June 2015

Comment

Best laid plans

By Nick Feik

Joe Hockey (left) and Mathias Cormann at an Enterprise Victoria function, Melbourne, May 2015. © Tracey Nearmy / AAP

The 2015 budget has come and gone, but where is Joe Hockey's National Conversation?

Treasurer Joe Hockey wanted a National Conversation. Launching the Intergenerational Report at the start of March, he warned that government spending was on an unsustainable trajectory and it was time to face up to some difficult truths.

Later that month, Hockey presented a 200-page tax discussion paper. Company tax receipts, lower than expected due to commodity prices and a soft global economy, had blown a hole in the national accounts. In a welcome departure from the standard Coalition line, the treasurer said that we didn’t just need to cut spending, we also needed to raise revenue, and when it came to the tax system, all options were on the table. (Apart from a carbon or a mining tax, presumably.)

Over subsequent weeks, the prime minister and other senior members of the government proceeded to take most potential revenue-raisers off the table: changes to the GST, superannuation tax concessions, negative gearing and family trust structures, and even the measure the treasurer himself had floated to allow first-home buyers early access to their super earnings.

Hockey himself also disappeared around this time. Clearly there would be no National Conversation after all – at least, not one in which he’d take part. Coalition strategists, amid disastrous polls and leadership woes, had different plans.

Social services minister Scott Morrison was handed the public relations baton. He would stick to basics: families and hip pockets. Commentators were deeply impressed. Here was a problem-solver, a minister who had the ability to listen and consult with stakeholders and who understood the importance of compromise and communication. Tony Abbott, apart from ruling out various tax reforms, would speak to the media only about matters of national security, surrounded by many flags.

In the week before the budget, Morrison made four times as many media appearances as Hockey did. Reports emerged that the prime minister and Morrison had discussed the possibility of Morrison taking the treasurer’s job after the budget.

Hockey had completely lost control of the situation. Not that he seemed to realise.

When the moment came, he presented his budget proudly, somewhat defiantly. It was an unambitious and incoherent document that made a mockery of everything he had been saying earlier in the year. The deficit may have doubled since the Coalition came to power, but this budget would do nothing to reverse the fiscal decline in the short term. Rather than face up to the nation’s revenue-raising problems, Hockey offered tax breaks and accelerated deductions to small business.

As he waved a copy of the legislation in the air while delivering his big speech, he also pledged to crack down on tax avoidance by multinationals. Here at last was a brave new tax reform, a way to make the businesses that profit most pay their fair share. And how much revenue would it raise, according to projections? Zero dollars. Hockey’s refrain about tax-dodging multinationals has often been repeated, but the retrenchment of thousands of Australian Taxation Office staff has so far had a greater impact on tax collections than any of Hockey’s spurious claims to bring multinationals to heel. As Neil Chenoweth in the Australian Financial Review put it, a close look at the new legislation reveals a measure that “begins small, and proceeds to shrink to nothing”. It won’t even catch out Apple, for instance.

Hockey’s other tax reform, the so-called Netflix tax (adding the GST to the price of digital downloads and streaming services), appears to place the onus on foreign companies to calculate, collect and pay their own tax. The ATO won’t have any means to verify whether these self-reporting companies are telling the truth. The government has projected only $350 million revenue over four years. Even this seems optimistic.

Budget reforms will be considerably more stringent for those receiving social benefits. Retirees will have pensions more tightly means-tested and stay-at-home parents will lose access to child-care payments. And, in a remarkable reversal, many new parents will be stripped of paid leave payments. The government’s pledge to remove existing entitlements after dropping Abbott’s “signature” paid parental leave scheme is a double-dudding, but Hockey and Morrison chose to attack rather than express remorse. They accused “mums” (all new parents are female, apparently) of engaging in a rort against the taxpayer. Payments once deemed inadequate by the prime minister were suddenly ill-gotten riches.

The other winners and losers in the budget were mostly familiar, especially in a Coalition budget. There would be less money for foreigners and public servants; more for rural Australia, defence and national security.

All recent governments have built optimistic estimations into their budget projections. This one predicts four years of strong overall growth figures, and increasing company tax revenues (despite the recent tax cut) from an unlikely combination of strong household consumption and weak wages growth.

The graph of forward projections has a shape that we can recognise from most recent budgets – the deficit will be bad this year, but don’t worry, it will decline to nothing in the medium term (as long as the nation votes the government back in).

Australia’s deficit will apparently come back under control from 2017–18, when the government’s proposed $80 billion in cuts to health and education spending kick in.

These cuts, announced in the 2014 budget, have been rejected by the states (onto whom the costs are to be shifted). They’re in limbo, along with other cost-cutting measures stalled in the Senate. The Coalition lacked the political skills to sell them to the parliament and the public – and yet it has banked them regardless.

What we need, you can almost hear them saying, is a National Conversation. We need to make some tough decisions. Not before an election, though.

Nick Feik

Nick Feik is the editor of The Monthly.

@nickfeik

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