Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Here�s how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.


 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate

Subscribe!
Subscribe





On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.
___________

Syndicate
RSS/XML


RSS 2.0

Australia has a budget policy credibility deficit

By Geoff Carmody - posted Friday, 22 March 2013


The slowing economic cycle revealed in the national accounts also exposes Australia's structural Budget situation as poor.

There are several estimates from reputable sources that put Australia's structural Budget deficit at around 2% to 3% of GDP per annum ($30 to $45 billion). Some sources suggest this structural deficit will persist indefinitely, or, more likely, get worse, under current policy settings. With the Federal Election campaign auction now under way, we are getting big-ticket long term spending promises, adding to NDIS, Gonski, etc., that will substantially increase it.

We have a structural Budget policy credibility deficit. A credible path to eliminate both structural deficits is needed.

Advertisement

The Government claims the deterioration due to downside revenue surprises is structural when it's cyclical. There's 'kite flying' to test possible new structural revenue measures to plug the gap, rather than shaving spending to meet more realistic longer-term revenue prospects. This mis-diagnosis of the problem hampers appropriate policy responses.

Coming back to our declining incomes driven largely by falling terms of trade, the revenue 'mix' in the Budget makes things worse too. The Government has increased reliance on more volatile taxes, especially income/profits taxes, to over 73% of total tax revenue, despite declines in expected revenue from such taxes.

This makes the Budget bottom line more volatile, and revenue forecasting more difficult. Meanwhile, nominal consumption spending – the tax base for the GST – increased by about 5% in the year to the December quarter of 2012, over 2.6 times as much as nominal GDP. Revenue volatility would be reduced by broadening the GST tax base and increasing its rate to finance income tax cuts.

But this is off the agenda. Australia's 'twin deficits', fiscal policy credibility and Budget, seem set to remain for a while yet.

· Geoff Carmody is Director, Geoff Carmody & Associates, a co-founder of Access Economics, and before that was a senior officer in the Commonwealth Treasury.

  1. Pages:
  2. 1
  3. Page 2
  4. All

A shorter version of this article was published in the Australian Financial Review.



Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

7 posts so far.

Share this:
reddit this reddit thisbookmark with del.icio.us Del.icio.usdigg thisseed newsvineSeed NewsvineStumbleUpon StumbleUponsubmit to propellerkwoff it

About the Author

Geoff Carmody is Director, Geoff Carmody & Associates, a former co-founder of Access Economics, and before that was a senior officer in the Commonwealth Treasury. He favours a national consumption-based climate policy, preferably using a carbon tax to put a price on carbon. He has prepared papers entitled Effective climate change policy: the seven Cs. Paper #1: Some design principles for evaluating greenhouse gas abatement policies. Paper #2: Implementing design principles for effective climate change policy. Paper #3: ETS or carbon tax?

Other articles by this Author

All articles by Geoff Carmody

Creative Commons LicenseThis work is licensed under a Creative Commons License.

Article Tools
Comment 7 comments
Print Printable version
Subscribe Subscribe
Email Email a friend
Advertisement

About Us Search Discuss Feedback Legals Privacy