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Federal Politics

Why the good times don't feel so great

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Victoria on the brink of recession

Online political editor Tim Lester says yesterday's ordinary growth numbers increase the chances of a tough May budget.

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COMMENT

Someone's getting filthy rich out of this resurgent mining boom, but it ain't the federal government.

The secretary of the Treasury, Martin Parkinson, has used his first anniversary in the job to warn that Australia faces a decade of ''razor-thin'' surpluses despite the biggest boom in the nation's terms of trade since the gold rush days.

Wayne Swan

For my next trick … the Treasurer, Wayne Swan, yesterday, who faces an uphill battle to bring the budget back into the black. Photo: Alex Ellinghausen

It's an astonishing - and, on the surface, somewhat confusing - result.

Australians, after all, are accustomed to the federal government bathing in an embarrassment of revenue riches delivered by the mining boom.

During the mid-noughties, Treasury was habitually embarrassed when its revenue forecasts - which assumed an imminent plateau in commodity prices - proved too pessimistic. This enabled the then treasurer, Peter Costello, to perform his annual crowd-pleasing trick of pulling a bigger-than-expected surplus out of his budget hat.

The revenues from the first wave of the mining boom helped pay off government debt, create a Future Fund to cover unfunded public service superannuation liabilities and keep the budget in surplus at 1 per cent of gross domestic product.

The rest was returned to taxpayers in successive years of income tax cuts which took the top individual tax rate from 47 per cent to 45 per cent and pushed out the point at which it applied from $60,001 in 2002-03 to $150,001 in 2007-08 and $180,001 today. And come election time, there was always plenty of cash in the kitty for one-off bonus payments for seniors and families.

But this time is different. The global financial crisis has fundamentally reshaped the Australian economy. Tax revenue as a percentage of GDP has fallen as a result.

Asset prices have gone backwards on shares and stagnated on housing, reducing tax collected through the capital gains tax. Whereas one in 12 houses changed hands each year during the early noughties, today it is just one in 25, as the Reserve Bank deputy governor Phillip Lowe pointed out in a separate speech yesterday. And even when houses sell, the capital gains realised are not growing anything like they once were.

Households - which had already reached the limits of their debt-fuelled spending binge in response to structurally lower interest rates - have also reacted to the global financial turmoil by reducing spending. Revenue from the goods and services tax remains depressed.

A higher dollar this time around - a symptom of Australia's relative economic success - is also depressing company profits in the non-mining sectors of the economy, particularly in tourism, education services and some parts of manufacturing. Finally, despite mining companies producing around a fifth of total profits, they represent only a tenth of total company tax paid. A huge ramp-up in investment in infrastructure means they can offset their taxable profits by claiming deductions for the depreciating value of their assets.

Hitting the government's surplus target for 2012-13 will be no easy task.

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142 comments

  • Well, I know who is getting filthy rich out of the mining boom. It's certain people able to buy TV networks, newspapers, expensive lawyers to litigate against any sort of criticism and to pay PR companies to lobby for tax avoidance.

    After spending three years in Perth, the things I learnt are:
    1. There are a lot of people living on the breadline in WA and they are not mining magnates - they are ordinary Australians;
    2. The cost of living in Perth is exhorbitant. Rents are high; meat, vegies fish and basic items are 1.5 to 2 times the price of Sydney.

    I understand the numbers and the background to why Mr Swan has said what he said this week. What I don't understand is why Joe Hockey and Tony Abbott don't care about the nation and taxpayers and refuse to believe in everyone paying their fair share.

    Commenter
    Peter
    Location
    Lane Cove
    Date and time
    March 08, 2012, 7:09AM
    • The States are too reliant on inefficient & productivity damaging taxes such as stamp duties & insurance taxes.
      There are major problems with the way the finances are organised between the States & the Commonwealth. The States have accountability for delivering high-demand, high-cost services, but have little of their own revenue with which to do it as the Commonwealth usurps much of their tax revenue.

      Additionally, Gillard never mentions it but her Carbon Tax will hit the State budgets very hard by increasing the energy costs of everything from schools & hospitals, to public transport. Analysis from Deloitte Access Economics shows that by 2015 in VICTORIA alone: there will be 35,000 fewer jobs than would have been without a carbon tax; investment will be down almost $6.3 BILLION or 6.6%: per capita income will be more than $1,050 lower & the Victorian State Budget will be almost $660 MILLION worse off. And for no other reason than to fulfill Bob Brown's socialist dreams. So if you think things are bad now, just wait till July.

      By the way, Gillard can easily save BILLIONS by reucing the staggering $13.3 BILLION which she currently hands out to AusAID. She can look after Africa & Asia but can't look after destitute and poor Asutralians.

