Tax Cuts Sound Great, But If ScoMo's Numbers Are Off, Expect Big Problems
In this election, there has been a lot of talk about tax.
The Government is offering unprecedented income tax cuts, which will cost more than $35 billion a year in foregone revenue when fully in place in 2025.
The Opposition is offering more modest income tax cuts, while reducing the cost of higher-end tax concessions such as negative gearing, private trusts and ‘franking credits’.
As the community tries to understand the choices and trade-offs, a few facts are important to recall.
Firstly, let's remember why we collect tax.
Taxes are the way we get to do good things together -- universal health care, infrastructure, education, social security, services and support for people who are struggling. Taxes are the way we look out for each other as a country, and share in the good things we all need.
Secondly, we have one of the lowest tax bases -- eighth lowest in the Organisation For Economic Cooperation And Development (OECD).
Thirdly, people are waiting more than a year to get their teeth fixed, finding childcare unaffordable and struggling to get their parents into aged care.
And we must not forget that we still have three million people, including 740,000 children, living below the poverty line.
Labor has made substantial commitments to improve child care, dental, and other health services off the back of its crack-down on tax shelters.
The Government argues it can ‘guarantee essential services’ while at the same time offering large tax cuts and putting the budget into surplus.
This is a high-stakes juggling act.
The Government is relying on budget projections that have real growth in the cost of services, and social security falling by half -- from 2.6 percent a year to 1.3 percent over the next four years.
This is off the back of the lowest growth in Commonwealth spending for 50 years. In fact, overall Commonwealth spending is not expected to grow at all over the next four years, after inflation and population growth are taken into account. Yes, that's zero additional investment in the services and income support we might need.
The Government is banking on a weaker economy to slow down the growth in funded programs because slower growth in wages, inflation, and consumer demand reduces the cost of benefits and services.
This is high risk: a weaker economy eventually means higher unemployment, and higher costs for governments and society.
The Government’s funding projections also ignore the challenges we must meet to ensure everyone can live with dignity as they grow old in our ageing population. The Parliamentary Budget Office estimates that population ageing will lift the cost of existing public programs by $16 billion a year by 2028.
Yet the budget papers have real growth in health funding falling by three quarters -- from three percent a year over the last four years to 0.7 percent a year over the next four years.
The budget predicts reductions in funding in real terms for dental health of 0.7 percent a year, despite the fact that people on low-incomes have been waiting an average of more than a year for dental care because they can’t afford to see a private dentist. This means people are more likely to have teeth removed than filled.
Funding for social security and welfare is expected to grow by 1.8 percent a year for the next four years, down from two percent. This comes at the expense of the NDIS, where a slower than expected roll-out is saving the government $1.6 billion this year.
This also includes aged care, where a royal commission is exposing appalling neglect and abuse in some residential care services, a problem caused in part by chronic underfunding.
If you ask one of the 100,000 older people who have been waiting for home care services for more than a year, they’ll likely tell you we need much greater investment in home care than the 10,000 extra places announced in the budget.
There’s a yawning gap between these budget spending assumptions and life in the real world.
Anyone who relies on or values essential services needs to ask the Government this question -- if you are re-elected and these budget projections prove to be unrealistic, will you still lock in $300 billion in tax cuts over the next 10 years?
And if so, what will you sacrifice: essential services or the budget surplus?
We have consistently raised these questions because we are deeply concerned about the future, particularly for the one-in-three households at any point in time who are on the lowest incomes, who get no benefit at all from income tax cuts.
And we all really need the services and social security payments governments provide to keep us in good health, educate our children, find employment, and live in dignity when we retire or lose our job.
That's what taxes are for.