Spending cuts won't restore budget: A lesson from the Treasury Secretary

ACOSS: 3 April 2014

The Australian Council of Social Service has called for action to close tax avoidance arrangements to ensure higher income and wealthy individuals pay their fair share, rather than looking to GST reform as the 'simple' solution to our revenue challenge.

"We need a wider public dialogue on what action the Federal Government should take to restore public revenue," said ACOSS CEO Dr Cassandra Goldie after last night's comments by Treasury Secretary Martin Parkinson on the Budget and tax reform.

"In our view, the work of the Henry Tax Review remains our best conversation starter," said Dr Goldie.

"Last night's comments by the Treasury Secretary make it clear that revenue is our biggest challenge. The Budget can’t be restored by cutting spending."

“What we need now is not a narrow and divisive debate over whether or not to raise the GST. We need a national discussion about what services governments should provide and how they can find the revenue to pay for it.”

“For ACOSS there are two core principles when it comes to taxation: that tax should be based on people’s ability to pay, and that those at the bottom of the income ladder should not bear the burden of balancing the budget, whether through spending cuts or higher taxes.”

Dr Goldie said public revenue would have to be restored if governments were to have any prospect of meeting the community’s basic needs for essential services such as health care and affordable housing, and provide a decent social security safety net.

“Tax reform will only be achieved if the wider community is brought into the discussion from the beginning and we have some agreement on what the problems are. It will not be achieved by attempting to impose a solution from above.”

“It’s clear the Government has a serious revenue problem, but two thirds of the budget problem was caused by weaker tax collections, not higher spending. Compared with the decade before the Global Financial Crisis, Federal Budget revenue has fallen by $45 billion a year in today’s dollars and spending has increased by $30 billion.”

“It is now clear that, as ACOSS warned at the time, the eight successive income tax cuts during the 2000s were unaffordable.”

“The tax base cannot be repaired simply by avoiding tax cuts for a decade and leaving income tax ‘bracket creep’ to do all of the work. We need to take a long hard look at the unfair superannuation tax arrangements which cost as much as the age pension, at the inconsistent way different kinds of investments are taxed - including negative gearing arrangements - and at the ability of people with high incomes to avoid tax using private trust and companies.

"This is a much bigger conversation than what to do with the GST. The Henry Report’s many recommendations to improve the fairness and efficiency of the income tax system should not be left to gather dust."