Big Budget reallocation needed

Prime Minister Anthony Albanese has a problem. But it has some solutions. The problem is that even his modest agenda comes with costs. Further, Labor’s pre-election predilection to just agree with every spending increase and tax cut proposed by the Coalition makes the job that much harder.

Some of the costs – such as childcare, action on integrity, and an Indigenous voice – will pay off in the long run, but that does not help the present.

The forecast Budget deficit is $80 billion this financial year and $78 billion the following year. Gross debt is $888 billion and expected to rise to $1.2 trillion within three years. And the interest rate payable on it is rising.

Here are some suggestions for the medium term.

The first thing to do would be to abandon the Stage 3 tax cuts. They are manifestly unfair and hugely expensive. The Parliamentary Budget Office estimates that of the $184.2 billion they will cost in the first seven years, $137.9 billion is directed to Australians on $120,000 or more.

The $16 billion a year given away by these tax cuts for the rich is equivalent to the spending on the Pharmaceutical Benefits scheme and more than the spend on higher education.

Under Stage 3 someone on $200,000 would get a $9075 per year cut. When the Low and Middle Income Tax Offset (LMITO) cuts out at the end of 2022-23, Australians earning less than $90,000, including many on very low incomes will be paying $1500 more in tax.

Combined, 80 per cent of taxpayers will be worse off and the 20 per cent who are better off are high-income earners who do not need a tax break.

Bear in mind Stage 3 was legislated well before the election. Labor only agreed because it was wedged. Keeping Stage 3 was not a Labor election promise. No promise would be broken.

Labor should ask why should a demonstrably unjust hallmark policy of the Coalition be allowed to go ahead when the Coalition was so comprehensively rejected by the Australian people on 21 May?

As to the LMITO, Labor could keep it but reformat it and slightly increase it as an automatic tax deduction for work expenses above which the taxpayer would have to prove the deduction. It would wipe out the need for millions of taxpayers to do tax returns each year.

The new government could save billions by refusing to go ahead with any pork-barrelling infrastructure project unless it passed Infrastructure Australia guideliines. These test projects for value for money and puts projects in a priority list.

The disgraceful yielding to expensive National Party pet projects as the price for agreeing to Net Zero would be reversed.

In a way, doing this would be fulfilling Labor’s promise on integrity in government. The legislation that allows this corrupt, constitutionally dubious ministerial largesse should be repealed.

Then Labor could wind back all Federal fossil-fuel subsidies. These cost $10.5 billion in 2020-21 – a rise of $1.3 billion over the previous year and more than the Federal Government spends on public schools.

Again, why should hallmark Coalition policies be kept when it was comprehensively defeated and Australians showed they want climate action.

Action on three other big-ticket revenue-side items – negative gearing ($12 billion a year), dividend deductions ($7 billion a year) and capital-gains concessions (12 billion a year) – are more difficult because Labor ditched proposals to wind them in after the last election.

However, there is a precedent. Deductions for medical expenses not recovered from Medicare or insurance used to be tax deductible in Australia. Now they are not.

It was done subtly. Taxpayers initially kept their medical deduction, but it was limited to what was claimed the previous year. After a few years, the deduction was done away with.

There were very few squeals of outrage. It was a bit like slowly boiling a frog, rather than throwing it immediately into boiling water.

It could be done for negative gearing and dividends, probably for little political cost.

Capital gains is harder. But Labor could introduce an option for taxpayers. They would be allowed to spread the capital gain over, say, five years, provided they accepted the old rate of being taxed on 100 per cent of the gain with an allowance for inflation. After while the option would be for everyone and the 50 per cent discount abolished. Again, frog boiling.

Some of the $110 billion in superannuation concessions could also be wound back a bit.

All of these quite massive impositions on the Federal Budget have quietly and inexorably grown since the time of the Howard Government, and their extent and size is not widely known. In the meantime, spending on public health, aged care, the dole, public education, childcare, the arts, the ABC and SBS, and Indigenous affairs have been constantly squeezed.

Further, nearly all the benefit of these very big impositions go to the already well off. They often end up in passive investments such as shares and property which then give rise to more tax breaks. We have had 25 years of this spiralling inequality.

It is about time the bounty of this nation was redirected to more beneficial uses.

For half a century, women have been rightly demanding a fairer deal on childcare and an end to the prohibitive tax and care costs of going back to work after childbirth. Free childcare (with safeguards against overcharging and misuse) would make the nation more productive and enable us to draw fully on the talents of all our people.

Medical costs are now out of control, even for the fully insured. Medicare rebates could easily be lifted.

Public education is being starved while government money is being wasted on optional extras at private schools which do not need it because they already educate their students well.

It should not be a question of ramping up government spending to meet the aspirations that voters expressed on 21 May. It should only be a question of its reallocation.

Crispin Hull

This article first appeared in The Canberra Times and other Australian media on 31 May 2022.

3 thoughts on “Big Budget reallocation needed”

  1. I hope the at least one of the new cabinet ministers reads that and brings it to the attention of the others.

  2. Well done Crispin , you identify many opportunities for Labor to slice the pork. You left out tax cuts in the good times are an excuse not to spend on social benefits , because the coffers have been depleted.

  3. Nine print news Shane Wright published a piece on 14 May 2022 that the PBO had upgraded the cost of stage 3 tax cuts by 12.16% to $206.6 billion over 8 years 2024-2032. In new analysis for the Greens, the budget office now estimates the cost of the first year of the tax cuts at $17.7 billion. The July 2021 PBO distribution analysis presents great detailed analysis of just unfair and skewed to the top earners these tax cuts are.

    The PBO’s list of costings (link below) does not include this new costing. The most recent was 29 March 2022, before the election caretaker period commenced.

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