This opinion article by Grant King was published in The Australian Financial Review on 17 May 2017.
Australia last recorded a budget surplus in 2007-08. Whenever surpluses have since been forecast they have not been achieved. Last week, the government again forecast a surplus in four years’ time.
On current projections, national net debt will peak at $375 billion in 2018-19. We all know that we can’t continue to run up deficits and increase national debt, unsustainably burdening our children and future generations.
Governments of all persuasions have agreed on the importance of achieving a surplus and starting to pay down debt. This has rightly been the aspiration of every budget since we went into deficit.
What differentiates this budget from previous ones is that we’ve let the proverbial genie out of the bottle by relying on tax increases to restore the budget. Having done so, we are already hearing calls from the opposition and others to further raise taxes. For example, there shouldn’t be any debate about who will pay for the bank levy; Australians will pay whether they are shareholders, customers or employees.
If this is the budget we had to have, it is because of the parliament that we have got. In its detail, this budget reveals that the only party with any prospect of delivering a surplus is business.
The projected return to surplus in 2020-21 relies heavily on stronger revenue growth, mainly tax, with revenue soaring to more than a quarter of GDP. At the same time, spending is projected to plateau at 25 per cent of GDP. Unless spending growth is contained, the level of tax required to balance the budget and sustainably deliver the safety net that genuinely disadvantaged Australians rely on would cripple Australian households and businesses.
This budget’s road to surplus is driven by forecast revenue increases of $128bn over the next four years, including $87bn from company and personal taxes. Company tax will contribute almost 20 per cent of tax revenue, exceeding its current share of 17 per cent.
Notwithstanding legislated reductions in the corporate tax rate, revenue from company tax is still increasing, something that can occur only through better terms of trade or increased business activity and competitiveness. The profitability of business is central to the delivery of the forecast growth in company tax.
Increased revenue from personal income tax is supported by the Medicare levy increase, and the balance comes from assumptions around wages and employment growth.
Successive budgets have forecast strong wages growth, which also has not materialised – a real issue for all working Australians.
Business is central to achieving the forecast increase in commonwealth revenue through increases in the total amount of corporate and personal taxes paid.
Business employs more than 80 per cent of working Australians. The only way for incomes to grow is for companies to pay people more. This is only sustainable through increased business productivity and profitability, both of which require business investment. New and increased business activity will contribute to the increased personal income tax forecast by government.
If parliament chooses the dangerous path of accepting only revenue growth to balance the budget, that leaves just two choices: continue increasing tax rates or introducing new taxes, or create the conditions to drive increased business activity and investment. But tax increases are not a real option as they discourage the business investment needed to drive increases in business activity, employment and real income growth.
Only if businesses have the confidence to expand, employ more Australians and pay them more, are we more likely to realise the budget forecasts.
Competition and new technology place constant pressure on businesses to perform. It is critical that we have the conditions that encourage and reward innovation in our existing businesses and encourage new ones.
We must ensure we have incentives and rewards in our economy for Australian businesses, large and small, to invest their time and capital in increasing business activity and improving productivity. The government’s full Enterprise Tax Plan remains the only serious plan on the table to boost investment and business activity through staged reductions to our increasingly uncompetitive company tax rate. Innovation and more flexible workplaces are essential.
If parliament will only pass a budget that relies heavily on revenue, then it sends all of the wrong signals: that innovation and effort will not be rewarded, that success will be taxed, that wealth will be shifted not created, and that as a consequence we will end up with exactly the opposite of what we want. What we want is a parliament that talks and acts on policies that will create an environment for growth and rewards aspiration.
Only through greater prosperity can we support the expenditure for the important services that the Australian community wants. But we must also spend wisely to ensure that younger Australians and future generations are not burdened with a debt that will limit their opportunities to live a more prosperous life.
Grant King is president of the Business Council of Australia