When Treasurer Scott Morrison delivers the federal budget tonight, will the Coalition Government have a credible path back to surplus after nine years of deficits?
The ESA Monash Forum conducts a monthly poll of 53 eminent industry and academic economists who take part in the ESA's National Economic Panel.
A majority (55 per cent) of respondents think slowing the growth in debt should be a priority. And just shy of a majority think it is a bigger priority than income or company tax cuts. Among those who disagree, a common theme is that growing debt is less important if the spending is being used to fund productive infrastructure.
But just over a third (34.5 per cent) of respondents disagreed or strongly disagreed with the proposition that slowing growth in debt was important in the current economic environment, arguing that government debt to GDP in Australia is low compared to similar developed economies, and below the level where it might slow economic growth or put upward pressure on the interest rates for government borrowing.
The biggest group of respondents (44.8 per cent) thought that slowing the growth in the debt-to-GDP ratio should be the priority over income or company tax cuts. Some questioned the need to offer tax cuts at all. Several others suggested the government should instead pursue more substantial tax reform.
Some of the 37.7 per cent who disagreed noted that cuts to spending would also slow the growth in net debt while allowing tax cuts.
Some respondents – whether they agreed or disagreed with the proposition – noted that income tax cuts were a priority over company tax cuts, but others stressed the need for company tax cuts.
In her guest opinion piece Danielle Wood, Chair of the Women in Economics Network, Economic Society of Australia, says the results showed a diversity of economic views about public finance.
"A solid majority support what I would call a fiscally prudent approach: either slowing growth in debt as a share of the economy or only supporting new debt where it is for a productive spending that will later yield an economic dividend.
"But views on taxes – whether they should be reduced at all and whether income or company tax cuts are the bigger priority – are far more contested. I suspect we would elicit much stronger levels of agreement on questions of changing the tax mix to improve economic efficiency. But that might be a question for another Poll," she said.
Professor Lata Gangadharan, Monash Business School (disagree)
The answer to this would depend on how the economy is performing currently. Recent figures show economic growth to be below the threshold where it would be considered strong and sustainable. Inflationary pressures are also mild right now and unemployment is higher than ideal. This suggests that the performance of the economy is not very strong.
The RBA interest rates are also at record lows, which indicates that with inflation being mild, the RBA believes that now is the time to stimulate economic growth. Prioritising paying back debt at this point would only undercut what the RBA is trying to achieve.
Professor John Freebairn, University of Melbourne (strongly agree)
All indicators point to an underlying structural deficit, eg: IGR (Intergenerational report); unfunded NDIS (National Disability Insurance Scheme), education, defence, foreign aid, etc. expenditures; bracket creep is not an acceptable route for higher taxation; inevitable risks of a future recession and need for a strong fiscal position.
Prof Rachel Ong, Curtin University (uncertain)
It really depends on whether or not the government is on track to securing a long-term reduction in debt to GDP ratio. If it is, then prioritising personal and company tax cuts would not be an issue. If the high debt-to-GDP ratio is more entrenched than a short-term phenomenon, then debt reduction should take priority.
Danielle Wood
Chair of the Women in Economics Network
Economic Society of Australia
T: +61 3 8344 2771 M: +61 405 510 763
Julie McBeth
Media Advisor
Monash Business School
T: +61 3 9903 1616 M: +61 418 992 485
E: [email protected] ---
