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With an ageing population and increasing pressures on the budget, the revenue base needs an overhaul, says Tony Greco.
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‘Wholesale reform’ only route to sustainable tax system
15 August 2022
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Wholesale tax reform that makes the system fit for purpose and takes on board all the pressures on the federal budget is critical as Australia confronts a decade of deficits, said Tony Greco of the IPA.
Speaking on the latest Accountants Daily podcast, the general manager of technical policy said the incoming Treasurer had the benefit of a lower-than-expected budget deficit, which is forecast to be around $40 billion instead of the $80 billion predicted earlier this year, thanks to rising commodity prices and low unemployment.
“But once that fizzles out, those challenges remain,” he said.
“There’s going to be sustained pressure on the budget – NDIS, defence, aged care. The GDP forecast has been downgraded because interest rates are going up.
“The interest bill at 2.3 per cent … already that is under pressure in relation to the budget.
“By 2030, if we maintain these levels of debt and it doubles, which is quite foreseeable, we’re looking at $30 billion to $50 billion just on the interest bill.
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“Now, if you think of what $50 billion could buy, it’s a hell of an impost on the budget.”
Meanwhile Australia’s ageing population and lagging productivity were looming issues that remained unaddressed.
Early signs were that the October budget would see Labor living up to its promises but it was unclear whether tax concessions – effectively expenditure by another name – were on the table.
Mr Greco agreed with Treasury Secretary Steven Kennedy’s post-election assessment of the tax system that it was not fit for purpose and said “something’s got to give”.
“The tax base is unsustainable, it takes too much from wages and salary and companies. And that’s much, much higher than OECD averages,” he said.
“Only 47 per cent of consumption is caught by GST. It was supposed to be the growth tax, but because of all the exceptions it’s not doing the heavy lifting.
“Neither party took tax reform to the election so our take is that these pressures will play out.”
After four decades of a piecemeal approach, he said reform of the tax base was now critical.
“What we would like to see – I think most commentators in our space would like to see – is wholesale reform so we can broaden the tax base and move forward with something fit for purpose that takes into account all these pressures on the federal budget,” he said.
“That also includes looking at the federation model as well. With the states there’s a lot of duplication, there’s a lot of inefficiencies, so you’ve got to get that model right.
“Essentially, the states provide the services but they don’t have the taxing means to fund it. So side by side of a tax review should also be a review of federation to make sure that those inefficiencies and duplication of services, we fix that as well.”
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