Historic flip on spending risks big tax increases

The magnitude of revenue required points to an increased dependence on the big revenue base of income tax. The Parliamentary Budget Office says that notwithstanding announced tax cuts, structural pressures mean that future governments may find it harder to continue to offer regular income tax cuts to offset bracket creep, and that this risks an ‘increased dependence on personal income tax’ with the attendant issues of equity and efficiency.

When you step back for a moment you can see a distinct pattern in prospect: spending programs being changed to benefit higher earning families paid for by bracket creep falling on all Australians.

There is a neat solution to these problems that is neither radical nor impractical: exercise greater spending restraint. The government should make a commitment to moving overall spending levels back to the conventional Australian level under 25 per cent of GDP.

Adopting a more targeted approach to spending would contribute to this goal, alleviate the tax burden on Australian workers, and enable Australian businesses to be more competitive. Focusing government benefits on those who need assistance is a common-sense approach to managing a country’s finances.