Mark Kenny Chief political correspondent
April 30, 2013
Julia Gillard has opened the way for a range of policy reversals, including tax increases, as her government struggles to contain a ballooning budget deficit, and to dampen expectations of a return to the big surpluses of the past.
In a landmark economic speech in Canberra two weeks before the budget, the Prime Minister has signalled big changes to taxes and spending, arguing the days of strong revenue flows during the first phase of the resources boom are over and will not return.
Bold declaration: Julia Gillard and Treasurer Wayne Swan before her speech in Canberra on Monday. Photo: Andrew Meares
She said all options were ''back on the table'' because the rate of revenue growth had fallen $12 billion short of Treasury expectations due to structural changes that were not likely to change for the better.
The bold declaration raises the possibility of budget initiatives once regarded as politically unthinkable, such as increasing the Medicare levy to fund billions in new disability spending - as signalled by the Productivity Commission.
Increasing the Medicare levy has been previously ruled out but is now being considered as a way of spreading the burden of new expenditure as broadly as possible.
Illustration: Ron Tandberg
But Ms Gillard promised that the desperate fiscal situation would not mean the government would ''cut to the bone'' or ''chase revenue down'' in a bid to replace a shortfall just for the sake of it.
Rather, she recommitted her government to more social spending, justified as wise investments in the nation's future.
The complex budgetary situation means Labor is now banking not only its future on securing the permission of voters for changes it will announce in the budget on May 14 but the very viability of its signature reforms.
Its plan is to simultaneously limit the growth of the deficit to a manageable size capable of being erased within the budget's four-year period, but also to lock in funding sustainability in future years for the $14 billion disability insurance scheme and the school education reforms. ''I have expressly determined we need to have every reasonable option on the table to meet the needs of the times - even options previously taken off the table,'' she said.
''The nation and the government must have maximum flexibility to deal with these complex, and rapidly changing, events … that is my approach.
''As a Labor Prime Minister, I find these decisions both urgent and grave.''
The comments immediately unleashed claims of secret government plans to introduce death duties and end negative gearing on investment properties.
''They are bullet words from the Prime Minister,'' said the opposition's spokesman on the economy, Joe Hockey.
''All options are on the table, so increased tax on superannuation, increased taxes on the family home, death duties, which Wayne Swan ruled out in Parliament - all options are on the table.''
He said it was clear from Ms Gillard's words that she was preparing voters for unpalatable new taxes, declaring: ''There is no limit to what they [Labor] will do or consider doing to the Australian economy, to families across Australia.''
While Ms Gillard quickly ruled out any changes to the 10 per cent GST, a promise matched by the opposition, her proposal to revisit previous decisions has opened the way for other changes in the budget, including increases in capital gains tax on the family home, to superannuation, and changes to the private health insurance rebate.
The Greens, which have submitted their costings to the independent Parliamentary Budget Office, say there are big savings to be made from fixing the underperforming mining tax (raising $26 billion over four years); abolishing the resource industry's advantageous tax treatment on diesel fuel (raising $33 billion over four years); and introducing its ''too-big-to-fail'' banking levy which has been projected to raise $11 billion by 2017 if introduced immediately.
Labor argues that if the rate of revenue growth that pertained under the Coalition government had continued, it would now have $23 billion extra in revenue to play with. Instead, it is dealing with a projected $12 billion hole.
''The persistent high dollar, as well as squeezing exporting jobs, also squeezes the profits of exporting firms: with lower profits for these companies comes lower company tax going to government,'' Ms Gillard told the Per Capita seminar series. ''We can't assume this will change soon.''
''The high dollar is also placing competitive pressures on firms here, who face new pressures from cheaper imports, holding down prices across the board - with the high dollar making it hard for these firms to pass on price increases - holding down profits and, in turn, holding down company tax.''
