Budgets are no magic pudding no matter what politicians tell us

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One day, a politician will emerge who is brave enough to tell the public you can't have it all.

But if such a creature exists, you won't sight them delivering a federal budget just before an election.

Income tax cuts. Business tax cuts. Cash handouts. A "nation-building" splurge on roads and railways. Better schools, hospitals and aged care. And a Budget, in the Treasurer's words, "back in the black … and back on track". Cue ACDC.

"All without raising taxes," said the Treasurer in his Budget speech. Then again and again. The phrase "without increasing taxes" is mentioned eight times in the speech.

"And lowering taxes", even.

Josh Frydenberg's "back in black" Budget surplus is in fact not yet banked: it's just an estimate, it's wafer-thin, and, as my colleague Ian Verrender observed, it's based on favourable assumptions on just about everything, along with some accounting sleight of hand, as are the projections of growing surpluses in future years.

Labor, too, is offering big income tax cuts for most people (though with a slight hike for high-income earners and the closure of tax minimisation strategies mainly used by the well-off).

But the broader question is: how can we keep cutting taxes and deliver the services that Australians demand? Especially when Australians set the bar high?

As a nation, we favour world-class healthcare and education, as well as high levels of support for the old, the needy and the infirm, paid for by the public purse.

"All without raising taxes." "And lowering them", even.

We're on familiar ground

We've been down this route before.

During the biggest resources boom in history, between the 2002-3 and 2008-9 fiscal years, Australians were handed personal income tax cuts year after year — first by the Coalition, then by Labor.

The budget ended up in a structural deficit: that is, even in the absence of cyclical or temporary factors that might put a strain on the finances, there wasn't enough revenue to cover spending.

We've only just emerged from that structural deficit, according to the Parliamentary Budget Office (some economists think we are still in one), largely because of the impact of "bracket creep" — people moving into higher tax brackets as they earn more.

So now it's time for another round.

Income Tax cut from 2018-19 Tax cut from 2022-23 Tax cut from 2024-25 $30,000 $255 per year $255 per year $255 per year $60,000 $1,080 per year $1,080 per year $1,455 per year $90,000 $1,215 per year $1,215 per year $2,340 per year $120,000 $315 per year $2,565 per year $4,440 per year $150,000 $135 per year $2,565 per year $6,540 per year $180,000 $135 per year $2,565 per year $8,640 per year

"$158 billion in tax cuts, the biggest tax cuts since the Howard government."

With "94 per cent of taxpayers paying no more than 30 cents in the dollar" and people earning between $45,000 and $200,000 paying that same rate.

Tax cuts aren't the only way to share the money

On the plus side, low-and-middle income earners mainly benefit from the tax cuts on offer in the coming year — Labor's promised tax cuts are similarly targeted — and that gets a big tick.

Leaving aside the question of fairness, lower-income earners are more likely to spend the money than save it, providing stimulus to a soft economy, and less likely than higher-income earners to spend it on imported luxuries and overseas travel.

But how much better would it be if we could boost peoples' incomes through a big lift in wages, after a period of wage stagnation not seen since World War II? That would provide a much bigger boost to workers' wellbeing than a tax cut.

How much better would it be if we could grow the economic pie by lifting productivity growth, which has also been at tepid levels?

Ultimately, there is no magic pudding. No matter what the politicians promise, Australians can't demand what they expect from government "all without raising taxes". Or lowering them, even.

Topics: budget, government-and-politics, federal-government, business-economics-and-finance, australia