, less spending to cut our deficit

Marnie Banger
(Australian Associated Press)


Australia’s next government will need to tax more and spend less to get the budget into shape, according to a leading think tank.

The Grattan Institute has expressed the sentiment in a comprehensive report on its ideas for policies that will improve Australians’ lives.

The organisation says the federal budget should be in a far better position at this stage of the election cycle, with Australia’s debt lower than comparable countries but at its highest level in recent history.

Such debt is a problem because governments pay interest on it, it limits their future borrowings and reduces their capacity to deal with economic shocks.

Australia’s deficit is also larger than the average among the 34 OECD countries.

The coalition government has not been following its own fiscal target to bank improvements to the budget bottom line, the Grattan Institute says.

Instead it has spent more than half of the extra revenue it has clawed in, including more company tax from higher commodity prices, on new spending or tax cuts.

The institute says continued revenue growth – including through taxes – and spending restraint will be needed in the coming years to keep the budget in the black and pay down debt.

“The government should not rely on historical rates of economic growth to do the heavy lifting on budget repair,” the think tank states in its Commonwealth Orange Book.

“To address the long-term structural budget challenges, the next Commonwealth government will need to both increase taxes and reduce spending.”

In order to improve Australia’s development, the next government has been urged to also enact economic reforms.

Reducing inefficiencies in the tax and transfer system, supporting competition in markets and improving the participation of women and older people in the workforce would make the biggest difference to the nation’s economic outcomes, the Grattan Institute argues.


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Categories: Tax