Forget about tax increases – send in the ‘razor gang’ instead

As the full extent of the recent flood crisis across Australia begins to emerge, attention is turning to the extent and cost of the long-term devastation and ruin.

Estimates vary, but even conservative economists are suggesting that the floods could dampen Australia’s GDP growth by a full percentage point in the year ahead. If that’s correct, it would have a significant impact on tax revenue collections because the profits of many businesses will be negatively impacted in the short-term. On top of that, it is estimated that the floods could cost the government a minimum of $5 billion over the next three or four years. Some are even suggesting the final number could be as much as $20 billion.

In light of this new and unexpected financial burden, calls are increasing for the federal government to revisit its plan to return the budget to surplus in the 2012-13 fiscal year, and to push that timetable out so that the immediate focus remains on rebuilding communities and public infrastructure. Some knee-jerk responses that have already been put forward include increasing the current 1.5% Medicare levy. While that may be an easy option for the government, I don’t think that’s the right policy answer.

I suggest a more prudent approach would be to review all of the major federal government agencies’ spending programs with the objective of finding efficiency gains and expenditure cuts. When this kind of exercise is conducted properly, big dollar savings can always be found, and that will go a long way to plugging the financial hole.

Sending in the ‘razor gang’ to find cost savings is always very difficult to do, but in challenging times like these, it’s the right answer. Following the personal loss and devastation facing communities across the country, the last thing Australia needs is to increase the tax burden on taxpayers at a time when we are trying to move in the exact opposite direction.