Former treasury secretary Ken Henry says Australia is running out of time to avert a looming crisis caused by an ageing population, including a growing tax burden on the working population.
Dr Henry, the architect of a major inquiry into the tax system under the Rudd government, said intergenerational equity was going backward.
Speaking at a tax reform roundtable in Canberra spearheaded by teal independent Allegra Spender, Dr Henry said Australia had to move “very, very, very quickly” to avoid the crisis spelled out in the first Intergenerational Report produced two decades ago.
He said Australia was in a worse position now than it was in 2002 when the report warned future generations could face a heavy tax burden to cover increased spending on health and other services needed by an ageing population.
“We’ve actually gone backwards,” Dr Henry said.
While it wasn’t too late to avoid a crisis, he said Australia had to move quickly to enact reform.
Ms Spender said tax reform was one of the biggest neglected challenges facing Australia yet the issue was noticeably absent from the 2022 election.
“Except for both parties to reassure people that they won’t really touch it,” she told the roundtable.
John Daley, former head of the Grattan Institute and partner at EY Port Jackson Partners, agreed that tax reform was politically challenging because, by definition, tax reform leads to some people paying more tax.
Professor Daley also said most tax reform proposals were politically-attractive to oppose.
“But often, the opposition thinks it’s a really good idea, and are often quietly praying that it will happen before they get back into government again and get to live with the proof of the reform,” he said.
Given the politically challenging nature of tax reform, he said it was important to focus on changes that were worth the political capital that inevitably has to be spent.
The tax reform discussion comes as the Albanese government prepares for its second budget in May.
Despite the long-term pressures facing the budget, such as defence, aged care and health spending, strong commodity prices have delivered another improvement to the budget’s bottom line.
The monthly financial statement released on Friday show it had a deficit of $12.9 billion – $20.5 billion lower than the October budget profile deficit of $33.4 billion.
Since the last budget, the government raked in $13 billion more than expected in tax revenue and shelled out $7.5 billion less in payments.
Finance Minister Katy Gallagher said the government would bank most of the upward revisions to revenue, as it did in the October budget, as well as show spending restraint as necessary.
“We know the near-term boost to revenue from elevated commodity prices won’t make up for the longer-term challenges,” Senator Gallagher said.
© AAP 2023
