So we do have a revenue problem after all – now Moody’s says so

Who could ever forget Scott Morrison’s astonishing statement when he became our nation’s treasurer: Australia doesn’t have a revenue problem; we have a spending problem!

Balanced economists were aghast. Any analysis of our balance sheet left no doubt that we needed more revenue to enable the government to provide the services the people need: quality healthcare for the aged, the disabled and all; excellent education at all levels; a welfare safety net for those who need it; infrastructure; and all the other services people are entitled to expect in this prosperous country where we are privileged to live.

This piece, written just two months ago, needs updating. Morrison persists with his aversion to raising revenue, but is now under the hammer from a different direction. Moody’s credit rating agency, has questioned the government’s strategy to fix the budget and warned that continued increases in national debt would risk the nation’s AAA credit ­rating. Moody’s went onto say that the Turnbull government must raise taxes [to increase revenue] as well as cut spending to reduce the budget deficit.

Confronting this warning, Morrison’s retort was that “‘of course’ there will be revenue measures in the budget” on May 3, despite previously declaring Australia had a ‘spending problem, not a revenue problem’.

Seemingly realising the contradiction in his position over time, he went on to qualify himself by saying that “…overall, the budget would continue to focus on reducing the government spending as a share of the economy”. He insisted that by reducing the tax burden in other parts of the economy the overall tax burden would be no greater than it is.

For years, sensible economists have accepted that we have a revenue problem, but they also acknowledge we have a spending problem. Reducing government waste and more prudent spending of taxpayers’ money should always be a fiscal objective. That has never been disputed, but it seems mysterious that the government has consistently placed so much emphasis on the expenditure side of the budget, while ignoring the need for more revenue. The only plausible explanation seems to be the way the government frames its fiscal policy.

Harking back to the Howard era, Costello’s boast was always: “We are a low taxing government – we want to give money back to the people, not take it away.” How many times did you hear him say that?

Morrison echoed Costello. To Morrison, increasing revenue equates with increasing taxes, which is anathema to him. It seemed too that in Morrison’s mind removing concessions from superannuation, negative gearing and capital gains was tantamount to increasing taxes. So all he could suggest to balance our national budget was to cut expenditure. He was no better than his failed predecessor; we knew that his expenditure cuts would hit the poorest in our community just as they did in Hockey’s 2014 Budget. He was bereft.

He seemed to be channeling his ‘Stop the boats’ rhetoric into ‘Stop the revenue’ so as to ‘Stop the taxes’. In fact he went the other way, the Costello way, towards reducing personal and corporate taxes. His approach is ideologically driven; it is shored up by the discredited concept of ‘trickle-down economics’, which posits that supporting the top end of town creates prosperity that eventually trickles down to those at the bottom of the pile. A more colourful descriptor is ‘horse and sparrow’ economics – feed the horse enough oats and the sparrow will get his share in the manure. In recent weeks Morrison has backed away from personal tax cuts but is still entertaining a corporate tax cut, which Arthur Sinodinos assures us will benefit workers. Trickle down all over again!

Morrison seems to have now almost come to his senses, perhaps he’s listened to the sagacious economists who have not only insisted that we have a revenue problem, but have pointed to where it might be addressed now that a rise in GST has been ruled out by all parties.

The contemporary debate about negative gearing, prompted by the recent release of Labor’s policy, has focussed attention on revenue raising by reducing the present concessions which allow the well off to benefit substantially by acquiring multiple properties. We all know that negative gearing applies also to equities and other assets, but it is when it’s applied to housing that the concessions have the most impact.

On AM on 16 February, in introducing Ben Oquist, executive director of The Australia Institute, Michael Brissendon began:
"New research shows young Australians are receiving little benefit from three of the biggest, most expensive tax concessions.

“The modelling, commissioned by think tank The Australia Institute, shows Australians aged under 30 receive only 6 per cent of the combined tax concessions on superannuation, the capital gains tax discount and negative gearing. The concessions are worth more than $37 billion in total, yet young Australians only receive a share of around $2 billion.

Is it such a surprise that young people are missing out on the benefits of tax concessions? After all, they earn less and pay less tax."
Ben Oquist replied: 
"I think it's a surprise the extent of it. It's worse when it comes to the capital gains discount and negative gearing in particular.

You mention that overall it's 6 per cent of those tax breaks combined but when it comes to negative gearing and the capital gains tax, it's 1 and 1.7 per cent respectively of tax breaks that are growing all the time.

The capital gains discount in particular is projected to be at seven or eight billion in the next few years and it's that discount in particular that I think is unfair.

