Budget structural reform without austerity
Recent Reports by Federal Treasury and the Parliamentary Budget Office affirm the Budget as structurally defective and this is now acknowledged by the Treasurer (and previously asserted by the Opposition).
The differences of opinion now are the causes and the remedies. I regard the Budget to be structurally defective when the community’s legitimate and desired levels of government expenditure on disability/aged care, education, health, transport, defence, natural disasters, countering Global Financial Crises, plus the NBN and other essential infrastructure, cannot be financed within the next foreseeable three years on the existing tax-revenue resources whilst simultaneously reducing government debt. To do so without risking downgrades to the Commonwealth and the States by rating agencies and inadequate national social welfare and economic prosperity, is impossible.
Needed remedies are firstly, better expenditure scrutiny and secondly, reversion to an earlier slender tax on the massive volume of mostly tax-free financial transactions which make up most of the Australian ‘economy’. There needs to be an expert body of engineers, statisticians etc to publish and apply scientific, consistent methods for the prioritisation of all major government expenditure, leaving final decisions to government as befits a democracy. This would reduce waste and opportunities for corruption, improve transparency and coordination with public authorities and the private sector.
Austerity is self-defeating. Raising the $10% Goods and Services Tax (GST) rate or extending GST into health, education etc would be retrograde and not assist the Commonwealth Budget. The GST is already an iniquitous tax. It directly impacts on employment, incentives, economic growth, imposes burdensome paperwork and collection costs to the million or so reluctant tax collectors, and causes hardship to lower income earners.
By contrast, a low rate of financial tax would only have indirect, dispersed and minimal effects compared with the corrosive GST which would be replaced in whole or part. As a rough tentative guide, a 1 cent % tax on debits to bank accounts for example, would yield around $15 billion per annum, 2 cents % tax would yield $30 billion pa, and even higher revenues on credits. Such taxes would divert funds from speculation to productive activities, increase jobs, and discourage international currency raiders.
These reforms would restore government Fiscal Policy from its structural impasse and enable it to effectively reform as the single instrument available to maintain and raise Australia’s employment, economic prosperity and wealth in the face of future national emergencies and disasters.
John McAuley, a member of ERA living in Sydney, is an economist and author of Capital and Wealth in Australia’s Post-War National Balance Sheets (Longman Cheshire,1989).
Editorial comment: This tax reform makes a lot of sense and has been advocated by ERA for many years. Note that some heterodox economists have argued that we don’t need to be too concerned about federal deficits and reducing federal government debt.