Australian Government Can't Afford Tax Cuts, Say Economists

by Mary Swire, Tax-News.com, Hong Kong

18 October 2001

In a mid-year Budget Review, Australia's Treasurer, Peter Costello, said that the government's expected surplus this year has been reduced from $A1.5bn to $A500m, and that over the next four years the predicted surplus of $14bn would shrink to $7bn. Domestic factors affecting the surplus in the current year include spending on the Australian Taxation Office, problems with asylum seekers, royal commissions into company collapses, and inflation. The Treasurer reassured Parliament that a tax to fund Australia's commitment to the war on terrorism would not be necessary.

Financial markets were unaffected by the Treasurer's comments. However, economists said tax cuts are now not possible; the 2000-2001 revised surplus of $A500m could easily become a deficit, they warned. Costs involved in the war against terrorism would severely restrict the Australian Government, limiting spending to small-scale initiatives.

The Australian Labor Party however said it would not halt plans to roll back the goods and services tax. Labor's shadow treasurer, Simon Crean, said the party would shortly release its detailed roll-back plan, which would not be affected by the predicted reduction in Budget surpluses. Australian Labor Party spokesmen said that the party's spending commitments, already announced and worth $A1bn, took into account the domestic factors.

Labor criticised the release by the Australian Government of a mid-year economic review. Economic analysts also questioned its value, saying it was based on incomplete data.

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