It's widely known that 73 per cent of that tax break goes to the top 10 per cent, but it isn't as widely known that only less than 1 per cent of it goes to young people.”
Later Oquist, referring to this debate, said:
"I guess overall that's the good thing that's happened…we are slowly accepting that we have a revenue problem…that's the big shift from 2014 to this year's budget. We're debating tax reform and it's been accepted that we have a revenue problem.

“Now, we don't have to increase tax rates to solve that revenue problem, we can address tax concessions, loopholes. If you like we can broaden the base. And in that way you raise the revenue and you don't have to compensate people…With the GST being taken off the table it's actually allowing us to look at the smorgasbord of options that we've got for increasing revenue without having to compensate people and having that churn.”
The fact that we have a revenue problem has been publicized long enough for Morrison to hear. Why did he take so long?

So exasperated was South Australian premier Jay Weatherill that he took a swipe at the treasurer for not telling the truth about Australia’s revenue problem:
“Scott Morrison is perpetrating the same deceit on the Australian people as his predecessor Joe Hockey…Prime Minister Malcolm Turnbull promised a new government, but they perpetrate the same lies to the Australian people that we have a spending problem and not a revenue problem”
Around the same time, John Menadue, businessman, public commentator, and formerly a senior public servant and diplomat, wrote on his blog:
"In a submission to a Senate Select Committee into the Abbott Government’s Commission of Audit, Jennifer Dogged, Ian McAuley and I contend that the problem is not that government expenditures or that the public sector is large in Australia compared with other countries. We contend that the problem is a short-fall of revenue and that on international comparison, our tax revenues are low.”
In their summary to the Committee they say:
"The Commission of Audit’s brief is based on assumptions that Australia is burdened with “big government” and that taxes are an impediment to business investment and workforce participation.

“There is no evidence for either assumption. The trend in Commonwealth expenditure has been downwards since the mid 1980s, falling from a peak of around 28 percent of GDP to a range of 24 to 26 percent of GDP in recent years. In comparison with similar prosperous countries Australia has one of the smallest public sectors.”

In May of last year The Australia Institute published a paper titled It’s the revenue stupid. It’s worth a read.

I could cite many others who are saying the same thing: Australia has a revenue problem. Thankfully, it seems that at last our treasurer has heard this strident oft-repeated message. His, and Malcolm Turnbull’s prime criticism of Labor’s policy on negative gearing, is not that it generates revenue that we don’t need, but that it does not generate enough revenue fast enough! In launching Labor’s policy Bill Shorten said it was a long term measure which would start modestly but generate substantial revenue over the long term, but it seems the government is intent on raising revenue urgently! Perhaps we now have a ‘revenue emergency’. Await their policy with open-mouthed anticipation!

What this updated piece contends is that hog-tied with an ideological rope, our treasurer has been far too slow to concede what has been obvious for so long: Australia has a revenue problem, and now one of the world’s rating agencies, Moody’s, says so.

Instead of Morrison’s loudmouthed rhetoric about 'Labor taxing only to spend', what is now needed is a serious debate, uncontaminated by ideological or political overtones, about how to raise this revenue now that the level and scope of the GST is not to be changed, and other avenues have seemingly been discarded or put in the ‘too hard’ basket. Pegging back concessions that are enjoyed mostly by the well off in the areas of superannuation, negative gearing and capital gains tax, is an obvious place to start, but the Coalition is terrified of upsetting its benefactors. Fairness must be at the heart of any revenue-raising moves, but does the Coalition know what ‘fairness’ is?

It is encouraging to see this debate gathering the force of a flash flood. Hopefully it will sweep Turnbull and Morrison along arms flailing until they come up with some practical ways of addressing Australia’s revenue problem. Predictably, the property rent seekers and Turnbull’s ideologically driven, top-end-of-town fawning backbenchers are out peddling their ‘wouldn’t it be awful’ scenarios. For their own electoral safety, in the face of falling poll ratings, he and Morrison had better ignore them. Maybe Morrison’s concession that ‘of course’ there will be revenue measures in the budget marks a tentative admission of the bleeding obvious, and that the May 3 budget will include revenue measures, which of course our Treasurer will assure us will not increase the overall tax burden. May 3 promises to be an entertaining event!

What do you think?
We are looking for your comments.

Do you believe Australia has a revenue problem as well as a spending problem?

What revenue sources do you believe the government should explore?

Do you believe that at last Morrison and Turnbull have got the message about the need for more revenue?

What do you think the May 3 Budget will include?

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