Jim Chalmers’ budget hole may hit $20bn. His solution: ‘ongoing effort’

Economists warn Labor’s revamped superannuation tax reforms could raise $20bn less than planned, but Treasurer Jim Chalmers refuses to change course on budget strategy.

Senior ­Coalition sources told The Australian it was a near certainty that Sussan Ley would oppose Jim Chalmers’ revamped super tax package. Artwork by Emilia Tortorella

Jim Chalmers has signalled there will be no change of budget strategy to plug the growing disparity between revenue and spending, as economists say the ­revamped superannuation package may raise about $20bn less over a decade than the initial design.

As the Treasurer revealed he spoke to Paul Keating throughout last week about redesigning a package that was forecast to raise $43.9bn over a decade, senior ­Coalition sources told The Australian it was a near certainty that Sussan Ley would oppose the package in the aim of restoring the opposition’s reputation as the party of lower taxes.

While the decision to dump ­unrealised capital gains and add indexation to the proposed superannuation reform has largely been welcomed, economists say spending restraint or tax measures are needed to make up for the revenue shortfall compared to the package taken to the election.

AMP chief economist Shane Oliver and independent economist Saul Eslake said it was possible the new package would raise half what the proposal unveiled in 2023 would have raised over a decade, increasing pressure on Labor to lower spending.

Pressures on the budget have grown since the election, with state governments demanding nearly $50bn extra for hospitals, Labor committing more money for its climate change agenda and doubts emerging over its funding projections for aged care.

While the revamped super­annuation package is forecast to initially raise about $1bn less a year than the earlier proposal, Dr ­Oliver said the shortfall could be $4bn to $5bn a year by the middle of the next decade. “The impact will grow over time because the government has done the right thing and indexed it,” he said.

Dr Oliver and Mr Eslake said the government would have to overhaul its fiscal strategy to make the budget more sustainable.

EQ Economics managing ­director Warren Hogan said the government needed to cut spending, arguing its cost projections on key programs was too optimistic. “Late 2026-27, it will be really clear the problem they are in. And when I say problem, I am talking about budget deficits of $10bn a year worse than they are currently thinking,” he said.

But Dr Chalmers said the government’s existing strategy – which has Australia on track for a decade of deficits – would help plug the revenue shortfalls from the redesign of the super proposal that was baked into the March budget. Refusing to outline the 10-year impact of the policy on the budget, the Treasurer said the ­government would continue to deploy a “combination of budget improvements” through spending restraint, banking revenue upgrades and reforming the tax system. “It requires effort right across the board, it requires ongoing ­effort,” he said. “It’s night and day when you compare the budget that we inherited.”

When asked if he would consider new taxes to make up the revenue shortfall from the revamped package, Dr Chalmers talked up the government’s existing tax ­reform agenda.

“We’ve got another two rounds of income tax cuts. We’ve made progress on multinational taxes and the PRRT. We’ve had tax reforms to encourage the building of build to rent projects,” he said.

“We’ve got tax breaks for small business. We’ve got tax breaks when it comes to the industries which will be central to a Future Made in Australia. So, we’ve ­already got a broad and ambitious agenda when it comes to tax ­reform.”

With Dr Chalmers failing to use the economic reform roundtable as a launching pad to set a new strategy, Mr Eslake said the government needed to go to the next election seeking a reform mandate.

“There is still, as there was at the time of the election, as there was at the time of the roundtable, difficult decisions that the government needs to take at some point to raise additional revenue and cut spending. They have got to do it,” he said.

“The best that can be hoped for is Chalmers doing what John Howard did ahead of the 1998 election and articulate the case for (reform).” 

As he attempts to win the support of the Greens to pass the package through the Senate, Dr Chalmers talked up providing further tax breaks in the ­superannuation system for Australians with balances below $45,000.

The package increases the tax rate on realised gains from 15 per cent to 30 per cent for balances above $3m and another rise to 40 per cent for balances above $10m, with the rates to be indexed in line with inflation. While the Coalition is expected to oppose the package in the Senate, senior opposition figures say it is unlikely the Opposition Leader would go to the election promising to repeal it.

Liberal frontbencher Andrew Bragg on Tuesday said he believed it would be “very unlikely” the bill would pass parliament.

“This is just another tax ­increase which is required for filling the big holes in his budget in which he is running around like the world’s biggest spender,” he told the ABC.