Former Treasurer, Peter Costello, gave a frank and fair assessment of the Australian economy over the weekend, warning that the outlook for Australia is “dangerous” as China slows, with unemployment likely to rise as both growth and national income retraces, and the Federal Budget is likely to remain in deficit. From The Australian:
“The China growth story has been what’s driven the increase in our commodity prices over the last five or 10 years,” [Costello] says.
“If China slows, that’s our biggest trading partner that slows, that will slow Australia’s growth. You would expect that would increase unemployment, it will slow Australia’s income growth — and in fact in recent years that’s been negative, as China has actually been slowing already”.
“A big shock in China would be a big shock to Australia. It would be a shock really of a dimension that we haven’t seen for a long time”… China is more important to us than the US, and if a big shock occurred in China you’d get a bigger shock here in Australia”…
[Costello] says the prospect of a balanced budget even in the next parliament does not look strong…“Growth is weak, our national income is falling… And the longer this period of economic growth goes, the harder you have to work at it. It doesn’t get easier, it gets harder.”
While Costello’s missive is nothing new to MB readers, it is welcome relief from the conga line of politicians and commentators claiming that Australia’s economic ills are all about falling confidence. Indeed, the sooner Australians acknowledge the structural problems facing the nation, the sooner consensus can be reached over solutions.
Hopefully, Costello’s “road to Damascus” moment on the economy will also change his opposition to tax reform, in particular superannuation concessions. In recent times, Costello has claimed that “the Budget problem is a spending problem” and demanded that Labor stop trying to “soak the rich”, rather than acknowledging that the Budget is in the red largely because of the downturn in the terms-of-trade and the accumulation of short-sighted Budget decisions, many of which occurred under his watch as Treasurer, including:
- Halving the rate of capital gains taxes in 1999, which now costs the Budget some $4 billion in revenue foregone and overwhelming benefits the rich;
- Freezing fuel excise indexation in 2001 (costing more than $5 billion annually today);
- Greatly loosening the assets test to qualify for the part Aged Pension and Commonwealth Health Card;
- Implementing tax free superannuation for those aged over-60, a move dubbed by Saul Eslake as “one of the worst taxation policy decisions of the past 20 years”;
- Removing the superannuation surcharge on high income earners; and
- Implementing generous “transition-to-retirement” superannuation rules, assisting those approaching retirement to avoid paying tax.
Those policies were only ever affordable under highly favourable global and domestic macroeconomic conditions, which the Howard Government enjoyed, not the conditions that exist today. Hence, the dire need for broad-based reform of the tax system, in particular tax expenditures (concessions).
