Does Australia really need a tax cut when national debt is rising?

OPINION: Scott Morrison is set to announce tax cuts on Budget night but the size and scope remain uncertain, amid questions whether the money would be better used to repay debt.

TAX cuts are coming, Australians have been told ahead of Tuesday’s Federal Budget, so does that mean it’s time to party?

Not exactly. Forecasters are predicting modest income tax cuts — perhaps $10-$20 a week for most workers — and they could be spread over a few years.

However, for households struggling with big bill rises and low wages growth, any extra money in peoples’ pockets is going to be welcome.

But are widespread tax cuts good for Australia?

Some financial experts are questioning the need for them when the economy is motoring along nicely. Others say the money should be instead directed to increasing the dole. Others say it should all go towards “Budget repair”.

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It’s a fact that Australia’s government is still spending more money that it earns every week, every month, every year. That’s causing our national debt to keep growing and our national interest bill to head towards $20 billion a year.

Before the Global Financial Crisis and the first Rudd Government Australia effectively had no national government debt. Today, it’s more than $625 billion.

Treasurer Scott Morrison has foreshadowed income tax cuts. Picture Kym Smith

To see how quickly it’s rising, visit www.australiandebtclock.com.au and prepare to be freaked out. Debt is increasing by more than $2000 every second, and forecast to keep climbing until 2020-21.

Our national debt is relatively small globally, but it does put us at greater risk if global finances crumble again. When the GFC struck we were in a great position to chuck cash at consumers and businesses and this made us one of the few economies anywhere to avoid a recession.

If it happens again, and we’re starting with a big debt pile, we won’t have as much flexibility.

Treasurer Scott Morrison says tax cuts are simply giving Aussies back money that they earned in the first place, and he’s right. But what about the kids, grandkids and great-grandkids?

Should future generations be lumped with massive interest bills because we’ve had 10 years of Labor and Coalition governments spending more money than they earn?

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The Coalition has tried to cut spending and has been blocked by a dysfunctional Senate.

However, Coalition governments are traditionally seen as the conservative savers — enhanced by former Treasurer Peter Costello’s effort in getting debt down to zero, with help from the mining boom.

Labor governments traditionally like to spend — on health, education, national disability schemes, national broadband networks, cash handouts and similar nice things.

So it’s a worry that after almost two Coalition terms, national debt is still going in the wrong direction.

Tax relief for struggling households is a good idea but when the tax cuts are broadbased, billions of dollars also go to wealthier people who don’t’ need it and would probably prefer the nation to be stronger financially.

When a household spends more money than it earns and goes deeper into debt, painful problems are kicked further down the road.

That’s what our politicians on both sides should think about.

@keanemoney

Originally published as Does Australia really need a tax cut when national debt is rising?