Australians will work longer and could face taxes at record levels to balance the budget, an intergenerational report claims
JOE Hockey has warned that if Australia doesn’t do something to change its economic future, we run the risk of working longer with more taxes.
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AUSTRALIANS could face record taxes in order to balance the budget if the full suite of government’s economic measures are not put in place, according to today’s intergenerational report.
But the future of the Australian workforce will mean Australians will need to work longer and harder over the next 40 years in order to sustain the nation’s economy.
Today’s report, which modelled three scenarios based on previous Labor policies, the current settings and the proposed Coalition reforms, showed the underlying cash deficit would reach $267 billion by 2054-55.
If no changes were made to payment levels under the current settings “taxes would need to rise to and remain at a sustained level of around 26 per cent of GDP to balance the budget”.
The previous historic high for tax receipts to GDP was 24.2 per cent. Current levels are 22 per cent.
“This level of taxation would significantly reduce the real rewards for effort over time by taxpayers — discouraging workforce participation and investment and depressing economic growth,” the report says.
Today’s report showed under current projections the average annual income would rise from $66,400 today to $117, 300 by 2055.
The proportion of Australians aged over 65 in the workforce would increase from 12.9 per cent in 2014-15 to 17.3 per cent in 2054-55.
Net debt is currently projected to reach 57.2 per cent of GDP in 2054-55 or $65,600 per person in today’s dollars without any future changes.
In total, net debt would be $2.6 trillion in 2054-55 if current policy settings remain.
However if the Coalition’s proposed economic policies are all put in place net debt would be zero per cent of GDP by 2031-32 and be delivering $691 billion in assets for the budget bottom line by 2054-55.
The report also warned of tax bracket creep and a situation where Australians even on the second lowest income bracket would face steep taxes.
For Australians on the average income, taxes could rise to 27.4 per cent by 2023-24 without any tax cuts.
“For some people, particularly those on relatively low incomes, bracket creep can reduce incentives to work,” the report says.
Announcing the report today, Treasurer Joe Hockey said technology would help boost productivity into the future.
“Innovation and technology is going to change our lives,” Mr Hockey said.
He said entrepreneurship was also key to the the nation’s economic future.
“We are entering into a generation of small business like never before,” Mr Hockey said.
“It is going to be the innovative hub of the economy.”
Mr Hockey said the intergenerational report was vital to start a discussion with the Australian people about the future.
“The purpose of this IGR in this shape is to begin a conversation with the Australian people,” Mr Hockey said.
“We want Australians to have a great future.
“We are going to work with the Australian people to develop the policies ahead.”
“If we don’t do something, we risk reducing our available workforce, impacting negatively on growth and prosperity, and our income will come under increasing pressure,” he said.
“If we are to achieve these goals, we need to encourage those currently not in the workforce, especially older Australians and women, to enter, re-enter and stay in work, where they choose to do so,” he added.
Mr Hockey said the report provided a great opportunity to benefit future generations.
He said “our generation is the luckiest that has ever lived”.
Mr Hockey said structural changes were needed and the intergenerational report proved this.
“I don’t think any political party could pretend that the status quo is acceptable,” he said.
He said that tax breaks needed to be on the agenda to counteract the warnings of tax bracket creep in the report.
“We have to give tax breaks to Australians,” Mr Hockey said.
“Otherwise it starts to constrain people’s ability to work.”
Mr Hockey said it was “self-evident” that if all the Coalition’s proposed economic reforms were passed tax breaks would follow.
Yesterday Prime Minister Tony Abbott told parliamentary Question Time that even with just some of the Coalition’s controversial budget measures passed the government’s plan “does in fact get close to surplus and ongoing deficits are halved”.
As revealed by The Daily Telegraph today the report also pointed out that Australians born after 2055 were likely to live to an average of 100 years.
The report says with improvements in health and new technologies, the average life expectancy of Australians will be 95 years for men and 97 for women by 2055, compared with 80.7 and 84.8 now. In 1905 it was just 55 and 59.
The report said older Australians and women needed to be encouraged to remain in the workforce, or get a job, to boost the economy.
The Intergenerational Report is handed down every five years and is used to assess the financial implications of continuing current economic policies and trends over the next 40 years.
It is used as a way to ensure the policies and decisions made for the current generation don’t significantly hinder future generations.
The intergenerational report was first legislated in the Budget of Charter Honesty in 1998 and Peter Costello handed down the first report in May 2002.
Mr Costello delivered another report in April 2007 and Labor Treasurer Wayne Swan delivered the last report in January 2010.
Today’s report — the fourth ever such intergenerational report — is more than a month late with the Treasurer under fire recently for failing to meet the five year deadline.
With just two months to go until Mr Hockey delivers the federal budget on May 11 it is expected today’s report will provide a platform for reform.
Labor’s Treasury spokesman Chris Bowen said Australians should not have to work the longest in the developed world.
He said the report was simply a political stunt.
“What they should have done is engaged in a proper process with the Australian people,” Mr Bowen said.
“We will have a non-political intergenerational report.”
Mr Bowen said he would get the Parliamentary Budget Office to write the report at “arms length” from government so the document was not simply a political exercise.
Earlier today, he said the report “could win the Miles Franklin Award for fiction”.
Greens Senator Richard Di Natale has flagged his intention to hold a Senate inquiry into the report.
As Mr Hockey gave his press conference today, former Labor treasurer Wayne Swan launched a savage attack on the government’s economic management, accusing it of manipulating debt and deficit figures for its own ideological purposes.
Mr Swan, who’s rarely spoken in parliament since the 2013 election, also defended his government’s economic record.
Mr Swan said Labor left office with the economy growing strongly and a deficit of $30.1 billion, or 1.9 per cent of GDP - one of the lowest in the developed world.
The first thing the Abbott government did was double the deficit over the forward estimates.
Mr Swan said Australia had a revenue rather than a spending problem.
But the government talked down the economy and exaggerated debt and deficit to demonise Labor and justify its savage ideological cuts to health and education.
In a triumph of politics over policy, it manipulated figures to match its debt and deficit rhetoric.
He said the government had “debased” the report.
For the first time it had its own “Liberal Party chapter” devoted to political pointscoring at taxpayers’ expense.
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