August 08, 2013

Horse 1524 - Where Is The Future Surplus?
An Abbott-led Coalition government would cut company tax by 1.5 percentage points within two years taking the current 30 cents in the dollar rate down to 28.5 cents.
In a boon for business, which has long called for tax relief to increase incentives and create jobs, Opposition Leader Tony Abbott will travel to Adelaide on Wednesday to unveil what, at $2.5 billion a year, is likely to be the biggest single spending promise of his 2013 election campaign bid.
- Sydney Morning Herald, 7th Aug 2013

Yesterday I asked the question "Where Is The Surplus?" (Horse 1523) and today I ask a similar question, "Where Is The Future Surplus?" If this sounds like I'm repeating myself, then to a large degree I am and you should probably read the other piece if you want to stop reading now.

A Budget Surplus is when total government taxation receipts exceed payments made by the government sector; conversly a Budget Deficit is when government taxation receipts fall short* of payments made by the government sector.
For 2013/14 the government expects to spend $398bn and collect $387bn leaving a budget deficit of $11bn. Of that $387bn in taxation receipts, $74bn comes from companies in comparison with $125bn from personal income tax.

Assuming that Mr Abbott if elected does decide to drop the corporate income  ax rate from 30% to 28.5%, this represents exactly a 5% reduction in expected revenue (all things remaining constant) because company tax is assessed on every dollar of corporate income; starting from zero.
In real terms that means that in order to just keep on standing still, a Liberal Government would need to find another $3.7bn from other sources.

Those "other sources" probably include natural attrition of the public service as alluded to by Mr Abbott in his Budget reply back in May, or perhaps more worryingly, a stagnation in transfer payments to the least well off in the community or worse, a raise in the GST which is both regressive and I think, hateful (Horse 1024).

I refer to Mr Abbott's comments in the week of the Federal Budget:
''We will have a comprehensive debate about tax reform but we haven't even won a first term, let alone a second term.
Who knows what people might put up to us - then we will have a white paper, informed by the best expertise the Commonwealth can muster in the wake of that consultation, and if there were to be any changes in the second term, we'll seek a mandate for them.''
- Tony Abbott, as quoted in the Sydney Morning Herald, 18th May 2013.

The only real reason I can think of as to why there would need to be a tax reform just three years after Ken Henry published his otherwise eponymous "Australia's Future Tax System Review", is too look at the one thing which he wasn't allowed to get his mits on - the GST.
The mere fact that Mr Abbott has "no plans" to increase the GST, isn't of itself enough to suggest that he isn't au fait with the idea. Back in July, Shadow Treasurer Joe Hockey didn't rule the idea of increasing the GST but suggests that it was the various state governments who had to lead that argument and to be honest, to get all state governments to agree to collecting more money in GST is probably easier than getting them to commit to a Federal spending plan like Gonski.

Incidentally, if Labour are "run" by the Unions, then the Liberal Party is run by groups like the innocuously named Institute of Public Affairs. They identified $22bn in "savings", which is slightly more than the $17bn which Mr Abbott was talking about yesterday. These "savings" are really quite savage and I think show what's really bubbling below the surface:
I'm pretty sure that privatising the ABC, dismantling the Human Rights Commission, the Australian Commission for Law, Aboriginal Land Councils, the ACCC and the NBN are all worthwhile "savings".

It's all very well to announce a cut in taxation if it means a return to surplus I suppose but it means that the electorate has to accept whether they like it or not, a reduction in the size, scope, value and ability to deliver the sorts of government services they expect. That's where the surplus is likely to come from.

The ABC has a nice set of Budget things to play with here:
I had a look at it and found much to my joy, the figures I quoted were correct.

*fall short - I think that the logical opposite of "Exceed" should be "Deceed" but I've never ever seen that in print. Would Romans 3:23 now read: "for all have sinned and deceed the glory of God"?

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