      Commenter
      sophie
      Location
      melbourne
      Date and time
      March 08, 2012, 10:19AM
    • "Fair Share......"

      There are around 12 million taxpayers in Australia. The top 1 million pays the same amount as the entire bottom 11 million combined.

      The wealthiest individuals pay an amount in tax that would be many thousands of times greater than the middle income taxpayers.

      I think "Fair Share" is code for "Please Steal From Those Who Have A Lot Of Money On My Behalf Since I am Too Cowardly To Do It Myself"

      Commenter
      Bastiat
      Location
      Date and time
      March 08, 2012, 10:36AM
    • Yeah Sophie... that's an appropriate comparison... while you sit here on your computer reading the daily news and commenting on how life is hard, millions in Africa are contemplating how they are going to find their next meal.

      Commenter
      Michael
      Location
      Melbourne
      Date and time
      March 08, 2012, 10:41AM
    • You hit the nail on the head...why Joe Hockey and Tony Abbott don't care about the nation and taxpayers and refuse to believe in everyone paying their fair share.

      How disgusting are these people to run a scare campaign to ensure they don't have to pay tax, as the poor miners can't afford it!!

      At every opportunity, Palmer tells us how much personal tax he pays and then cries poor that he can't afford the mining tax....disgusting, greedy individuals and fully supported by the Liberal Party...Abbott, Hockey and Libs, you are a disgrace...you won't tax rich miners, yet you are happy to axe 12000 government jobs...real humanitarianism....so Australia, is this who you want running our country?

      Commenter
      Fat Pigs
      Location
      Melbourne
      Date and time
      March 08, 2012, 10:46AM
    • You don't think the Feds are stealing a load of income tax from those $200,000pa janitors? Of course the Federal Gov is making out like bandits.

      Commenter
      Jonathan
      Location
      Melbourne
      Date and time
      March 08, 2012, 10:56AM
    • Sophie what a hard person you are. I suppose for people to be rich they need to exploit the poor.

      Commenter
      Bill
      Location
      Melbourne
      Date and time
      March 08, 2012, 11:03AM
    • Ah yes FAIR SHARE.....let's have a look at the GST Distribution under Labor. For every dollar paid to the Federal govt, the States get back: WA - $0.55, VIC – $0.92, NSW – $0.95, QLD – $0.98, ACT - $1.18, SA - $1.28, TAS - $1.58, NT - $5.53
      Labor & Gillard give WA, VIC, NSW & QLD the big shaft. Imagine what WA can do with an extra 45% of GST money, or for that matter Victoria with 8%. The GST was not meant to be handled in this way, it was meant to go back to the paying States.

      Additionally, the Australian Bureau of Statistics reports that the highest 20% of income earners pay nearly 50% of tax & receive just 9% of the benefits of those taxes.

      On the other hand, the lowest 20% of income earners pay only 5% of taxes & receive more than 40% of the benefits.

      Fair Share...yes, the people paying the taxes should demand their fair share!

      Commenter
      mimi
      Location
      melbourne
      Date and time
      March 08, 2012, 11:05AM
    • I find the passive aquiescence of Australians towards the leeching of the huge miners incredible. Their powerful media propaganda is working, unfortunately. They care little for Australia and middle Australia, just boost the bank, yet right there, so many are cheering the constant sucking up of Abbott who does so for one thing - get back into the driving seat, and damn anything else. If he ever does, we will, of course, end up with mining mud all over our poor faces and they and him will just continue to play the population for media fools and justify it all.

      Commenter
      Rod L
      Location
      Melbourne
      Date and time
      March 08, 2012, 11:10AM
    • Fat Pigs: running the economy poorly seems to be the speciality of LABOR, not the Liberal govts. What Labor forget is that eventually, all their wasteful programs have to be paid for.

      In addition, it would behoove Labor from perpetuating its own LABOR MAIN MYTHS as these seem to be working to Labor's disadvantage.

      It includes such things as: Tony Abbott is unpopular & unelectable; the Carbon Tax is not leading the world & that it will gain public support once it's introduced; the Rudd government was a good govt that just lost its way; the reaction to the Global Financial Crisis was an unmitigated success; the Mining Tax & Rudd as PM were destroyed by an advertising campaign funded by mining billionaires; the rise in asylum-seeker numbers is the Coalition's fault; & all criticism is part of a "hate media" conspiracy. Let's face it, most voters no longer trust Labor, no longer believe the lies and now only the Labor politicans and the die-hard Labor supporters believe their own manufactured SPIN!

      Meanwhile our economy and many of our people are being left behind due to their incompetence in managing the taxpayers money & the economy.

      Commenter
      sophie
      Location
      melbourne
      Date and time
      March 08, 2012, 11:16AM

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