CEDA CEO Melinda Cilento said CEDA’s report, Sustainable budgets: underwriting Australia’s social compact, examines ways to rebalance the tax burden and spend smarter so we can support Australia’s economic resilience and fund the services and infrastructure the community needs.

“There have been welcome improvements in the federal budget position,” she said.

“However, there are real risks to reaching and maintaining a surplus and tough budget decisions for years ahead as we seek to pay down debt accumulated since the GFC, enable workforce participation and investment, and meet community expectations in areas like health and aged care.

“We face significant long-term demographic, economic and technological challenges, while global economic growth is slowing and there is pressure on households from sluggish income growth, high household debt and falling house prices. Our research also shows that expenditure discipline following an election is rare.

“Everyone is talking about the need for budget discipline – this requires the right foundations now, with a longer-term focus that strengthens the underlying structure of revenue and expenditure programs.”

Ms Cilento said CEDA’s report identified three areas where long-term budget discipline can be improved:

• Improving bang for buck through evaluation and transparency including returning to five yearly evaluations for all government programs that used to be the norm, an enhanced whole-of-federation intergenerational report and independent reviews of fiscal strategy
• Ending micro management of states and territories by freeing up Federal tied funding to enable innovative and localised approaches for services and infrastructure
• Reining in tax concessions as part of efforts to rebalance the tax burden.

“We can’t continue to kick hard decisions down the road – they are only becoming more challenging and this puts a greater burden on future generations,” she said.

“Addressing tough issues now and embedding better discipline will create more opportunities and time for transition. The longer we wait, the more blunt and abrupt necessary changes will need to be.”

Ms Cilento said the report outlines savings across the Pharmaceutical Benefits Scheme (PBS), industry assistance and healthcare while also reining in tax concessions by reducing refundable dividend imputation credits, the capital gains tax discount and work-related expense deductions.

“We must continually assess tax policies and concessions to ensure they remain right for Australia. The dividend imputation credit policy is an example of something that was affordable at a point in time but became unsustainable as multiple tax concessions grew and accumulated,” she said.

“The dividend imputation tax credit when introduced in 2000 was set to cost the Federal Budget $550 million, it now costs $5 billion. The majority of this $5 billion is going to individuals with substantial investment portfolios.
It is appropriate to wind this back in light of broader fiscal challenges ahead.”

However, she said any changes can and should be transitioned, in particular to ensure that self-funded retirees relying on more modest investment balances and incomes are not unduly impacted.

“This approach is consistent with the well-targeted approach that Australia seeks to maintain through its tax-transfer system,” she said.

In the absence of more substantive tax reform, these are modest changes in the right direction that are achievable and will assist with long term budget discipline.

Ms Cilento said some measures outlined in CEDA’s report would have a fiscal cost, but deliver significant economic benefits long-term, including personal income tax cuts and improving the competitiveness of our company tax arrangements.

“To date, the heavy lifting of budget repair has been reliant on the most volatile and economically harmful taxes that sap incentive in our economy – personal income tax and company tax. We’ve got to reduce this reliance in the tax mix over time if we want a healthy budget and a strong economy,” she said.

“At a time when households are already dealing with stagnant incomes, you can’t have a tax system that places an increasing burden on workers and bracket creep is an important area to address.

“Equally company tax cuts should support investment and in turn jobs, wages and tax revenue over time.

“Improving government transparency may also require some investment but it will allow better targeting of scarce taxpayer dollars to services that we know are delivering results. “It will also help build community trust in the Federal Budget process.”

Report information

Download: Sustainable budgets: underwriting Australia’s social compact 

The launch of this report will be followed by events across Australia on the following dates:
Brisbane 12 March | Melbourne 19 March | Perth 21 March | Sydney 29 March

Melinda Cilento is available for further comment and interviews.

For more information, please contact:
Roxanne Punton, Director, External Affairs Mobile: 0409 532 287 | Email: roxanne.punton@ceda.com.au Eleanor Green, Media and Communications Advisor Mobile: 0408 375 600 | Email: eleanor.green@ceda.com.au