Australian Treasury secretary Martin Parkinson last night delivered what seems to be one of the most important speeches on the economic future for Austalia and Australian workers in many years.
In what he said could be seen as a “glass half empty” speech Parkinson canvassed the future for Australia and how it might look.
The key takeaways are that the economic future is nowhere near as bright for Australia and its people as we face slower productivity and wages growth but a big increase in costs associated with the ageing baby boomers as their demographic wave moves into older age.
Parkinson highlighted that “based on 2010 Intergenerational Report projections, by 2050, there will be only 2.7 people of working age to support each Australian aged 65 years or over, compared with 5 working age people per aged person in 2010, and 7.5 in 1970.”
That means two things:
- A bigger tax burden on those who are working and on personal income tax (all other things equal)
- Intergenerational equity requires a broadening of the tax base to capture spending that is is not currently captured
Which leads to the increase and or widening of the net captured by the GST as a necessary response to both getting the budget in balance and also to stop what Parkinson says would be personal tax bracket creep for workers.
Indeed Parkinson noted: “By 2023-24, without any return of fiscal drag, the average tax rate for a taxpayer earning the projected average full-time wage will increase to 28 per cent, from 23 per cent this year – a rise in the tax burden for those individuals of almost one quarter.”
Any threat of a GST increase is a hot button issue in Australian politics and the Government has said there will be no increase under the coalition.
But Parkinson thinks that there are lessons from the debate in New Zealand about personal income tax cuts and GST increases if we start talking about it now.
He noted in answer to a question that when decision time came the “political heat just wasn’t there” and this gives “probably some lessons” for Australia.
Let the debate begin.