Deloitte’s Chris Richardson warns government to be prudent

A leading economist has warned the Coalition to be prudent amid growing speculation income tax cuts will be announced.

Deloitte says higher than expected commodity prices have increased revenue. Picture: AAP

A leading economic forecaster has warned the Coalition to be prudent amid growing speculation Treasurer Scott Morrison will announce income tax cuts in next week’s Budget.

The government’s bottom line has received a $14 billion boost by the strongest tax revenue growth in almost two decades but weak wage growth will constrict tax ambitions if the government is serious about returning to surplus by 2020-21, says Deloitte Access Economics latest forecast.

Deloitte has forecast tax revenues will increase 10 per cent this financial year and 6 per cent next year, but warns the nation’s budget depends more on China’s economic performance than Canberra’s planning. “The budget is determined more by China than it is by Canberra, so if China turns out weaker than we forecast, a return to surplus would drop off the radar pretty fast”.

Deloitte forecaster Chris Richardson said this morning the Coalition risked biffing the budget by being too generous in response to economic improvements arriving faster than expected. “The good news that was always going to happen… that businesses would run out of their tax losses and the tax system would look better… it’s happening earlier and really fast, but that’s not a permanent improvement, that’s just good news happening earlier than expected.” he said on Sky News.

“The oldest mistake in the budgetary book is to see some better economic news that shows up really well in the budget… politicians take that love to town, they unfurl the mission accomplished banner and say that’s all good.”

Mr Richardson said taxes impaired the economy and that Turnbull’s signature policy to cut company tax would enhance Australia’s economic performance. “If you want to make the economy stronger into the future then one of the smartest ways to do that is to get rid of dumb taxes,” he said. “And I think that people often don’t realise is that different taxes hurt the economy.”

According to Deloitte, higher than expected commodity prices and strong global growth have increased revenue from company tax but that abandoning the Medicare levy increase meant a return to surplus would not be possible until 2021.

Liberal MP Tim Wilson said tax reform should be prioritised at every opportunity to enhance economic performance. “With available resources we should be pursuing tax reform to improve the state of the budget not just in the short term but in the long term as well as the hip pockets of Australians.” he said.

Labor MP Peter Khalil said the Coalition should abandon the company tax cuts in favour of investing in social infrastructure. “They should forget about the $65 billion in tax cuts to big banks and the $13.2 billion that will go to big banks… especially given what we’ve been seeing in the royal commission and invest that in education, in healthcare and in infrastructure.” he said.