Surging tax receipts from workers and companies are repairing the nation’s finances, with the federal budget deficit already $20.5 billion smaller than expected, giving Treasurer Jim Chalmers important fiscal breathing space ahead of the May budget.
As the government considers changes to the tax system on gas producers and tax experts warn the country will struggle to pay for key services without major tax reform, new figures revealed a growing financial dividend from inflation, high commodity prices and this year’s lift in wages growth.
Finance Minister Katy Gallagher with Treasurer Jim Chalmers at the 2022-23 budget press conference. Strong revenues and lower spending means the budget deficit is $20.5 billion lower than expected.Credit:James Brickwood
To the end of February, the budget deficit for the 2022-23 financial year was $12.9 billion. When Chalmers released the budget in October, it was expected to show a deficit of $33.4 billion over the same period.
For the entire year, the deficit was forecast to be $36.9 billion, before deteriorating to $44 billion in 2023-24.
The improvement is driven by stronger revenues and lower spending. Personal income tax collections are running $4.7 billion ahead of expectations, while company tax is $6.3 billion better than forecast.
Wages growth has picked up to its fastest pace in a decade while the resources sector continues to enjoy high prices for key exports including iron ore.
Spending on transport and communication projects and in the agriculture and fishing sectors is running behind forecasts. In most cases, transport projects require agreement with the states before they are finally funded.
Finance Minister Katy Gallagher said the near-term improvement in the budget was a deliberate result of government policy which included banking revenue upgrades.
But she cautioned the budget faced long-term challenges.
“We know the near-term boost to revenue from elevated commodity prices won’t make up for the longer-term challenges, including the big five spending pressures – funding the NDIS, aged care, health, defence and servicing the one trillion dollars of Liberal Party debt,” she said.
The government is looking at possible changes to oil and gas taxes ahead of the budget.Credit:Bloomberg
Those long-term challenges include petroleum resource rent (PRRT) collections from the oil and gas sector. To the end of February, this tax was running almost $100 million behind forecasts at less than $2 billion.
Treasury restarted an examination of the PRRT system last year due to ongoing concerns that gas and oil companies are minimising payable tax.
Chalmers is likely to get the Treasury’s review of the current system in coming weeks, and potential revenue-raising reforms are to be included in the May 9 budget.
Australian Petroleum Production and Exploration Association chief executive Samantha McCulloch said the offshore gas industry was currently making a significant economic contribution, without any reforms to garner more tax revenue.
Allegra Spender’s tax roundtable is expected to produce a green and white paper on tax reform by year’s end.Credit:Rhett Wyman
“Australia’s oil and gas industry is already delivering increasing returns to governments as part of a broad economic contribution that provides billions of dollars to build hospitals and roads, employs 80,000 workers and enables almost $500 billion of economic activity annually,” she said.
Changes to the PRRT would be minor compared to the tax reform sought by experts at a roundtable held by teal independent Allegra Spender on Friday.
Experts including former Treasury secretary Ken Henry, former Grattan Institute executive director John Daley and the director of ANU’s Tax and Transfer Policy Institute, Bob Breunig.
Representatives from Chalmers’ office and that of shadow treasurer Angus Taylor attended, along with fellow independents Kylea Tink, Sophie Scamps, David Pocock and Dai Le.
Henry said long-term budget issues identified in the early 2000s had actually got worse because of the failure of governments and policymakers to consider serious changes to the tax system.
“I don’t think it’s too late. To avert the crisis, we need to do things very, very differently,” he said.
Michelle de Niese from the Corporate Tax Association noted that since 2015 there had been 35 amendments to corporate tax laws. Of those, 91 per cent had been changes around integrity issues, 6 per cent were COVID-era temporary changes and 3 per cent related reforms by the current government to fringe benefits tax on electric vehicles.
Spender, who plans to release a green and white paper on tax reform this year, said there was a consensus among those at Friday’s discussion for substantial changes.
“We have to improve the operation of the tax system to make it sustainable, to help drive innovation, to improve intergenerational equality,” she said.
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