Let’s repair the budget once and for all

Tue, 16 May 2017  |  

This article first appeared on the Yahoo 7 Finance web page at this link: https://au.finance.yahoo.com/news/1187922-051601764.html 

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Let’s repair the budget once and for all

Let’s once and for all repair the budget and start on a path of lowering government debt by hiking taxes on luxury cars, wine, petrol, diesel, beer, spirits and so-called ‘other’ alcoholic beverages.

Not only will a decent lift in tax in these areas fix the budget, it will be good for the general health of the population (less alcohol consumed), it will help the environment (less driving and a switch to other means of transport) and in the case of luxury cars, it will be fair (taxing expensive cars).

It can work.

As the dust from the 2017 budget slowly settles, it is apparent that there is a moral and political advantage from selectively hiking taxes. There is strong support for the 20 per cent lift in the Medicare levy from 2.5 to 3 per cent; the bank tax is seen to be a claw-back of some of the support that government has previously given to the big four banks; while the tobacco excise tax impost (admittedly delivered over many years) is set to deliver nearly 3 per cent of all revenue to the government and people should stop smoking in any event.

As things stand, there is a problem in that even with this brazen tax grab from the Turnbull government, the budget deficit is still substantial and gross government debt is on track to exceed $600 billion within three years and then it will hit a stonking $725 billion (which will be around $55,000 per household) by 2026-27.

Let’s start from a budget fact that in the financial year 2020-21, the government will raise $15.2 billion from the tobacco excise tax. That is a lot of money from the 13 per cent of the population that smoke.

The luxury car tax in that year, will by way of comparison raise a puny $720 million even though sales of luxury car are already at a record and are set to growth further over the next few years.
So $15 billion from smokers and $0.7 billion from luxury cars?

Come on!

Let’s ratchet up the luxury car tax so that an extra $1.5 billion per annum (or more) is raised by 2020-21. Who could argue against a bit more tax on those horrid Porsche Cayenne’s? The money could be hypothecated against road funding and public transport infrastructure in the big cities even though it would simply flow through to the budget bottom line.

The wine equalisation tax will raise $1.02 billion in 2020-21. Wine is so cheap now that the cleanskins and goons are often cheaper than bottled water. Let’s address the health and other issues that alcohol consumption brings and ramp this up by $2 billion a year. No nickel and diming here. The case to ramp it even higher is strong.

The petrol, diesel and other fuel taxes will raise $21.5 billion in 2020-21. With global oil prices and therefore retail petrol prices so low, in fact lower than a decade ago, a hike in the excise rate that delivers and extra annual return of $3.5 billion by 2020-21 would add only a few cents a litre yet give a lot of extra money to be hypothecated against roads and road safety of some other existing cost. Easy.

Bundling the excise on beer, spirits and other alcoholic beverage together yields a tax take of $6.1 billion in 2020-21. How about doubling the various excise rates to yield an extra $6 billion and all of a sudden, the budget numbers are looking rosy, the population will wear it because the revenue is hypothecated against roads and health spending and the political cover is that there are good policies.

These items together, proposed this way, would raise a hefty $13 billion per annum to the budget bottom line. This would go a long way to locking in the surpluses which in turn would feed into a lowering in the level of government debt.

The revenue could also cover spending on education, universities, roads, hospitals and age care, all big ticket items that are growing at a rapid rate.

All of this is, of course, a bit tongue in cheek but it shows how the current budget has been framed and seemingly received. Either tax hikes on ‘bad things’ are good or if they are hypothecated against an item – disability insurance – no one will dare complain. Let’s do more of it while the mood is thus.

With neo-liberal economics all but dead, who’s to say a further round in tax hikes like the ones suggested are unlikely or undesirable? After all, who would have thought that the Liberal Party would be imposing a bank tax and further hike in the income taxes via the Medicare levy in the current budget when, just a few months ago, such things were all but impossible?

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What's ahead for the Australian economy and markets in 2020

Thu, 02 Jan 2020

What's ahead for the Australian economy and markets in 2020

Happy New Year!

2020 will be a year where Australia’s annual GDP will exceed $2 trillion, our population will get very close to 26 million people and we will clock up 29 years with no recession.

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2020 kicks off with relatively good news in terms of economic growth, even though the labour market is likely to remain weak, with wages growth struggling to lift and inflation remaining below the RBA’s 2 to 3 per cent target. The Reserve Bank may have one more interest rate cut in its kit bag, but by year end, the market is likely to price in interest rate increases, albeit modestly.

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