Grattan report shows need for permanent budget measures, not temporary debt levy

The highly regarded think tank the Grattan Institute yesterday released the 2014 update of its excellent Budget pressures on Australian Governments report. The report makes it clear that Governments need to take permanent measures to repair budgets, not short-term fixes such as the proposed debt levy. The report highlights the huge cost pressures from health and the aged pension and identifies some useful sources of possible savings (p. 1):

…the most promising reforms include lifting the age of access to Age Pension and superannuation, tightening the Age Pension assets test, paying less for pharmaceuticals with expired patents and asking students to pay a greater share of their tertiary education.

However, given the size of the problem, budgets can only be balanced by looking at both expenditure and revenue. The highest priority tax increases should be the withdrawal of poorly targeted tax concessions, particularly superannuation for the wealthy, capital gains discounts, and negative gearing.

I’d be reluctant to move on negative gearing because of possible adverse impacts on the rental market, although I’d note many economists would disagree with me (see MacroBusiness on the The negative gearing myth that just won’t die). But the other measures listed should certainly be considered. (And the Government, of course, has recently announced an increase in the age of access to the pension to 70 for people born after 1965.)

The Grattan report is consistent with the points I made in my discussion on the debt levy with Steve Austin last week on 612 ABC Brisbane:

ABC radio interview on the debt tax and paid parental leave



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3 Responses to Grattan report shows need for permanent budget measures, not temporary debt levy

  1. 800psi says:

    I’m with macrobusiness on the negative gearing. “Investors” are overwhelmingly buying established property, which does nothing for the supply of housing that is causing both a rental and affordability crisis. Restricting it to new assets would much better meet the original policy intent of boosting supply and improving affordability.

    • Gene Tunny says:

      Yes, but I wonder if that is too partial an analysis? If investors overwhelmingly buy established properties won’t they bid up prices, and wouldn’t some demand shift to new properties?

      • 800psi says:

        This would be true if supply were sufficiently responsive. In the end, new/old/rent/buy are all decent substitutes. If you constrain supply and encourage one, it will crowd out the others.

        If we had perfectly responsive supply, NG policy wouldn’t have a big effect on prices.

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