Ratings agencies will not be reassured by a “wafer thin” projected surplus in 2021 based on budget cuts that can’t pass parliament, the shadow treasurer, Chris Bowen, has said after Monday’s mid-year budget update.
Warnings about Australia’s triple A credit rating from the ratings agency Standard and Poors (S&P) showed the need to raise more revenue as well as cut spending, Bowen said.
But the treasurer, Scott Morrison, said he refused to give Labor and others a “leave pass” on the $13.2bn of unlegislated “zombie” savings that have not passed parliament, some of which date back to the 2014 budget.
Asked whether Australia could afford the government’s $48bn 10-year company tax cut plan, Morrison told ABC radio there were “twin challenges”: reducing the deficit and growing the economy.
“You don’t grow the economy by taxing it more and you don’t grow the economy by increasing the deficit by your own decisions,” he said.
Morrison said Labor would have increased the deficit by $16.5bn over four years, even after scrapping the company tax cut plan.
On Radio National, Bowen said Labor would have built in structural changes, including limiting negative gearing tax concessions, increasing capital gains tax and reforming the vocational loan system.
Asked if the deficit would have been worse in the short term, Bowen agreed the structural measures would not have had a major impact in the 2016-17 fiscal year, but revenue and savings would “build over time”.
Bowen said Labor had a realistic path to surplus because it was “not relying on things that won’t pass the parliament”.
He said the purported $16bn gap between Labor and the government’s plan was built on assumptions that job seekers would be forced to wait for Newstart and people would be forced to wait until they were 70 to get the pension, two measures blocked by parliament.
Ratings agencies would look at both the four-year and 10-year plan and he was “very confident” they would accept Labor’s path to surplus was more believable.
“They’ve made it very clear the projected return to surplus in 2020-21 is key to them,” he said. The government’s projected surplus in 2021 projected in the mid-year economic and fiscal update was “wafer thin and would be blown over in a breeze.”
Bowen said S&P was pessimistic about Australia’s triple A rating and required not just the successful passage of measures already announced but new revenue measures in particular.
Morrison said the government had passed $22bn of budget savings in seven parliamentary sitting weeks and would “continue to look for partners” to pass the remaining $13.2bn of savings. He would not let parliament and Labor “off the hook” or give them a “leave pass”.
“These are important changes ... I’m very persistent and very determined to get budget back into balance,” he said.
Asked about further savings in next year’s budget, Morrison said it would “address many issues” and “that work has already begun”.
Labor had “made an art form” of predicting surpluses that could blow over in the breeze, referring to the former Labor treasurer Wayne Swan’s prediction of a slim $1bn surplus in 2013 that was knocked over not by a breeze but “a hurricane”.
Morrison said $7.8bn savings booked in the Myefo for lower childcare costs was due to better modelling of growth in costs and shutting down “rorts” causing massive growth in family daycare rebates.
Morrison said extending the tax cut, particularly to companies with up to $10m turnover, would give them more head room to increase workers’ hours or invest in equipment to expand their businesses. Labor supports a company tax cut only for companies with turnover less than $2m.
Bowen said treasury modelling showed the $48bn tax cut package would boost the economy by only 1% over 20 years.
