For all its rhetorical emphasis on expenditure restraint, the 2014-15 budget in fact relies heavily on revenue to reach approximate balance in four years' time. Total annual revenue is up by a very robust 29% over those four years. This largely takes the form of automatic revenue growth (including personal income tax bracket creep) which always occurs when the economy is growing.
However revenue is set to grow faster than the economy, thereby lifting its share from 23% to 25%, a level that has not been exceeded since the boom years of the 'noughties' (and even then not by much). The fiscal experts who keep telling us the budget is in strife because there isn't enough revenue should throw away their song-sheet.
As well as raking in strong automatic revenue growth, the government has chosen to put some icing on its cake by hiking the top marginal rate of personal income tax and reinstating indexation of fuel excise for inflation.
Such measures will make about one-quarter of the deficit-shrinking discretionary policy effort (as distinct from the automatic revenue and expenditure changes) over the next four years – and less by the end, if the income tax hike is indeed only temporary as claimed.
While this makes a welcome change from the previous government's heavier emphasis on revenue measures, it is still disappointing that the current government has seen fit to resort to increased revenue to the extent it has. The more a government relies on tax increases, the more it is telling us it wants to sustain big government rather than reduce it.
The revenue-boosting measures are ad hoc rather than anything that deserves to be called 'reform'. The hike in the top income tax rate, in particular, reverses some of the decades-long downward trend in marginal rates. It will ratchet up the incentive for high earners to hone their tax-minimisation skills, and ratchet down the incentive for them to do more productive things.
While much of the talk about broken promises is sanctimonious, in tax matters the government should have stuck to its pre-election script and left any changes until after its tax system review.
Robert Carling is a Senior Fellow at The Centre for Independent Studies.
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Revenue to the rescue
However revenue is set to grow faster than the economy, thereby lifting its share from 23% to 25%, a level that has not been exceeded since the boom years of the 'noughties' (and even then not by much). The fiscal experts who keep telling us the budget is in strife because there isn't enough revenue should throw away their song-sheet.
As well as raking in strong automatic revenue growth, the government has chosen to put some icing on its cake by hiking the top marginal rate of personal income tax and reinstating indexation of fuel excise for inflation.
Such measures will make about one-quarter of the deficit-shrinking discretionary policy effort (as distinct from the automatic revenue and expenditure changes) over the next four years – and less by the end, if the income tax hike is indeed only temporary as claimed.
While this makes a welcome change from the previous government's heavier emphasis on revenue measures, it is still disappointing that the current government has seen fit to resort to increased revenue to the extent it has. The more a government relies on tax increases, the more it is telling us it wants to sustain big government rather than reduce it.
The revenue-boosting measures are ad hoc rather than anything that deserves to be called 'reform'. The hike in the top income tax rate, in particular, reverses some of the decades-long downward trend in marginal rates. It will ratchet up the incentive for high earners to hone their tax-minimisation skills, and ratchet down the incentive for them to do more productive things.
While much of the talk about broken promises is sanctimonious, in tax matters the government should have stuck to its pre-election script and left any changes until after its tax system review.
Robert Carling is a Senior Fellow at The Centre for Independent Studies.
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