Tax revenue short by $90 billion to pay for government services

The former head of the Department of Prime Minister and Cabinet said the amount of tax currently being raised was not enough to pay for the services people clearly expected the government to provide.

"There is enormous consensus behind most of what government does, and has been for quite a while," Dr Keating said. "We have to recognise that if we want more services we need to pay higher taxes."

The federal government has shown little interest in tax reform beyond the tweaks it has made to reduce tax breaks for high value superannuation accounts, boost the Petroleum Resource Rent Tax take and tighten rules for multinational corporations.

The prime minister and treasurer have repeatedly rebuffed calls for changes to the $243 billion stage three tax cuts due to come into effect from mid-2024 and the government appears to have no appetite beyond incremental changes to the tax system in future years.

But Dr Keating will argue in a speech to be delivered at an Australia Institute Revenue Summit at Parliament House on Friday that such an approach will condemn the public to having to cope with increasingly stretched and inadequate services.

He said there was a disconnect between the public's demand for services and the tax needed to pay for them which is a major problem for government.

"We want increased access to more and better services on the one hand and less taxation on the other," he said.

Past Coalition governments have faced a strong public backlash when they have tried to cut back on services, so instead they "relied on stealth by underfunding many programs", Dr Keating said.

Even though the Albanese government has dumped the previous government's rule capping revenue at 23.9 per cent of GDP, the former senior bureaucrat said it continued to limit services provided according to how much tax was raised.

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Dr Keating said this approach needed to be flipped around so that the first step was to determine how much the services the community expects will cost to provide. This would then inform the decision on how much tax needed to be raised and how it should be raised.

He said there was "a large amount of consensus concerning the role of the state and its expenditure responsibilities. We recognise that all Australians are entitled to basic levels of education, health care, income support and shelter and that governments have a responsibility to ensure the provision of these essential services".

The recent Intergenerational Report showed the nation faced an increasingly hefty bill as the population aged and demand for a range of services in health, aged care and other areas grew, alongside the costs of decarbonising the economy and other major shifts.

Services in key areas including aged and child care, primary and hospital care, social housing, education and defence were already under-funded, Dr Keating warned, adding that "existing government policies will not adequately fund the true cost of providing adequate services and assistance to the needy".

He estimated the size of the funding shortfall was likely to reach close to 4 per cent of gross domestic product - more than $90 billion - in the next decade.

To win public support for the scale of tax increases needed, Dr Keating said the government should "set the scene for a full-scale independent public review of the funding required for adequate service provision".

He said the review process and findings would encourage "an informed assessment and public debate about the range and scale of the services to be provided and their cost. The government would then be on much stronger ground to argue" the case for expenditure and the taxation to pay for it.