Analysis

Treasurer Wayne Swan: wants to balance the books.

Treasurer Wayne Swan: wants to balance the books. Photo: Penny Bradfield

Mr Treasurer, you want to fill a $12 billion a year shortfall in your revenue? It's simple. You could save twice that by scrapping tax breaks on super - to give you enough to fund the deficit, Gonski and DisabilityCare, and still have billions to spare.

There's a problem? That 12 million people now benefit from tax breaks for super? And they'll be voting in the September 14 election?

In theory, it's not hard to plug a revenue hole of $12 billion. That's barely 10 per cent of the $112 billion the government gives away every year in tax breaks. It's only 3 per cent of the $375 billion it spends on our needs.

But there are two problems. All those tax breaks, all that spending, delivers benefits to voters who value them. Take them away, and you risk alienating even more voters.

Second, voters are not demanding a budget surplus. Nor are economists; the mainstream of the economy is weak, and pulling $12 billion out would weaken it further. Even the Coalition no longer offers a surplus.

The government has virtually told us one thing it plans to do: raise the Medicare levy from 1.5 per cent to 2 per cent, to pay half the cost of its new disability services. No one likes paying taxes, but we seem to mind less if the money is to pay for services we support. That will raise $3 billion a year without electoral harm.

There is widespread speculation that, as the revenue shortfall is in company tax and the mining tax, the government will clip the mining industry and foreign companies in other ways. Last year's report by the Business Tax Working Group floated stripping mining explorers of instant write-off concessions worth $2 billion a year, and stopping foreign companies from loading their Australian arms with debt to reduce their tax.

But many of the big tax breaks go to us - and we vote. Many would see the tax breaks for negative gearing as negative for society. They lure investors to load up on debt to buy homes - in 18 years, negatively geared investors have swollen from 500,000 to 1.25 million - and price out first home buyers. It would be a brave government that took them on.

Then there is middle-class welfare, such as the baby bonus and the benefits for stay-at-home mothers. But those who receive them are voters who now view them as their rightful entitlements. It will take a worse crisis than this to rock their boat.

 

10 WAYS TO FILL THE BUDGET HOLE

1. Raise Medicare levy by 0.5 per cent to finance DisabilityCare.

Saving: $3 billion (a year).

Pro: We don't mind paying taxes so much if the money goes to a popular cause.

Con: Disability reform will cost much more than that.

2. Scrap instant write-off s of investment by mining explorers.

Saving: $2 billion.

Pro: Would make mining companies pay more tax, and remove a tax break unique to them.

Con: Could reduce mining exploration.

3. Tighten "thin capitalisation" rules to make multinationals pay more tax.

Saving: $500 million plus.

Pro: Would stop multinationals dodging tax by loading local subsidiaries with debt.

Con: Could reduce foreign investment.

4. Exclude "extras" cover from private health insurance rebate.

Saving: $1.25 billion.

Pro: Rebate for "extras" cover goes largely to high-income earners.

Con: Will not be confined to high-income earners.

5. Reduce tax benefits for family trusts.

Saving: $1 billion plus.

Pro: Trusts should not get tax breaks denied to companies.

Con: 1.5 million Australians get income from family trusts.

6. Scrap Family Tax Benefit B and baby bonus.

Saving: $4.7 billion (FTB-B) and $830 million (baby bonus).

Pro: Derided as 'middle-class welfare' FTB-B favours stay-at-home mums.

Con: Many mums want to be home with young children.

7. Raise the GST to 12.5 per cent and extend it to food, health and education.

Saving: $20 billion.

Pro: The money would go to the states, which sorely need it.

Con: You want us to raise a tax to benefit the states.

8. Restore indexation of excise taxes on fuel.

Saving: significant over time.

Pro: Would give Australians incentive to buy fuel-efficient cars.

Con: Australians in 2012 bought 305,825 SUVs.

9. Restore taxes on superannuation payouts.

Saving: $2 billion a year.

Pro: Would close a tax lurk that has no economic rationale.

Con: Would close a tax lurk that has electoral support.

10. Abolish negative gearing for landlords

Saving (est): $5 billion a year.

Pro: Would reduce investment in property, lower house prices and make it easier for young people to buy their own home.

Con: Australia has 1.25 million negatively geared landlords. They vote.

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