The moment Turnbull took over as Prime Minister, I wrote that his biggest challenge was getting the budget back in order, particularly in respect of the serious spending problem that we have.
To cut a long story short, there is already enough revenue – it’s been increasing every year for the last six years and is projected to continue increasing at a healthy rate (although it looks like this year’s increase won’t be quite as healthy as predicted):
The problem is that there is nowhere near enough revenue to meet the wasteful and unproductive spending we have in the budget (if you haven’t done so already, I highly recommend reading my three part special on where the money went).
In summary, the 2015-16 budget has expected income of about $398 billion and spending of about $434 billion (i.e. a $36 billion deficit). On the spending side, the big ticket items are:
- Welfare – $154 billion
- Health – $69 billion
- Education – $32 billion
- Defence – $26 billion
- Interest on debt – $15.6 billion
These items account for around 68% of all spending.
Spending is the key
Have another look at the red line in the above graph and tell me that spending isn’t completely out of control.
Unless the situation is brought back into line, our taxes will continue to be wasted on paying interest on debt and our economy and lifestyles will continue to struggle (put your hand up if your salary has been frozen for the last year or two or not increased by enough to counter inflation).
The answer isn’t to try and grab more tax. It won’t raise enough money and will only discourage people from taking business risk – for the obvious reason that there is not enough reward at the end of the tunnel. If people refuse to take any business risk, then that’s less jobs and income for everyone else.
Increasing the GST makes some sense as a separate conversation topic. However, it can’t and won’t fix the budget. While it’s claimed that it would bring in around $20-25 billion in revenue, that’s before you factor in the corresponding income tax compensation to low income earners and the amount that the States would grab out of the pie (which could end up eating up almost the entire amount).
As for increasing tax on super contributions, this has to be one of the most idiotic suggestions yet. The whole point of super is to decrease people’s reliance on aged welfare (which currently amounts to $60.7 billion of spending annually – 1 in every 7 dollars spent by the government). The more you tax super, the more people will rely on welfare in their retirement. Given that our population is ageing and that around 80% of retirees receive a part or full pension, this is something we can ill afford.
Turnbull needs to pull his finger out and make some real budget decisions. Unfortunately, it’s obvious that he has no immediate intention of doing so (particularly as the final deficit is likely end up worse than the $36 billion budgeted for). In fact, his only strategy appears to be riding his honeymoon wave as long as possible. Given this, I’d be very surprised if he got to the next budget in May 2016 without having called an early election beforehand.