John Fraser’s speech yesterday as Secretary to the Treasury, is significant because it does highlight some of the key issues driving future economic outcomes, and even our credit rating.
“The clear message is that we cannot rely on any cyclical bounce to reduce outlays as a percentage of GDP or, for that matter, the deficit. We are not in a crisis. But the Budget is rightly a focus of attention”.
“We have a structural budget problem that arose before the global financial crisis. A very substantial amount of the revenue windfall was used to lock-in long-term spending commitments”.
“Much of the deterioration in the budget position has been the result of revenue collections falling short of forecasts as we experience the flipside of the mining investment boom”.
“As a result, at 25.9 per cent of GDP, spending in 2015 16 is forecast to be close to the post-GFC peak, and could have been higher were it not for the measures taken by the Government in MYEFO”.”The Commonwealth’s interest bill has reached over a billion dollars a month. This is projected to more than double within the decade, unless action is taken to improve our budgetary position”.
“The Commonwealth achieving surpluses means that the States can run small overall deficits that they can use to finance productive infrastructure investment. This was a key conclusion of the 1993 National Savings Report commissioned by the then Treasurer, John Dawkins. In my view, this is still a sound framework for thinking about fiscal policy today. The rising structural deficits and debt give rise to intergenerational issues”.
“Around two-thirds of Commonwealth public debt is held by non-resident investors. This share has risen since 2009 and remains historically high. This, if anything, leaves Australia’s fiscal position a little more exposed to shocks in global capital markets”.
“It’s important that Australia maintain its top credit ratings, which helps to contain the costs associated with servicing public debt. Australia is one of only ten countries with a triple A credit rating from all three of the major rating agencies, reflecting our reputation for fiscal prudence”.
“But there have also been a number of policy decisions over recent years that have pushed the ratio higher: including increasing base pensions and supplementary payments, increased Defence operations and border protection spending, expenditure related to the carbon compensation package and the outcomes of negotiations around the repeal of the Minerals Resource Rent Tax. And the Government continues to face spending pressures”.
“There are many worthwhile spending programs and, every year, there are more good ideas than government resources to support them. There is also often, a mismatch between what the community expects the government to support and what they are prepared to pay for either in tax or in user charges. In framing budgets, we are really asking ourselves now and in the longer term what sort of society we want to have”.
“The ageing of Australia’s population will weigh heavily on Australia’s potential growth rate and long-term fiscal position. Demographic and broader medium-term pressures will place greater demands on government finances, making deficit and debt reduction more difficult”.
“Structural reform is critical and this includes reforming competition policy and implementing the Harper Review recomendations”.
“Improving productivity is a far more sustainable way to boost economic growth than relying unduly on an exchange rate depreciation”.
“These growth-enhancing policies also very much include tax reform. Tax is not just about raising revenue, it is also about helping to shape the economy so that we attract and deploy resources in a manner to promote long term growth. The arguments for a tax mix switch rest heavily on encouraging more jobs through a higher growth path. Tax reform is a complex issue and is very much the focus of the Government at the current time”.
I read this with despair, if this was the 1950’s I’d concur with some valid arguments, it’s not we’re about to be hit by massive tech driven deflation and no one in Canberra can see it coming whilst ironically Canberra is driving the change.
Did you know the ATO ordered over 20 new tax offices to be built around the country and before these are even completed the ATO will have gone so far done the “digitising”, as they call it, track that no one working for the ATO will ever see the buildings?