Politics v Tax Economy
The 18 May 2019 poll date has been set today for the Election.
And it appears tax will feature most since the GST Election when the Howard Government bravely put a new tax to the election ahead of the introduction of ‘The New Tax System’ in 2000, just ahead of the Sydney Olympics … just in time to collect revenue from all the visitors to the sporting competitions.
What innocent times they were, in comparison, prior to the 2001 US events that changed the way we live, travel, and think about security.
Politicians of both sides have let down our country since – some would argue, for most decades before as well. In the 2000s the Commonwealth was so awash with cash from the resources boom, it could not hand out tax cuts quickly enough and still had revenue flowing that a ‘Future Fund’ was established for some of the overflow of money, belatedly to cater to the massive public servant superannuation liabilities that had until then been unfunded.
We were generating budget surpluses and one of the surprise problems was the lack of secure Government debt, taking away an investment option of guaranteed fixed interest for investors that had previously been so reliable.
We did not need to raise taxes, in order to pay the interest on the debt, or to repay the debt, as there was no debt.
Then the Global Financial Crisis (GFC) happened and our politicians panicked and overreacted not just pumping money into the economy immediately, but for every year since! Plunging the federal budget into the red with $900 cash bonuses going to Australians including those who had died or who were overseas was a monumental waste of precious taxpayer resources. The reality, with the benefit of hindsight, was the unbroken boom of export income from our natural resources (particularly by China) meant that the Australian economy continued to have money flowing though and kept us afloat, part of the remarkable 28 years of economic life without a recession.
Traditional economic theory says budget deficits are essential to support an economy that is in recession, with lower taxes being collected from higher numbers of unemployed who need to be supported by the lower budget revenue.
Whilst a budget deficit was entirely expected and appropriate in 2008, 2009 and 2010, and may be even 2011, that these have continued all the way up to the 2019 budget year with a forecast only in 2020 that we will finally achieve a very modest surplus. This is a failure by our politicians (or us, electing them?) that has meant our budget deficits have now accumulated to a total debt of $370 billion that we now need to raise taxes to pay the interest on the debt, until we eventually raise more taxes to ultimately pay the debt back down again.
In 2007, the last time Australia had a surplus, revenue collected was $272 billion and payments were $253 billion. So the surplus was $19 billion.
By 2015 the Government revenue had expanded to $378 billion yet spending had blown out to $412 billion. So the deficit was $38 billion (after an adjustment from the future fund of $4 billion).
Why in 2015, with no recession at the time or for 2 decades to that time, with the property market booming, was the Government spending more than it collected by $38 billion.
By 2019 Government expenditure had blown out to $483 billion (according to 2019 Federal Budget Estimates),
This is a very long way from the $253 billion of expenditure in 2007, even taking into account modest inflation over the 12 intervening years.
Why is the Government, such a big part of the economy, and our lives?
The excessive spending by Government since the GFC has crowded out the private sector – most obviously the school halls building program that caused the cost of construction to go through the roof and cause worker shortages for homeowners wanting to invest in their own housing extensions and renovations.
The Reserve Bank of Australia has not been quick enough to keep interest rates too low for too long, cutting the income of retirees who rely on fixed interest (for those anyway, who for some reason thought fixed interest was a sensible long term investment strategy), and stoking the fire of property values with cheap credit leading to overpriced housing.
How had the housing bubble been pipped? By cracking down on foreign investors, reducing ‘interest only’ loans to investors, by a heavy handed (necessarily?) broad Royal Commission, by reducing the tax effectiveness of property investment, and by frightening people with proposed changes to tax such as the proposal to withdraw the main residence exemption for Australian citizens who are non-resident (Liberal/National policy – apparently no longer a worry) and selectively removing negative gearing (Labor policy).
Australia now has $370 billion in debt, higher taxes necessary as a result, a faltering property market, and the risk of a massive upheaval in our tax system threatening the income of age pensioners and other investors with the selective denial of franking credit refund entitlements, and an even bigger Government in our lives.
Let’s forget about congratulating ourselves about 28 years of unbroken economic growth.
We should ponder the responsibility of catching up to the countries around us that have performed so much better, with lower or no debt, lower taxes, higher income, bigger economies and richer lives. Rather than progressively taking away private health insurance tax offsets, main residence exemptions, reducing the attractiveness of property investment as a means of families creating wealth, or telling us what sort of car we can drive, how about Government gets out of our lives and let us get on with making our country the best it should be.
Tax Services Australia calls on our politicians, of both sides, and their voters to be responsible and respectful in the federal election and start focusing on making the most of our country Australia.