How are we (Australia) going to pay for this COVID-19 spending?

[Scarlett]

Genuine question.

I'm not an economist and suggest I know as much about national finance and the economy as the average person, ie: when I hear anything about 'macro economic reform' I just really hear 'blah, blah, blah, it's definitely not a Ponzi scheme, blah, blah..'.

But I've been wondering how we're going to pay back the hundreds of billions that are being magicked up by the nations leaders (of all political persuasions - I'm not interested in a political discussion), seemingly out of thin air? (we're increasing national debt - I get that much)

So how are we going to pay it back? Anything like:
- GST rise for a temporary period (say 15 or 20% rate for the next 5 years?)
- A % cut to all Federal public sector wages/salaries (10-20% cut?)
- A 'haircut' of some amount from all bank accounts in the country over say $100K?
- Reduction in the size of pension payments?
- Simply printing it all and wearing the inflationary pressure? (do those words even make sense)
- All of the above?
- None of the above. Do nothing? (what's the practical difference between a national debt of $100 billion and $500 billion?)

Do we even 'pay it back' in the regular household sense?

Lots of questions, sorry, but genuinely interested in the thoughts of those who follow or understand such things.

 

[oz_mark]

It's going to take a generation, maybe two to pay it back and get it all on track.

Which is fine if you can make the assumption this won't happen again.

 

[CaptJCool]

Hi @Scarlett

I’ll endeavour to answer the questions over a period of time as not going to do justice to it “off the top of my head”

History

We have been through this before, we are on another World War footing, so to speak, so you can see what was spent and just how long it took to pay back

Where will the taxes come from?


This kinda research was one of the things I did in the final days of my real work career....

Wealth in Australia




Which tallies with This chart from today gives a view of health & economic index by Federal electorates


For Context
What’s the primary difference is that wealthier suburbs make a lot of income from multiple sources
Make money while they sleep from investment capital assets (shares, property) and so hold franking credits and generally receive capital gains tax 50% discount
High earning professionals often earn salary, performance bonuses and more importantly share options (employee share schemes) thus capacity convert income (tax rate of 47%, 39%, 34.5%) to

superannuation (tax rate of 15%) or “fringe benefits” (if unregistered 0% or
capital (tax rate of 50% of income 23.5%, 19.5%, 17.25% etc) or
better still shunt it off into a family trust and pay 0% by distributing to non-working relatives (spouse, adult kids, grandparents)....
Senior Australians on super pay ZERO income tax except former public servants pay about 25% before preservation age and around 10% after 60.
So if you are losing only 1/4 of your accounting income compared to the larger workforce you’re way ahead.


Tax take Til 29 Feb 2020

Australian Government General Government Sector Monthly Financial Statements February 2020 | Department of Finance

Senator the Hon. Mathias Cormann Minister for Finance Leader of the Government in the Senate MC 18/20 Friday, 27 March 2020

www.finance.gov.au

https://www.budget.gov.au/2019-20/content/myefo/download/12_Appendix_E.docx

historical Aust govt data
IT may surprise everyone to know this govt has raised $116 billion more per year in just 3-4 years.
Table E10: Australian Government accrual revenue, expenses and fiscal balance by institutional sector
Tells us since End 15-16 revenue increased From $395b to $511b so this govt was already spending $73b more than the prior year. It’s info that was generally ignored in any debate on how the nation was progressing. I’m definitely of the view nthats this larger tax take chronically affected retail growth Which coincides with low interest rates that stifle spending by Senior Australians too Who are now earning “bugger all” This had also seen a shunt of funds into shares where prices had boomed 26%, but in the past two or three weeks saw 36% price reductions.

This years budget was meant to cover the $48b deficit and to fund $26b NDIS plus a small surplus to at least ADDRESS (at that time) the escalating Debts of the country, so people dont appear to get that much of what concerns them has already begun to be put into place. It’s raked plenty of extra cash from corporates, auditing by the ATO and court victories, carry-forward losses dried up, banking levy, super pension earnings over $1.6m transfer balance cap, a trim of travel expenses on rental properties (now non-deductible), low value offshore goods GST, As for capital gains, the 50% tax discount which if levied on property sales means its often leaves less cash to purchase in the “same market” plus interest earnings are now practically non-existent... first world problem I know.

Sadly. All this blown out of the water and if the tax capacity of the system had already been exhausted, I’m not sure where future tax receipts will come from. And didn’t even address State taxes!! There’s a case for increasing tax rates in a range of categories but also state pensions will to some degree dampen into the future as superannuation fully kicks in.
What the budget centrelink expenses did look like


Tracking forward (before CV) so there’s also a case to introduce a wealth tax....inheritance tax and expand asset-based taxes targeted toward those with substantial wealth holdings (Buffet Tax and % Tobin tax on share sales...food for thought

 

[opusman]

Which is fine if you can make the assumption this won't happen again.

And that's a big assumption to make. The whole system is going to have to change.

 

[pauly7]

Debt is cheap right now, very cheap. So the urgency to repay may be muted.

On the flip side it may be better (politically) to announce those measures while we are still in some form of a crisis mode. People may be more accepting rather than waiting a few years and attacking it then.

