Expect to pay more tax: grim warning

"If the discussion is always about whether anyone loses then society as a whole can never be better off": Treasury secretary Martin Parkinson.  Photo: Andrew Taylor

"If the discussion is always about whether anyone loses then society as a whole can never be better off": Treasury secretary Martin Parkinson. Photo: Andrew Taylor

Australians are in for much larger tax bills and slower income growth, and with hindsight the budget has been sold wrongly, the head of the Treasury has told a gathering of Canberra economists.

"Perhaps it could have been clearer to say that everybody is going to contribute, this is the budget dimension of it and there will be more coming with the tax white paper," Treasury secretary Martin Parkinson said.

Dr Parkinson was addressing the ACT Young Economists Network about 100 days after the delivery of a budget still mired in controversy.

He said presenting the budget as a complete package for dealing with Australia's economic and financial problems had made it look as if the government was concentrating on spending cuts and not enough on taxation, leading to claims it was "unfair".

"If you start from a presumption that you have a problem on the outlays side, and you have a very highly targeted welfare system and you think you need to take action on outlays, inevitably the people who get most from that system are going to complain," he said.

While fairness was important, it was ridiculous to suggest that every element in the budget needed to be fair, he said.

"Whenever you do, there are going to be losers. If the discussion is always about whether anyone loses then society as a whole can never be better off.

"A classic example is the debate over indexation of the fuel excise. What is important is how much it would add to the cost of a litre of petrol over the course of a year. That got lost. The materiality of what we were talking about got lost in a debate about whether or not it was seen as fair. We have to find ways to have more mature discussion than that."

The end of the mining investment boom and the ageing population meant Australians were in for far lower income growth than in the past, Dr Parkinson said.

"If Australia gets the same productivity growth as its long-term average, then living standard growth will be about a third to a half of what the Australian public has gotten used to over the past 10 years. You can imagine that creates quite an interesting dynamic for the political process."

Asked which elements of the budget he thought would boost productivity and living standards, he nominated the proposed infrastructure spending and changes to the funding of higher education.

"Governments take decisions in a range of areas for different reasons," Dr Parkinson said. "Some of the other decisions, they were government commitments."

So fast was bracket creep pushing up the income tax take that by next year the average earner would be in the second-highest tax bracket, he said.

"People talk about the regressivity of petrol taxes, that's actually regressive."

Without tax reform the average income tax rate would climb from 23 per cent to 28 per cent within a decade.

Raising the top tax rate was not an alternative, he said. It would not bring in enough money, in part because it would encourage avoidance. Australia had to look at increasing indirect taxes – if not the GST then payroll tax.

"If the states want more revenue, the states can look at their own tax bases," he said. "A payroll tax with no exemptions is economically equivalent to the GST."

SMH

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