Hockey flags further spending cuts

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By Leith van Onselen

Treasurer Joe Hockey has flagged further spending cuts in Monday’s mid-year budget update. From The AFR:

[Hockey]…said the spending cuts to be announced on Monday would have “no negative impact on the economy”.

“They’re modest savings because our [extra] expenditure is modest,” he said.

The government’s update is set to include new spending on national security, and there has been widespread speculation it plans to offset that by again dipping into the foreign aid budget.

Of course, there is one area of the Budget that represents a huge honey pot for the Government: Australia’s tax expenditures (concessions), which are the highest in the developed world, according to the IMF (see next chart).

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These concessions – which primarily benefit older, higher income Australians – include such things as superannuation concessions, capital gains tax concessions, negative gearing, fringe benefit concessions on company cars, among other things. Their reform would not only provide the Budget with much needed tax revenue, but also dramatically improve the progressiveness (equity) and efficiency of the tax system.

If Hockey is genuine about making the Budget sustainable, he should place equity considerations front-and-centre, and tackle the massive tax concessions that erode the tax base and make the tax system less progressive, along with tightening means testing of the Aged Pension, and abandoning the Government’s flawed and overly expensive paid parental leave scheme.

Otherwise, richer older Australians will continue to receive a free taxpayer ride, while poorer segments of society (and the young, in particular) are required to shoulder the burden of Budget cuts.

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C’mon Joe, prove to us that you are serious about reform and tackle the biggest and most inequitable drains on the Budget.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.