Treasurer Wayne Swan faces some tough choices if he wants to reduce the Budget deficit, say top economists. Picture: Kym Smith Source: News Limited
CUTS to airport security, axing the baby bonus, boosting petrol excise and lifting the age at which people qualify for the aged pension are just some of the of controversial savings measures economists say are needed to balance the federal budget.
Amid predictions the budget will be in deficit for a decade, News Limited asked some of the nation's top economists to nominate where the budget savings are hidden.
The economists expect a budget deficit of about $20 billion this financial year, and about $10 billion the next.
They want the government to focus on cutting spending and closing tax loop holes and are hesitant about increasing tax rates.
Scroll down to see the complete list of suggested savings
"I do not want to see any increases in rates of tax," the chief economist at Bank of America Merrill Lynch Australia Saul Eslake said.
The chief economist at AMP Capital, Shane Oliver, agrees: "Given the need to boost the economy's productive potential, budget savings should be focussed on spending cuts, not tax increases."
Dr Oliver wants the government to cut middle class welfare, industry subsidies, broadband spending and encourage greater private sector involvement in infrastructure projects.
"It is clear that total Government spending does need to be cut," Dr Oliver said.
Mr Eslake wants the government to tighten tax concessions on negative gearing, capital gains, family trusts, superannuation payouts for over 60s and abolish the Senior Australians' Tax Offset.
Economist Saul Eslake says the cost of airport security measures must be weighed against the hassle caused to travellers. File picture: Jane Hansen
He also wants the GST applied on food and a Medicare-style levy to pay for the National Disability Insurance Scheme. "What sort of insurance scheme has no premiums?" he said.
Mr Eslake said the Boston bombings showed that huge spending on homeland security was no guarantee against terrorism. And the cost of airport security measures must be weighed against the hassle caused to travellers.
"We employ a small army of people to do such utterly pointless tasks as confiscating shaving cream and duty free booze, waving magic wands over laptops, making female passengers remove and replace their boots, and harassing old folks with hip replacements, none of which have ever been shown to have posed the slightest risk to the travelling public."
The chief economist at JP Morgan, Stephen Walters, expects the budget will return to surplus in 2015-16, but says Australia would not lose its AAA credit rating if it did not. However, "from a fiscal credibility perspective ... there needs to be a plan that shows the Budget path is a return to surplus," he said.
Mr Walters would cut middle class welfare, reduce concessions on super, cut the bureaucracy, increase the rate of the GST, reinstate indexation of the fuel excise and lift the Medicare surcharge to encourage people to take out private health insurance.
An economist at The Eureka Report, Adam Carr, said paying off debt would save the budget $12 billion a year in interest charges. Mr Carr would remove all industry assistance, cut social security and welfare and increase the GST, the mining tax and the petroleum resource rent tax.
The author of Debunking Economics, Professor Steve Keen, thinks the budget won't be back in surplus until 2025. But this, he says, is not a problem.
"We have a surplus fetish in this country, and obsess about a deficit that is substantially smaller than applies in most of the developed world," he said.
Professor Keen wants to abolish negative gearing, axe first home buyer grants and tax capital gains at a person's income tax rate.
The chief economist at HSBC, Paul Bloxham, also does not expect a surplus in the next four financial years and is calm about the prospect. In the longer term, Mr Bloxham would lift the rate of the GST and apply it on more things like food. He would also increase the mining tax and the age of qualification for the pension.
Labor has already announced the eligibility age for the age pension will rise from 65 would rise to 67, phased in between 2017 and 2023.
CUT THE FAT: Budget savings measures recommended by economists
Welfare:
BIN the baby bonus
AXE the Schoolkids bonus
TIGHTEN eligibility for social security and welfare payments
RAISE the eligibility age for the age pension
EXTEND the income test for the age pension to include super earnings
ABOLISH the Senior Australians Tax Offset which discriminates by age, not income
Health:
INTRODUCE a Medicare-style levy to fund the disability insurance scheme
END the private health insurance rebate
INCREASE the Medicare Levy Surcharge to encourage people to take up private insurance
Industry & Infrastructure:
SCRAP industry assistance
SAVE on infrastructure costs by encouraging greater private sector involvement
Property:
ABOLISH negative gearing of property
GET RID OF first home owners grants
DITCH the discount on capital gains
Public sector:
REDUCE bureaucracy
CUT spending on security, including airports and security agencies
TRIM interest payments by retiring debt
Tax:
RAISE the rate of the GST and apply it to a wider range of goods like food
BOOST the rate of the mining tax and apply to a wider range of commodities
UP the rate of the Petroleum Resources Rent Tax.
REINSTATE indexation of the fuel excise
CRACKDOWN on use of family trusts to avoid tax
TIGHTEN tax concessions on super.
Email: jessica.irvine@news.com.au Twitter: @Jess Irvine
