Former treasury secretary, Ken Henry, has warned Australia will be lucky to enjoy one budget surplus over the current cycle, risking the need for “dramatic” austerity or tax rises in future.
Henry, now the chairman of the National Australia Bank, made the comments in an interview on ABC’s 7:30 in which he repeated his criticisms of the government’s $6.2bn bank levy which he said would “very likely” be borne by customers.
Asked about treasurer Scott Morrison’s 2017 budget, which predicts a return to a $7.4bn surplus in 2020-21, Henry said that a surplus was unlikely.
“The government maintains that it has a fiscal strategy of achieving a balance on average over the cycle.
“It is most likely, on my reading of the budget papers, that we’ll be very lucky if there’s even one surplus in one year achieved over this current economic cycle.”
Henry said continuing deficits would mean that future generations of Australians would be left with debt to repay, adding “that was not the objective of the fiscal consolidation strategy of the Hawke government or the Howard government”.
Australia is entering its 26th year without a recession but last recorded a surplus in 2007-08 before the global financial crisis hit.
The path to surplus in 2020-21 is considered optimistic as it is premised on the economy growing at 3% and wages growth of 3.5%.
Henry warned that for debt to be repaid taxes would have to be raised, although in “what form or when we don’t know”.
“Maybe it will be years before Australians find out but at some stage there will have to be fiscal consolidation, and when that fiscal consolidation occurs it could be quite dramatic.”
“In the interim people will have reason to be worried about the form of that fiscal consolidation.”
Henry said the GFC “almost brought [Australia] undone” despite very good economic policy and fiscal performance.
He said Australia “could not risk” that sort of crisis again, and warned it had to be “much more disciplined about policy” including by not reverting to 1970s and 80s style policies, an allusion to his earlier description of the bank tax as a 1980s style duty.
Henry said that the housing affordability problem in Sydney and Melbourne had reached the stage that young people struggled to buy homes without the support of parents and grandparents in the baby-boomer generation.
The former treasury secretary said housing demand would have to be constrained or supply increased.
“The real question here for Australian policymakers is to have courage to do what’s required. We seem to be having a shadow debate, or shadow boxing, instead of a debate about the measures that might be required.”
The 2017 budget included some limited measures for housing affordability including tax breaks to invest in affordable housing and allowing first home buyers to use the tax benefits of superannuation to save for a deposit.
Economists and tax experts have raised doubts about the package, saying it will do little to reduce house price pressures, while Labor has continued calls to overhaul negative gearing and capital gains tax concessions.
On Tuesday after Henry called for an inquiry into the bank levy momentum grew with Labor and the crossbench echoing the call although the crossbench wants to use it as an opportunity to investigate extending the levy to foreign banks. Labor has already given the Coalition bipartisan support for the levy.
Henry said a parliamentary inquiry would ensure the government was fully informed about impact of the tax and suggested it would have a negative effect on borrowings, investment and growth.
Henry accepted banks had not always done the right thing but said if the tax was imposed on banks because of their treatment of customers it was “peculiar” to impose a levy on them that the government knew will be passed on to those same customers.
