No debt crisis in Australia but spending cuts needed, new Treasury secretary, John Fraser, says
If the Federal Government thought that the new head of the Treasury Department would be a shy and retiring type, it was wrong.
John Fraser was forthright and sometimes contradicted government policy while giving his first public address in Sydney.
He slammed the impact of tax cuts and middle class welfare on government revenue and said Australia did not have a debt crisis but did need to cut spending and reduce government debt to prevent future problems.
Mr Fraser has taken over from the outspoken Martin Parkinson, who stepped down in December after being effectively sacked by Prime Minister Tony Abbott.
He contradicted the messages from the Federal Government of a debt crisis.
"Government debt is not at crisis levels and public debt interest remains low as a share of both nominal GDP (gross domestic product) and government expenditure," he said.
"But no action to stem the growth of government debt and or any substantial rise in interest rates threaten to make net debt a bigger issue in future."
Increased government spending since GFC criticised
Mr Fraser, the former head of global asset management at Swiss investment bank UBS, was scathing of the rise in government spending since the mining boom and the global financial crisis (GFC), which has increased government debt.
Mr Fraser said that government spending had risen since the GFC and Commonwealth Government net debt had risen from negative-3.8 per cent in 2007-8 to 12.8 per cent of GDP in 2013-14.
He said that Federal Government spending grew at an average annual rate of around 3.5 per cent from the start of the mining boom in 2003-4 to the start of the global financial crisis in 2007-8, while taxes fell as a share of GDP.
"Some of the proceeds of our once-in-a-generation commodity price boom were used to pay down debt and set against future liabilities through the creation of the Future Fund," Mr Fraser said.
"But a very substantial amount was spent, including on untargeted transfers – so-called middle class welfare – without sufficient regard to the future prospects for servicing those ongoing transfers," he said.
Mr Fraser was also critical of middle class welfare.
"Generous income testing arrangements for Family Tax Benefits in the early 2000s and access to million-dollar contributions to tax-preferred superannuation through 2006-7 were notable examples of middle or higher income welfare that contributed to the problem," he said.
"We must ensure that fiscal transfers are well-targeted."
The Federal Government scrapped Labor plans for a crackdown on super tax breaks for the rich.
But Mr Fraser said those concessions were an area that needed to be looked at.
He also said Australia needed what he called structural reform including tax reform changes to the workplace relations system, more productivity and greater competition.
Leading economists have mixed reactions to Fraser's speech
The function at which Mr Fraser made his speech was attended by some of Australia's leading economists including Su Lin Ong, chief economist at RBC Capital Markets.
She praised Mr Fraser's speech, saying: "I think it was a really good speech highlighting a number of challenges, but also putting it in context it's a country with a lot of potential."
JP Morgan's chief economist, Stephen Walters, who was also in attendance, said it was interesting that Mr Fraser contradicted the Treasurer Joe Hockey's previous statements about a budget crisis.
"I think what's happening here is the bureaucracy is running into the politics," he said.
"Clearly the politics is being driven by 'we do have a crisis and we need to take some tough decisions'."
But Mr Walters said Mr Fraser also supported the Government's view that tough decisions were needed on how to cut government spending and reduce the budget deficit.
"He did say that that's very difficult in the current political environment," Mr Walters said.
