Continued failure by the Coalition government to pass budget savings could lead to an increase of taxes or would require $50bn in cuts to social services to make up an annual shortfall from 2020, the Business Council of Australia has warned.
In its pre-budget submission, released on Friday, the peak business body estimates that taxes would have to rise by $5,000 per household or $2,000 per person from 2020 to pay for a looming revenue shortfall.
Unlike submissions from the welfare sector that called for a range of new revenue measures, the BCA argues that taxes should not rise to close the budget deficit.
On Friday Malcolm Turnbull seized on the BCA submission as evidence the Senate should pass the government’s proposed budget savings, but declined in an interview on 3AW to be drawn into whether further cuts were needed.
The BCA submission says that with real spending growth set to increase to 3% from 2020, spending will outpace projected economic growth “locking in a structural deficit of at least 3% of GDP or $50bn in today’s terms”.
The BCA chief executive, Jennifer Westacott, warned that “stubborn opposition to savings measures and the absence of an agreed strategy to tackle the budget problem are foisting a growing debt burden on young Australians and our future generations”.
“Australian households will bear the costs of inaction through blunt cuts in services, higher taxes and a weaker, less resilient economy.”
The fate of the Turnbull government’s $4bn omnibus savings bill is still unclear, after Nick Xenophon warned in February that the welfare cuts in the bill came at “too high a cost”.
The bill involves a range of cuts to paid parental leave, scrapping the energy supplement for new recipients, requiring jobseekers under 25 to wait four weeks before accessing income support and cutting the pension to migrant pensioners who spend more than six weeks overseas.
The BCA submission notes that $50bn in budget cuts amounts to the equivalent of one-third of the current social security budget, or almost the entire education and defence budgets combined.
“Neither of these options – higher taxation or savage budget cuts – is acceptable but they are inevitable if we fail to act now,” Westacott said. The deficit “wasn’t created by lower revenues” and therefore “new taxes are not the solution”, she said.
“Nor are higher tax rates, as they would do nothing to improve services or increase value for money. We cannot afford to think that as our spending grows, we should simply tax more.”
Turnbull said the BCA was “encouraging the Senate to pass our budget measures”, which were still being negotiated.
“If we don’t rein in the deficit ... the inevitable consequence is that we will, and particularly our children will have lesser services or higher taxes.”
Asked whether the budget would contain further cuts, Turnbull said the government had already set out a plan to reach budget surplus by 2020-21 but its plans were still subject to negotiation.
“While we often talk about the crossbench, let’s focus on the responsibility of the Labor party ... the obligation on [Bill] Shorten is to take up the responsibility and help us bring the budget back into balance.”
In its budget submission, released in February, the Australian Council of Social Services called on the government to save $9.4bn in 2018-19 with measures including winding back negative gearing and capital gains tax discounts, and abolishing private health subsidies.
It also called for a range of new revenue measures, including applying the Medicare levy surcharge to all high-income earners and imposing a sugar tax on sweetened drinks.
