Australia No Longer ‘Getting Ahead’ Claims Deloitte, Economy Only Growing Because Of Immigration

Deloitte Australia claim the Australian economy is in a precarious position and while the economy is growing, it’s largely due to population growth and that economic activity per capita is in retreat and there is a growing sense that Australians are no longer ‘getting ahead’.

This is not good news for retailers, or the overall economy claim observers.

Despite the gloomy economic backdrop, the Federal Budget is in its strongest position since the Howard-Costello years.

Their analysts claim that while a high inflation environment has put pressure on household budgets, it has also delivered strong growth to the government’s tax base.

The Deloitte Access Economics team expects the 2023-24 MYEFO to reveal over $70 billion worth of additional revenue over the next four years, compared to the budget forecasts released in May.

Conservative commodity price assumptions from the 2023-24 Budget are likely to be outperformed, while high inflation, a strong labour market and a surging population are likely to grow the personal income tax base beyond expectations.

They claim that net debt is expected to average around 20% of gross domestic product (GDP) over the next four years, compared to a forecast of around 23% of GDP in the Budget.

But the strategy doesn’t do enough to address Australia’s long term fiscal health.

They claim that the ‘fast five’ government spending categories are (health, aged care, the National Disability Insurance Scheme, defence, and interest costs) with these expected to grow by 5.6 percentage points of GDP over the next 40 years.

Government revenue is expected to grow by just 1.0 percentage point of GDP in that time.

Deloitte management claim that relying on a fast-growing nominal economy and upside revenue surprises is not an adequate strategy to address long term challenges that Australia is facing.

They claim that a simpler and lower personal income tax, a broader and higher GST (with compensation for welfare recipients), and a reduction in the capital gains tax discount need to be on the agenda of Government going forward.

These policies are examples of balanced, meaningful, and achievable reforms that would place the budget on a firmer structural footing they claim.

Deloitte Access Economics estimates that the three reforms would add $377 billion in revenue over ten years and shift the budget into surplus through 2029-30.

Critically, these reforms would do more than just alleviate the structural budget deficit. They would simplify the tax system, lessen the burden of our tax system on productivity, and help solve some of the equity issues and intergenerational concerns stemming from our current tax system.

Reform is always easiest from a position of fiscal strength.

As cyclical tailwinds deliver a stronger-than-expected bottom line for the second consecutive year, there is an opportunity to do much more for Australia’s long run fiscal health they claim.