Let's stop kidding ourselves. Taxes will have to go up

Sydney Morning Herald

2 days ago

Before the election, the business press was terribly concerned about the decade of budget deficits and ever-rising public debt the Albanese government had clocked up. Something must be done! After the election, however, when the government pressed on with a move to save up to $3 billion a year by making rich men pay more tax on their superannuation, it was appalled. The sky would fall.
What the two contradictory positions have in common was that both are criticisms of a government few of its business readers would have much sympathy for. But the episode also shows the way voters' attitudes towards the budget abound in wishful thinking – something the pollies encourage. 'You want more, but don't want to pay for it? Sure, I can do that.'
In Treasury secretary Dr Steven Kennedy's speech to the Australian Business Economists last week, he showed a graph of the budget's 'structural' deficit stretching all the way out to 2035-36. (The structural component of the budget balance is the bit that's left after you've allowed for the effect on the balance of where we happen to be in the business cycle of boom and bust.)
The structural deficit for next financial year is estimated to be 1.5 per cent of gross domestic product. Kennedy noted that spending on the National Disability Insurance Scheme is expected to reach more than our spending on defence. But he reminded us that (thanks mainly to our good friend Mad King Donald) defence spending is likely to grow a lot in coming years.
And that's just the feds. The combined state and territory budget deficits are likely to be 1.8 per cent of GDP in the financial year just ending – which is 1.5 percentage points higher than their pre-pandemic long-run average, Kennedy said.
So the states have been really going at it, with their combined debt at the end of this month expected to reach 18.9 per cent of GDP, its highest in the 30-plus years they've had control over their own finances.
'We are sitting on a wretched generational bargain, and it has gone on for long enough.'
Aruna Sathanapally, Grattan Institute
And yet politicians, federal and state, persist in running election campaigns where they promise bigger and better spending on this, that and the other, without any mention of how it will have to be paid for.
Worse, no matter how much they've promised, the Liberals always claim that their taxes will be lower than Labor's, without this having any effect on their spending on 'essential services'. (Perhaps this boils down to a promise not to rely on bracket creep – the 'secret tax of inflation' – quite as much as Labor does.)