Treasurer Jim Chalmers has pledged that the federal government will deliver another “responsible budget” in May, with spending restraint as its hallmark.
Along with the persistent challenge of high inflation, this time the government is also staring down a projected structural budget deficit of $50 billion for 2025–26.
In his latest market analysis, AMP’s chief economist, Shane Oliver, pointed out that given the government’s latest tweak to the taxation of superannuation accounts is expected to raise only $2 billion annually for the budget, further tax measures could be on the horizon due to the government’s significant deficit.
Speaking to InvestorDaily, Dr Oliver evaluated that the government has a vast range of options to address the deficit, but it’s still unclear which measures will make it into the budget in just over two months.
At this stage, Labor has ruled out making any moves on the capital gains tax on the family home and the party’s controversial proposals from the 2019 election which included the overhaul of the capital gains tax discount and negative gearing.
But could the government be testing the waters for future tax changes with the recently introduced super tax changes?
“Could well be, if they get political support for it,” said Dr Oliver.
“If polling indicates no harm done, then it does potentially open the door to future changes, mainly in the area of concessions generally like negative gearing, capital gains tax discount and so on, but it’s a complicated one.”
Dr Oliver noted that while there appears to be support for the higher tax rate on super balances exceeding $3 million, Labor has given the Opposition “something to run with” by not indexing the change.
“There’s calculations out there that suggest if it’s not indexed, then something like 10 per cent of today’s workers could be affected at some point,” he said.
“That’s sort of added a potential attack point for the Coalition which may then make it harder to do other things, because then the Coalition could say ‘we told you so’ and then people would start worrying about it.
“I suspect that the fact that this only raises $2 billion suggests that there must be an intent to do other things, otherwise you’re not going to close the deficit gap.”
Dr Oliver suggested that the four main pressure points on the budget are the growing spending pressures related to defence, health, aged care, and the NDIS, which the Treasurer has repeatedly highlighted in recent months.
“If you exclude them, then there’s the rest of the budget. Then you could sort of cap spending growth, or try and restrain, but that’s a fairly narrow area so it’s going to be harder,” he said.
“Alternatively, I suspect the government may go down the path of trying to restrict or carefully target spending in areas like NDIS and aged care and health and so on, but how precisely they do that, I don’t know. So it’s a difficult one for them.”
The AMP chief economist observed that although there is a strong desire in the community for increased spending in these key areas, such spending could lead to “out of control budget deficits” and contribute to inflation, potentially resulting in a backlash in the long run.
“That’s the complication the government faces, and obviously at this point in time, they are under pressure to decontrol spending growth. The last budget to some degree was fairly restrained in the near time, but obviously the growth still exists further out associated with these programs. So that’s the challenge for them.”
