As the government’s expenditure review committee resumes work on restoring the budget to balance it will need to make a threshold decision. Does it persist with its argument that a budget that temporarily takes 0.4 per cent of the incomes of the better off while permanently taking 10-12 per cent from many of Australia’s poorest citizens is fair? If so, the 2015-16 budget will befall the same fate as last year’s effort – unpopular in the community and stuck in the senate.
An alternative budget would share the burden of adjustment more fairly, gaining greater community acceptance and enjoying better prospects of passage through the senate. Here are nine measures that the government could adopt that would vastly improve the budget bottom line and help return it to long-term sustainability.
Tighten the means test on the age pension. In addition to owning a residence of any value, retiree couples are able to own assets valued at more than $1 million and still receive the age pension. Despite generous superannuation tax concessions at the top end, 80 per cent of retirees remain eligible for the pension. Instead of denying the pension to needy retirees until they turn 70, the government should make it a genuine safety net payment by tightening the means test.
Curb middle-class welfare. The 2014 budget took modest steps to limit the growth in middle-class welfare, but couples with two children earning annual incomes above $110,000 still receive Family Tax Benefit Part A. No one is claiming these families are rich. Nor should proposals to limit these payments be attacked as class warfare.
Abandon the extravagant paid parental leave scheme. Instead of modestly scaling back eligibility for parental leave based on the parent’s replacement wage, the government should scrap it. Its continued support symbolises the unfairness of the 2014 budget.
Abolish the Direct Action Plan. This scheme pays businesses to reduce their carbon emissions but frees other businesses to increase theirs. Abolishing this ineffective business welfare scheme would save $2.55 billion over four years, plus any expenditure contemplated thereafter.
Reduce superannuation tax concessions. People over the age of 60 who are still working can divert $35,000 of their pre-tax incomes into superannuation, pay 15 per cent tax and take it straight back out again with no further tax payable. Reducing this allowable amount would achieve large long-term savings. At the same time, the government should align the superannuation access age with the pensionable age.
Crack down on multinational profit shifting. The government has scrapped $1.1 billion worth measures of the previous government designed to limit the ability of companies to shift profits into tax havens. It should restore the measure or some variation of it, instead of waiting for the G20 to act. Further measures should be considered through the G20 processes.
Tighten the rules on car leasing. The previous government proposed that those claiming car leasing expenses as a work deduction needed to show the vehicle was being used for work purposes. The Coalition campaigned against this measure on the pretext that it wanted to protect Australian car making. With the departure of that industry, that pretext has now gone with it.
Increase fuel excise. A one-off fuel excise increase in the context of the falling world oil price, in addition to the resumption of indexation, could leave motorists still better off while improving the budget bottom line.
Further increase tobacco excise. Large increases in tobacco excise have been occurring with more rises legislated. A further increase would improve long-term health outcomes, with favourable budgetary impacts.
The first eight of these measures are progressive in distributional impact while the final two are regressive. As a package, they would constitute a major structural improvement in the budget and would be seen as much fairer.
Other measures relating the capital gains tax, negative gearing, the GST, state taxation and the division of responsibilities in the federation should be debated through the white papers on taxation and the future of the federation and taken to the next election.
Craig Emerson is managing director of Craig Emerson Economics and adjunct professor at Victoria’s University’s School of Business.