Budget repair challenge means Govt should reject calls to assist Holden and Qantas

I spoke with Pat Hession on ABC North Queensland radio yesterday afternoon on the removal of the Commonwealth Government’s debt ceiling, effectively its “credit card limit” as Pat described it. I made the following points:

  • I’m disappointed the debt ceiling has been removed because it forced the Government to focus some attention on the medium and long-term consequences of its budgetary decisions.
  • The new requirement for reporting to Parliament every time debt increases by another $50 billion (see Upper House votes to scrap debt ceiling) will worry the Government a lot less than introducing a bill seeking an increase in the debt ceiling would have.
  • The risk is that we’ll end up tolerating perpetual deficits and an ever growing debt. This risk is even greater given the spending pressures arising from the ageing population and escalating health care costs.
  • The Government has done the right thing in setting up the Commission of Audit to review the full range of Commonwealth expenditures and it will need to respond quickly to any recommendations.
  • The Government will need to seriously cut into industry assistance (first, it should resist calls to assist Holden and Qantas) and middle class welfare.
  • It should also consider broadening the GST base. On this and other possible measures, see Grattan’s excellent report Balancing Budgets.
  • It will be difficult to turn the budget around in the short-term (1-2 years) because the expected deficits of several tens of billions of dollars are too large and cutting expenditure enough to get back to surplus would have adverse macroeconomic impacts. The budget repair task is a medium-term one and will take around 3-5 years at least.

My previous posts on the debt ceiling, the GST and industry assistance include:

Debt ceiling is an important constraint on government expenditure

Government has to rely on inefficient taxes to fix budget – GST reform needed

New Government should reject car industry begging

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4 Responses to Budget repair challenge means Govt should reject calls to assist Holden and Qantas

  1. Craig Wilson says:

    All good points

    Sent from my iPhone

  2. cartoonmick says:

    The government has many awkward problems on its plate and it will be interesting to see how it reacts to the Qantas dilemma.

    The problem for you and I, Joe Public, is to be able to see through the smoke and mirrors so as to understand the true basis of the Qantas problem.

    There’s also been some “noise” about our ABC and how the government may (or may not) make changes.

    Here’s a cartoon with a light hearted take on a possible solution . . .

    http://cartoonmick.wordpress.com/editorial-political/#jp-carousel-813

    Cheers

    Mick

  3. Paul McGuire says:

    While I agree with your view that the Government should resist calls to assist Holden, how does this stack up with the decision to reinstate the extremely generous fringe benefits tax concessions for cars? Surely it would be more efficient to assist the car industry directly rather than through the convoluted FBT concessions?

  4. Gene Tunny says:

    Paul, thanks, good point. But once there isn’t an Australian car industry it will be easier for the Govt to get rid of the FBT concession once and for all.

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