Government flags tax increases for May budget after Moody's AAA credit warning

The Federal Government's economic leadership team has given its strongest indication yet that there will be tax increases in the May budget, after ratings agency Moody's warned spending cuts alone would not safeguard Australia's AAA credit rating.

Key points:

  • ABC understands cut to high-end superannuation concessions most likely
  • Senator Cormann conceded "revenue measures" will be included in the budget
  • Moody's analysts warned tax increases likely to be necessary to get budget back in black within five years

Making the case for Commonwealth debt reduction, Moody's cited last Friday's announcement by Treasurer Scott Morrison that his focus next month would be on spending cuts, not tax increases, to repair the budget deficit.

Mr Morrison today pointed to the potential for some tax increases, or tax concession reductions, in the budget.

"It's not to say there won't be revenue measures in the budget, of course there will be revenue measures in the budget," he said.

"But what we're saying is where we will apply those revenue measures is to reducing the tax burden in other parts of the economy and, wherever possible, to continue to drive down the deficit."

The ABC understands the most likely target will be a cut to high-end superannuation concessions.

Federal Finance Minister Mathias Cormann said "revenue measures" did not equate to tax increases.

"That is a complete misrepresentation of what the Treasurer has actually said," Senator Cormann told RN Drive.

We want to tax better: Cormann

But Senator Cormann conceded "revenue measures" will be included in the budget and had been flagged by the Federal Government "for a very long time".

"The interpretation that some seem to have put on that is quite wrong," he said.

"Labor has an approach where they want to tax more to spend more and they want to tax more in a bad way.

"Our approach is that we want to tax better and without increasing the overall tax burden in the economy."

Moody's analysts Marie Diron and Matthew Circosta warned tax increases were likely to be necessary to get the budget back in the black within five years.

"Without such measures, limited spending cuts are unlikely to meaningfully advance the Federal Government's aim of balanced finances by the fiscal year ending June 2021 and government debt will likely continue to climb, a credit negative for Australia," they said.

While not putting Australia on a negative credit rating watch — the immediate warning for a potential downgrade — the note is a shot across the Government's bows by Moody's ahead of the May 3 budget.

Shadow treasurer Chris Bowen has described the assessment as a "wake-up call" for Mr Morrison.

"Losing the AAA credit rating would mean that Australia pays more in interest, it will be a blow to confidence and would have flow-on effects to the ratings of major corporate entities in Australia," Mr Bowen warned.

Source: ABC News

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