Balancing budget must be priority

It is central that we give prime importance to balancing the Federal Budget, Department of Prime Minister and Cabinet and Victorian Department of Premier and Cabinet Former Secretary, Terry Moran AC has told the Victorian release of CEDA’s Deficit to balance: budget repair options

“I agree with CEDA’s proposition that we balance the Budget while we wait for the right time for tax reform to come along,” he said.

Balancing the Budget will provide a cleaner base for a tax debate, he said

Discussing the states, Mr Moran said they also need to be part of the reform discussion.

“The states are the great unreformed world of investment negative taxes like the payroll taxes,” he said. 

“I think the community and business is allowing states to get off the hook too easily.”

Mr Moran said previous periods of reform have been successful and included both expenditure and tax reform.

Also speaking at the event, Allianz Australia Chief General Manager Workers Compensation and Victorian Department of Premier and Cabinet Former Secretary, Helen Silver AO said we have done big reforms before and “big change is still possible”.

Ms Silver said previous reform has come when an empirical base has been put into the public arena.

It is difficult to get bipartisan agreement and dialogue on how to implement reform, she said. 

On the topic of tax reform, Ms Silver said there has been quite a lot of reform at the state level.

“If you’re going to talk about tax reform you need to talk about it at the Commonwealth and State level,” she said.

“At the state level the Budgets are not actually in a bad state.

“The issue for state governments is a growth source of revenue so that they can deal with their competing demands.”

Also speaking at the event Lowy Institute Fellow and CEDA and RBA Board Member, Dr John Edwards said asAustralian Financial Review Journalist, Laura Tingle pointed out last year, both the Government and opposition are discussing similar tax enhancements – capital gains, negative gearing and superannuation.

Dr Edwards said consensus on these issues is possible.

“There’s no ideological reason to expect the dispute to persist,” he said.

On the Budget issue, Dr Edwards said there are short and long term problems.

“In the short term we have a revenue issue and in the long term we recognise we’ve got a spending issue,” he said.

“If we do get to a balanced Budget…we’ll soon go back into deficit and the reason we’ll soon go back into deficit is that spending under current policy will continue to increase faster than nominal GDP.”

Standard & Poor’s Rating Services Australian Country Head, Fabienne Michaux said balancing the Budget is important for Australia because of our reliance on offshore investors and relatively weak offshore position.

“Overall debt relative to a lot of countries is fairly low, our external position is very weak and Australia is a lot more vulnerable to external investors changing their sentiment,” she said.

On the Budget she said rhetoric from both sides of politics indicate they are committed to balancing the Budget.

“Increasingly what we are having is a longer lag time between those statements and reality in terms of what is playing out,” she said.