Raise taxes to fix budget, Treasury advises Labor in accidentally published advice

Australia Broadcast Center

17 hours ago

The Albanese government has been advised the budget cannot be fixed without raising taxes and cutting spending, and that its housing target is unachievable.
The ABC can reveal the advice, written by the independent Treasury and offered after Labor's re-election, warns the government's signature pledge to build 1.2 million homes over five years to address the housing crisis "will not be met".
That declaration was one of several subheadings in a table of contents accidentally included in Treasury's response to an ABC freedom of information (FOI) request.
Other subheadings reveal Treasury told Treasurer Jim Chalmers he would need to find "additional revenue and spending reductions" to meet his objective of a "sustainable" budget.
The materials do not elaborate on which taxes could be raised, but suggest that Treasury canvassed "indirect taxes" and superannuation tax as possible targets, and that it appeared to favour lower taxes on companies and personal incomes.
The department also briefed Mr Chalmers on its assessment of the consequences for Australia if there is a global loss of confidence in the US dollar or the independence of the US Federal Reserve, along with a framework for a crisis response in such a scenario.
The materials come from Treasury's "incoming government" brief to the department's ministers, including Mr Chalmers and Housing Minister Clare O'Neil.
Those briefs are routinely prepared by all departments during election campaigns, with no input or visibility from the ministers, and with an alternative version drafted for the opposition.
They include the department's advice about how to implement and add to each party's agenda, and its assessment of looming challenges.
Journalists can request the briefing given to the winning party through the FOI process, but often receive a heavily redacted copy, as was the case in this instance.
But the document emailed to the ABC mistakenly included headings and subheadings from the redacted sections, revealing sensitive elements of Treasury's briefing which the department did not want to make public.
Treasury asked that the document be deleted after realising the error, but the ABC has decided to publish it because it provides a rare insight into how top advisers view the major economic and policy challenges facing the Albanese government as it begins its second term in power, and so is in the public interest.
Steven Kennedy, who was Treasury secretary when the briefs were prepared, now leads the prime minister's department.
Treasury advised that "improvements to the budget will need to come from economic growth, additional revenue and spending reductions" and that "tax should be raised as part of broader tax reform".
Mr Chalmers has since declared an appetite for tax reform reaching beyond Labor's election platform, and will hold a roundtable in August with tax on the agenda, saying proposals should improve the budget bottom line, or at least be budget neutral.
The government also plans to double the earnings tax on super balances above $3 million. The reforms were introduced to parliament last term but are yet to be legislated amid debate about indexation of the threshold and whether the tax should capture "unrealised" gains in asset value.
Under the heading "opportunities to build on your agenda", Treasury gave advice about "building on" Labor's superannuation tax changes, but the heading does not reveal what was advised.
Other headings suggest Treasury favours lower taxes on individual and company incomes, advising on "rebalancing" personal income tax "to increase workforce participation and give workers a fair go", and "modernising" business tax to boost investment.
It suggests reform to "support budget repair", consistent with Labor's agenda, could be implemented through "the indirect tax system", a broad group of taxes including fuel excise, cigarette tax, state and territory stamp duty and land tax, and the GST.
The treasurer and prime minister have both fielded questions about whether they plan to raise GST through the roundtable process, both signalling reluctance but adding they are happy for contributors, including business, unions and experts, to raise any idea.
The department also advised Mr Chalmers and Ms O'Neil that the 1.2 million homes target "would not be met" and floated changing it, advising the government to "build on [its] agenda" by crafting a "coherent and well-prioritised" housing agenda.
There has been substantial public commentary about the viability of the target, with housing completions so far well off track, and the ministers have described the target as "ambitious" but maintained it can be met.
Ms O'Neil was presented with a range of options to support the construction of more housing, including using the migration and skills system to boost the construction workforce, and using its existing policy of grants to state and territories to better "leverage" them to boost building rates.
Treasury also briefed the minister on the "dysfunctional" funding model for the infrastructure that "enables" the construction of new housing, such as pipes and sewers, which was a key Coalition election policy.
It also identified "challenges" with the "responsiveness… capability… [and] speed" of key housing agency Housing Australia and suggests "steps to improve oversight and re-set the relationship with the CEO and Board" of the body.
The headings did not name any specific issues with the agency or explicitly state that there were any, but suggested a "review".
The materials also reveal Treasury has modelled a variety of world crises originating in the United States, appearing to suggest concern about the actions of the Trump administration.
"The global economic outlook has rapidly deteriorated, with implications for Australia," the department advised Mr Chalmers.
Treasury presented scenarios including a loss of confidence in the US dollar as the global reserve currency and the independence of its central bank, the Federal Reserve.
The headings do not reveal the details or assessments about the likelihood of these scenarios, which range from a milder "escalating tariff scenario" to more serious "financial disruption" and "worst case" scenarios.
The financial disruption scenario includes an increase in US sovereign risk — the interest charged on US government borrowing, reflecting the market's assessment of the safety of the dollar — of two percentage points, proposing a tiered Australian response in the event of a "severe downturn".
US President Donald Trump has repeatedly insulted Fed chair Jerome Powell and vowed to replace him with someone who will cut interest rates when his term expires this year.
Treasury officials have previously discussed their assessment of the consequences of a trade war and warned of the risks of broader financial uncertainty, and Mr Chalmers released some trade-related modelling during the election campaign.
That modelling found only modest impact on the Australian economy from a trade war.
Treasury's modelling of more serious scenarios was accompanied by a proposed "framework" for a stimulus response, including "direct support" (e.g. cash payments) and "liquidity support" to calm financial markets — a similar response to those used during the 2008-09 Global Financial Crisis.
A spokesperson for Mr Chalmers said the government would not "go into the detail" of Treasury's briefings.
"Of course Treasury provides advice for incoming governments … We've already made it clear we'll need to do more to meet our housing goals and make our economy more productive and our budget sustainable," the spokesperson said.
"These issues were a focus of the treasurer's recent address to the National Press Club and we will grapple with some of them at the upcoming roundtable."
Mr Chalmers has also repeatedly highlighted global volatility as an economic risk, including in the context of the Trump administration's trade restrictions.
"The uncertainty, volatility and unpredictability in the global environment I think will be the biggest influence that will shape and constrain the government's choices in this term," he said in an interview on Sky News on Sunday.