The Mid-Year Economic and Fiscal Outlook (MYEFO) released today confirms that government spending remains at a similar level to the 2009 stimulus budget.
“In the 2015-16 budget, Treasurer Hockey argued that budget repair was on track. Today’s update shows that the task of repairing the budget hasn’t even started,” Centre for Independent Studies economist Simon Cowan says.
“In 2009 at the height of the GFC when Kevin Rudd handed down his stimulus budget, spending as a percentage of GDP was 26%, today, assuming all the measures are passed by the senate, it is 25.9%.”
“The budget remains $37 billion in deficit and is not predicted to go back into balance this decade. That is not good enough, the government needs to lay out its plan to fix the nation’s finances in time for next year’s election.”
“As each budget and update confirms that a rapid return to strong economic growth is an illusion and the return to surplus pushes further and further out it is time the government got serious about expenditure reform.”
“Instead one of the biggest savings in MYEFO are welfare integrity measures, saving $2 billion over the forward estimates. If these savings don’t arise then the budget will be in even worse shape.”
“Between 2002-03 and 2007-08 spending averaged less than 24% of GDP. If we could return to that level the budget would be in balance now. Hoping instead for a boost in revenue to solve our problems is a pipe dream”.
“Australia has real economic problems to confront, economic growth is being revised downwards while investment and wages growth stagnates. It is hard to see this turning around in just 2 years.”
Fellow CIS economist Michael Potter noted that the budget update (or MYEFO) slashed growth forecasts, but still expects tax to increase as a share of the economy from 22.8% of GDP currently to 23.6% in three years’ time. “While tax revenue has been revised down in dollar terms, tax is still growing much faster than the economy. So much for the argument that Australia has a tax revenue problem.” Mr Potter says
He adds that the tax increase is not justified. “Tax as a share of the economy is about equal to the 30- and 40-year averages and there is no need for tax to go above these averages. And yet that is what Australian taxpayers will be facing if nothing is done.”
The proposals on the table for tax reform do little to stimulate growth and simply add to the tax burden on ordinary Australians, Mr Potter says.
“There will always be demands on governments to raise more money to spend on new programs. What we need is the government to take tough decisions to control spending in areas such as health, welfare and education,” he says.