Prime Minister Julia Gillard has downplayed the $12 billion budget deficit anticipated for the 2012/13 financial year comparing it to a very small mortgage commitment in an address in Canberra today.
“Unlike the rest of the world, we have very modest debt – because we have borrowed in the right way and at the right time, to support growth during the global financial crisis,” she told the Per Capita Reform Agenda.
“Our level of debt is the same as a person earning $100,000 a year with a $10,000 mortgage.
“Millions of Australians with mortgages and personal loans would love to be in a position where their only debt was equal to ten per cent of their income,” she added.
Economic consultants Deloitte Access Economics have responded tongue-in-cheek to the speech with 17 “ really ugly” suggestions for filling the $12 billion deficit and balancing the nation’s books.
Suggestions include extending capital gains tax to the family home, which Deloitte says would eventually raise $15 billion a year, pushing up the top tax rate to 66% or add $17 to the cost of a pack of cigarettes.
According to Deloitte, if the shortfall was made good entirely from spending:
- Entirely abolishing all Family Tax Benefit A payments (saving $14 billion).
- Or stopping all funding to the States for health care (saving $13 billion).
- Or stopping all funding to schools (saving $13 billion).
- Or stopping all funding to aged care homes (saving $8 billion), as well as community care ($2 billion) and veterans’ care ($2 billion).
- Or cutting all Medicare payments by two-thirds (saving $12 billion).
- Or cutting pensions to the aged by a third (saving $12 billion).
- Or abolishing all disability pensions (saving $15 billion).
Or if the shortfall was made good entirely from taxes and ‘tax expenditures’:
- Extending capital gains tax to the family home (raising – eventually – $15 billion a year).
- Or raising the current 45% rate to 66% (raising $12 billion).
- Or having the current 45% rate cut in at incomes of $65,000 rather than $180,000 (raising $12 billion).
- Or raising the 32.5% rate to 37% (that is, do away with that rate completely, raising $10 billion).
- Or lowering the $18,200 threshold to $12,500 (raising $13 billion, but you’d be taxing about an extra 650,000 people, including many pensioners).
- Or taxing all superannuation contributions at marginal tax rates (raising $14 billion).
- Or raising the rate of company tax from 30% to 35% (raising $12 billion – but also adding to franking credits that would cut the personal tax take).
- Or adding 30 cents a litre in additional taxes on the price of petrol (raising $12 billion).
- Or tripling the existing taxes on cigarettes (raising $12 billion, and adding about $17 to a pack of 25 cigarettes).
- Or lifting the carbon tax to $60 dollars a tonne and removing the future link to the European carbon price (raising $12 billion).
“Each of the above options would be really ugly,” says Deloitte
“Yet it is vital that Australians begin this conversation with ourselves, because our politicians aren’t. Labor is busily talking about new spending on schools and disability insurance, while the Coalition is talking about rolling back the carbon and mining taxes.
“So both sides are still talking about extra costs to be loaded on a Budget that is yet to make up a $12 billion shortfall.
Deloitte says a cut in the corporate tax rate is off the table.
“We’d expect that corporates will be targeted to (in part) plug the gap. Previously proposed revenue-raising measures (that were rejected by the business community last year) may be given new life in this year’s Budget.
“We expect there could be a reduction of the thin capitalisation safe harbour from 75% to 60%. This would have a potentially significant impact on business by denying interest deductions available to both Australian and foreign companies.”