It also depends on who is in power. A Liberal Government would perhaps lean to GST increases. Labor maybe income tax.

No one is going to dare take a ‘haircut’ from bank accounts over 100k though

The easiest most efficient way would be an increase in GST, there has been a chorus of economists calling out for that for years now.

 

[Pushka]

It's going to take a generation, maybe two to pay it back and get it all on track.

Which is fine if you can make the assumption this won't happen again.

Maybe even more. And your last comment is spot on. Swine flu was just over 10 years ago. We can't stop the virus until we are prepared to look at the root causes of the issue. Because that is where these issues arise.

 

[luxury-lizard]

I'm no economist but somehow increasing GST seems like a simple solution (of course may not be sufficient) - it perhaps could even be done immediately on non-essential items to fill the gap left in regular government income from reduced wages, reduced spending, less company tax. Then reviewed post crisis to even it out across all categories. Cutting social benefits / clipping bank accounts etc would never fly on any side of the political fence. Also hitting super would also not be a good idea with many facing significantly reduced super balances in the short/medium term.

As for some of @CaptJCool's suggested possibilities (wealth tax, death duty, etc) - scary stuff to the 'man on the street' but then we've never seen times like these (in our life time that is).

 

[Bodie]

I think they will try raise the gst- but I also think the states will agree with that to 15%.
no tax cuts - and possible temp levy on high income earners
then comes on expense - will they touch family trusts, limit negative gearing , or the low hanging fruit of pensioners and the unemployed.
it will of course matter who gets into power next election and state of economy ie recession.

 

[drron]

The States must also make an effort.Payroll tax should be reduced to encourage more employment.They should make that up with what I think is going to be a rise in the GST.

QLD is giving us a bad example at present-only deferring the payment of payroll tax and land tax hitting businesses with a double whammy just as they start becoming profitable again.
At the same time a pay increase for public servants and a $1250 bonus as thousands og QLDers in the private sector lose their jobs

Must give kudos to Dan from the DPRV.Providing relief from payroll tax and returning last quarters payment.

 

[cove]

A GST change all goes to the States.
Death duties would go to the Federal Government.

 

[GoldCanyon340]

I feel sorry for the 17 and 18-year olds. Their most important school year is in chaos and they're the ones who will wear the effects of paying this off for years in terms of cuts to federal and state budgets and services.

 

[CaptJCool]

I think they will try raise the gst- but I also think the states will agree with that to 15%.
no tax cuts - and possible temp levy on high income earners
then comes on expense - will they touch family trusts, limit negative gearing , or the low hanging fruit of pensioners and the unemployed.

GST IS ABOUT $68 billion now
So 15% is maybe $34 bllion. That would take 10 years to raise $340b....
Unless of course you bolstered the taxable items - add fresh food, education etc....

Can’t remember what is the size of the tax cuts? A decent clip all the same

Seeing ASX Stock exchange has a steady trading per day/month, a 0.01% Tobin tax would raise a pile from those who have the capital

 

[RooFlyer]

GST goes to the states. Most of the debt is being raised by the feds. So would the extra 5% have to be quarantined for the feds? Would ALL the states agree?

 

[woodborer]

I think we'll be revisiting a few things
-negative gearing
-franking credits
-GST rates

 

[Pushka]

I feel sorry for the 17 and 18-year olds. Their most important school year is in chaos and they're the ones who will wear the effects of paying this off for years in terms of cuts to federal and state budgets and services.

The only thing I can say is that this is Australia wide and all have been impacted in exactly the same way. As for the costs, these will be paid for for generations.

Post automatically merged: Apr 2, 2020

I think we'll be revisiting a few things
-negative gearing
-franking credits
-GST rates

Most companies will not be able to afford dividends for a very long time.

 

[drron]

The only thing I can say is that this is Australia wide and all have been impacted in exactly the same way. As for the costs, these will be paid for for generations.

Post automatically merged: Apr 2, 2020

Most companies will not be able to afford dividends for a very long time.

And will probably have carry over losses for a year or two.Look forward to the headlines in the Guardian and Channel nine newspapers about which companies are paying no tax.

 

[N860CR]

All Australian governments (by that I mean local, state and federal) waste so much money on the most useless of programs/studies/inquiries etc. If they drag that back in, they'll recover the costs a lot quicker than by increasing taxes. Good luck ever getting that to happen though!

 

[RooFlyer]

And will probably have carry over losses for a year or two.Look forward to the headlines in the Guardian and Channel nine newspapers about which companies are paying no tax.

Did you see the tweet from the ABC Economics correspondent, Emma Alberichi:

Stop talking about the economy. We live in a community not an economy. Go knock on your neighbour's door & ask if they need help Look after each other

Easy for someone with a guaranteed job to say, eh?

 

[Himeno]

All Australian governments (by that I mean local, state and federal) waste so much money on the most useless of programs/studies/inquiries etc. If they drag that back in, they'll recover the costs a lot quicker than by increasing taxes. Good luck ever getting that to happen though!

How many 2nd Sydney Airport or East Coast Fast Train studies/inquiries would pay for this?

 

[serfty]

Increase GST ...

I can see the word being spouted in Florescent Ink now: "Regressive"