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Australia Holds Off On Tackling Emerging Budget Gap

by Mary Swire,, Hong Kong

16 December 2014

The Australian Government will not attempt to replace falling revenues through new or higher taxes, Treasurer Joe Hockey has said, explaining that such an approach "would unquestionably harm the Australian economy."

The Treasurer made the comments following the release of the 2014-15 Mid-Year Economic and Fiscal Outlook (MYEFO). Although the MYEFO shows that economic growth has increased over the last 12 months from 1.9 percent to 2.7 percent of gross domestic product (GDP), it also highlights a considerable drop in tax revenues.

Tax receipts are expected to fall by AUD6.2bn (USD9.7bn) this year and by AUD32bn over the next four years. Company tax receipts are projected to be AUD2.3bn less this year and down AUD14.4bn over four years. Income tax will be down AUD2.3bn year-on-year and AUD8.6bn over four years.

The MYEFO also reveals that means-tested payments, such as Family Tax Benefits and income support payments, have seen larger than expected increases, as families have remained in lower income thresholds and are therefore claiming more welfare payments.

The Government's drawn-out negotiations with the Senate over the proposed repeal of the mining tax package will hit revenues by a further AUD6.6bn over the next four years, but these costs are expected to be recovered by 2023. The Senate's rejection of a number of the Government's policies will cost the budget a further AUD10.6bn, and measures worth AUD34bn have yet to be approved by lawmakers, Hockey said.

When quizzed during a press conference as to whether "there must be further work on tax increases or spending cuts," Hockey stressed that "work has not finished." He said that his first Budget as Treasurer, delivered in May, would help Australia withstand the challenges it faces.

"Previously Governments have chosen, in these sorts of circumstances, to spend more money – we haven't. What we have chosen to do is to allow the revenue to take the hit but continue with our path of fixing up spending – having structural saves that over the medium-term deliver a sustainable surplus and a believable surplus," Hockey said.

TAGS: tax | mining | budget | corporation tax | Australia | tax credits | ministry of finance | tax rates | revenue statistics | tax reform | individual income tax

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