Plan to stop deficit pace

Ian Varrender

Let's get a couple of things straight here. Australia has a structural deficit problem that needs to be addressed. It is not a disaster. At least not yet. But the problem is getting worse and at a pace that is accelerating.

Fixing it requires leadership and initiative and at least the perception that the pain will be equally shared.

It also requires an understanding of where the problems lie. And unfortunately, this Government continually misses the mark on why our finances are deteriorating.

While the Prime Minister and Treasurer bang on about spending, and point the finger at the former government, it is a revenue shortfall that is the culprit. And it's been that way for years.

The Government's own budget paperstell the story.

Apart from the period in 2008/09 at the height of the financial crisis, spending during the Rudd and Gillard era as a proportion of GDP was on par with that of the Howard years. In 2012/13, spending was 24.1 per cent of GDP, a performance Howard beat only once in the new millennium.

Revenue, on the other hand, dropped sharply after the financial crisis as capital gains tax receipts plunged, corporate tax went backwards as earnings deteriorated and income tax cuts by Howard and Rudd took effect.

Despite all the bravado in opposition, including boasts that the budget would be in surplus in the first term of an Abbott Government, Hockey last week confided to his party colleagues the deficit may be permanent unless they pushed ahead with his austerity program.

You have to give him marks for persistence. But the alarming deterioration in the nation's finances have occurred on his watch. And it is completely out of his hands.

The recent plunge in commodity prices could wipe out an expected $40 billion over the next four years.

That will add to national debt and ballooning interest payments, which will further damage the budget.

A revenue crisis cannot be fixed by cost cutting alone. There now is an urgent need to tighten up the tax system and remove the loopholes that allow multinationals - including our homegrown ones - to shift billions around the globe to avoid tax obligations.

And if Abbott is serious about intergenerational theft, here's a neat little solution.

He could consider axing the $13 billion a year in superannuation sweeteners that accrue to wealthy older Australians.

And he could tighten up the negative gearing and capital gains tax exemptions that cost a further $7 billion each year.

That could go a long way towards repairing the budget. And it may just help deflate a property bubble that threatens to, at best, create a landlord class of inherited wealth and, at worst, forever lock future generations of Australians out of the housing market.