CANBERRA: Federal and state governments are relying on higher taxes rather than spending cuts to do all the work of repairing their budgets, according to new medium-term forecasts from the International Monetary Fund. The fund’s projections show that, over the decade to 2020, taxes and other revenue will rise from a low of 32 per cent of GDP during the financial crisis to reach 36 per cent.
Spending, on the other hand, will still be 37 per cent of GDP in 2020, which is marginally lower than it is now, but the same as it was in 2010 when the Rudd government was spending billions on school halls and other stimulus projects.The IMF’s projections, extracted from its newly updated economic database, confirm the fears of former treasurer Peter Costello that governments are finding it easier to raise taxes than cut spending.
“We get a lot of envy talk about the need for new taxes, but very little effort to think through the consequences for jobs and growth,” Mr Costello wrote in a column in News Corp Australia tabloid newspapers on Tuesday.The fund’s forecasts show the commonwealth and state governments will be raising an additional $200 billion in taxes and other revenue in six years’ time, an increase of 36 per cent.
This will reduce, but not eliminate, the budget deficits, which will come down from $57bn in 2014 to $17bn by 2020.The fund estimates that government spending will hit a record of 38.2 per cent of GDP this year, just topping the GFC peak of 37.9 per cent that was reached in 2009.
This shows the level of government spending has taken a leap higher since the global financial crisis. In the decade before the crisis, spending averaged 34.6 per cent of GDP.The difference is equivalent to $58bn a year in additional state and commonwealth spending, or adding as much again as the commonwealth spends on education and defence combined.
The IMF does not spell out how the rise in tax revenue will be achieved, but the commonwealth budget is relying on “bracket creep” pushing more individual income into higher tax brackets and is expecting a recovery in company tax, while the states have been hoping the property boom will spread from Sydney and Melbourne to the rest of the country.
