To achieve its target of a surplus by 2023-24 the Abbott government will need to find $60 billion worth of budget savings a year, around the same amount as the total federal spend on education and defence, according to the Commission of Audit.
The Australian has reported the Commission based its assumption on lower forecast tax revenue growth, and the fact it would be unrealistic to assume there will not be any personal income tax cuts over the next decade.
Treasurer Joe Hockey’s office reportedly distributed a note at the weekend which outlined the effects of “bracket creep”, which is when inflation pushes an increasing share of people’s income into higher tax brackets. It said tax revenue would rise from this year’s 22.9% of GDP to 26% by 2023-24, mostly as result of this.
Even with strong revenue growth, the note showed the budget would still have a deficit of 0.5% of GDP by 2023-24, the equivalent of $12.5 billion considering the economy is tipped to reach $2.5 trillion by that time.
According to The Australian, The Commission of Audit factored income tax cuts into its prediction because it would be too politically damaging if they were not made (it would also lower the workforce participation rate). The Treasurer’s note highlighted the reliance on bracket creep for long-term budget forecasts.
The first Commission of Audit report handed to the Treasurer on 14 February assumed revenue would be no more than 25% of GDP by 2023-24, which is a percentage point lower than Hockey’s projection. That would mean the deficit in that year would be $35 billion, and that the savings required to achieve the commission’s goal of a 1% surplus raises the total savings needed to about $60 billion.
The estimated $60 billion figure would mean some government functions would be totally axed, and spending cuts on pensions and allowances would be required, according to The Australian’s report.
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