Grattan Institute CEO, John Daley, gave an excellent interview on ABC’s 7.30 Report, whereby he outlined the stiff headwinds facing the Budget (including collapsing commodity prices), along with the solutions needed to return the Budget to long-term sustainability.
On the impact of the collapsing commodity prices, Daley noted:
JOHN DALEY: Every single year over the last five years, we’ve essentially had forecasts. And then we’ve fallen well short of them: partly as a result of the iron ore and coal prices falling; partly as a result of the economy being weaker than we expected; partly, particularly in the last 12 months, as a result of wages not rising as fast as had been forecast.
LEIGH SALES: On that point: you just raised iron ore prices. Let me pick up on that, because they have just hit a six-year low. They’ve fallen 60 per cent since 2014. What is that doing to the budget?
JOHN DALEY: Well, the biggest effect is that it reduces the amount of corporate tax that the Commonwealth collects. Obviously it also reduces the royalties that particularly the Western Australian Government collects and then that obviously flows through to the bottom line.
LEIGH SALES: Is it something that is a substantial underpinning of the budget? Like, how reliant are we on iron ore being buoyant?
JOHN DALEY: It’s worth remembering that you’re trying to get a budget to balance. If you simply see your revenues fall, say, five per cent short of where you had hoped they would be, obviously that has a really big impact on, if you like, on the profit: on the bottom line.
So the impact of those falling iron ore prices – and coal as well – has been quite substantial on the Commonwealth budget. And we’ve seen the Commonwealth budget revised down by about $10 billion cumulatively every year for the last four years. And it’s essentially been on the revenue line, so it’s been iron ore, coal and a slower economy.
Daley also urged the Government to focus on both the revenue and expenditure sides of the Budget, including unwinding Australia’s inequitable and unsustainable superannuation concessions:
JOHN DALEY: I think a responsible budget would take additional measures to both increase revenue and reduce expenditures over the medium term. And you’d be looking for measures that in themselves were probably going to have relatively little impact on the economy.
So, for example, one of the attractions of looking at the superannuation tax concessions is that precisely that they don’t have much impact on spending today, because they are essentially reducing the amount of savings that people can accumulate with very large tax concessions. They won’t have much impact on how much people spend in the next 12 months and, therefore, not that much impact on the economy.
Another good effort by Daley, who continues to lead the way in discussions on the Budget.
