Grattan Institute’s bold reforms to boost revenue

Redesigning the Stage 3 tax cuts and increasing the age to access super by five years are among the suggestions from the Grattan Institute to boost revenue. 

Ahead of the budget on 9 May, the think tank made a series of suggestions to reduce spending and boost revenue to improve the state of the budget deficit.

The structural gap between government revenues and spending was officially expected to be almost $50 billion in today’s dollars, or about 2 per cent of GDP, every year by the end of this decade.

“On revenue, the menu includes winding back income tax concessions, redesigning the Stage 3 tax cuts, increasing the GST, and better taxation of fossil fuels. We would not expect the government to move on all these changes at once, but the menu includes choices worth about $50 billion a year once mature. Even if we did them all, we would still be below the OECD average in terms of tax collections as a share of our economy,” it said in its Back in Black report.

VIEW ALL

View all

Measures to boost revenue included: 

• Better targeted tax concessions on superannuation;
• Redesigning the Stage 3 tax cuts to be less generous to the highest income earners and retain 37 per cent tax bracket;
• Raising the age that people can access their super from 60 to 65; 
• Raising GST from 10 per cent to 15 per cent;
• Winding back fuel tax credit for businesses; and
• Redesigning the Petroleum Resource Rent Tax.

The first one was expected to have the largest impact at $11.5 billion per year once fully implemented. The other measures would have between $4 billion to $8 billion in impact a year.

Grattan said: “Superannuation tax breaks cost the budget almost $45 billion a year and are projected to cost more than the Age Pension by 2036, while doing little to reduce Age Pension spending. These tax breaks predominantly benefit the top 20 per cent of income earners, who are unlikely to qualify for an Age Pension. Without change, superannuation risks becoming a taxpayer-funded inheritance scheme.”

Specific tax concessions could include taxing super earnings in retirement at 15 per cent, capping pre-tax super contributions at $20,000 a year and taxing the pre-tax contributions of people earning more than $220,000 a year at 35 per cent.

It also noted that the age an individual could access super should increase from 60 to 65, closer to the age (67) at which people could access the Age Pension to take into account the increased longevity nowadays.

Measures to reduce spending included: 

• Improve infrastructure and defence procurement;
• Undo Western Australia’s GST deal;
• Include more of the family home in the Age Pension asset test; and
• Abolish Family Tax Benefit part B for couples.

“The single best discipline on government spending would be to adopt better processes for infrastructure and defence procurement. A practice of spending revenue windfalls rather than banking them to the bottom line has fuelled a culture of spending giveaways, particularly on infrastructure projects, when times are good. In the past decade, the savings could have amounted to tens of billions of dollars. 

“Further changes that would make a worthwhile dent in spending include winding back the WA GST deal, counting more of the family home in the Age Pension asset test, improving hospital efficiency and purchasing in health, cutting politicised grants, abolishing the Family Tax Benefit part B for couples, and abolishing business innovation visas. Together, these changes could save $15 billion annually.”