No end in sight to Labor’s $60b spree

In a nationally televised “treasurers debate” in Canberra on Monday, Labor’s Chris Bowen also flagged a yet-to-be-announced foreign aid increase “each and every year we’re in office” after Liberal cuts that “can’t go on anymore” and a boost to research and development assistance.

He also said calls to increase the low Newstart unemployment payment was a “legitimate issue” and required a full review, without allocating any funds.

“Our vision will deliver bigger budget surpluses and important investments in health and education,” Mr Bowen said.

Treasurer Josh Frydenberg said taxpayers would be “on the hook” for Labor’s higher spending.

“Whenever Labor spends more, they tax more and when they tax more they weaken the Australian economy,” Mr Frydenberg said.

The long-term fiscal sustainability of the Opposition’s spending pledges faces growing scrutiny, after the affordability of the Coalition’s $300 billion of income tax cuts over a decade were earlier called into question.

Former federal finance department deputy secretary Stephen Bartos said: “The biggest question mark over Labor’s budget sustainability is successfully legislating its tax measures through the Senate.”

To pay for its spending, Labor would need to convince a disparate Senate – such as the Greens, One Nation and potentially Clive Palmer’s United Australia Party – to pass major tax rises on property, superannuation and high income earners.

Labor’s phased eight-year plan for the government to subsidise an extra 20 per cent of wages for up to 100,000 low-paid childcare workers is estimated to cost $537 million over four years before the full cost blows out to $9.9 billion over a decade and continues to rise.

Extra promised spending for public schools starts at $2.6 billion over four years before blowing out to $14 billion over a decade.

Labor intends to release the full costings of its tax and spending policies by Friday.

Mr Bowen has declined to put a cap on spending or taxes over the next four to 10 years, arguing Labor’s higher tax revenue would ensure a Shorten government would deliver “bigger budget buffers” than the Coalition.

Labor is pledging up to $387 billion in higher taxes than the Coalition over a decade to pay for its big spending agenda.

Labor’s pledged tax increases include curtailing negative gearing and capital gains tax breaks, ending cash refunds of franking credits, tighter limits on concessional superannuation contributions, a 2 per cent budget repair levy for high earners, a minimum 30 per cent tax on distributions from family trusts, limiting tax deductions to $3000 for the cost of preparing tax returns, a crackdown on multinational tax avoidance and repealing the Coalition’s legislated income tax cuts for middle to high earners.

The fiscal sustainability of spending and tax cut promises both sides of politics has come under pressure.

The Financial Review revealed last month that Grattan Institute analysis showed the Coalition would need to reduce spending by $40 billion a year by 2030 to afford its $300 billion of personal income tax cuts over a decade, keep the budget in surplus and meet its projected spending restraint outlined in the April budget.

“$40 billion a year worth of cuts to pay for his high income tax cuts – $77 billion to high income earners,” Mr Bowen said of the Treasurer’s plan.

A Shorten Labor government would inherit spending from the Coalition at about 24.9 per cent of GDP at June 30 2019.

Based on the turbocharged rate of expenditure by Labor so far during the campaign and the historical growth in government payments, a Shorten government would in the medium-to-long-term get closer towards the 25.9 per cent of GDP spending recorded during Kevin Rudd and Wayne Swan’s temporary $52 billion-plus fiscal stimulus unveiled in 2008 and 2009.

Outside of that emergency fiscal response, a Shorten government would likely become the next highest spending government behind the post-war records of 26.2 per cent of GDP in 1993-94 in the aftermath of the recession and 27.6 per cent of GDP in 1986 before Mr Keating as treasurer and finance minister Peter Walsh axed bloated outlays.

Since then commonwealth spending has periodically peaked at 25.1 per cent of GDP when John Howard began paying GST to the states in 2000, 25.9 per cent in 2009-10 under Mr Rudd in response to the financial crisis and most recently 25.5 per cent in 2015-16 under the current Coalition government after the Senate blocked its proposed spending cuts.

Not all of Labor’s election promises such as the $10 billion commitment to the Clean Energy and Finance Corporation, $5 billion Energy Security and Modernisation fund and $1 billion Advanced Manufacturing Fund would deduct from the budget’s underlying cash balance because Labor argues they are investments “off budget”.

Hence the estimates of Labor’s spending-to-GDP ratio do not include these capital and equity injections.

Nevertheless, that accounting approach – which was used for the $50 billion National Broadband Network – still means capital outlays would add to Australia’s $560 billion gross debt.

Announced spending and investment hitting the budget bottom line adds up to at least $50 billion, including the $9.9 billion over a decade for childcare wages and the 10-year $1.5 billion cost for Indigenous communities to address overcrowding and to create jobs.

Labor has pledged to review the weekly $272.90 Newstart payment, the
unemployment benefit, but hasn’t allocated any money for a potential increase.

Some of Labor’s infrastructure investments, such as $3 billion for the Sydney Metro West and $2.24 billion for the Cross River Rail project in South East Queensland, are staggered over more than four years.

The government’s budget assumes the Coalition would be able to gradually reduce spending from 24.9 per cent of GDP in 2018-19 to about 23.6 per cent over the decade, in order to fund the tax cuts and keep the budget in surplus.

The spending restraint has been described as heroic and unrealistic by budget analysts.

Mr Bartos said the Coalition risked creating structural budget deficit problems because Treasury’s medium-term fiscal projections were unrealistic.

“The tax cuts build in an enormous structural deficit in those later years,” Mr Bartos said.

The Coalition has capped the tax-to-GDP ratio at 23.9 per cent, but has abandoned an earlier pledge to bank all windfall revenue to the budget bottom line.

Mr Bartos lamented that neither of the major parties were addressing the need to boost productivity through propose major economic reforms to lift living standards.

“There is an arguable case that productive spending could get more growth into the economy and lift wages and living standards, but we are not seeing that from both sides,” Mr Bartos said.

Source link Finance News Australia

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