Tuesday, April 2, 2019

Today by Paddy Manning


Beggar thy government
The biggest tax cuts since Howard are a trick we can’t afford

“Bill Shorten can’t be trusted,” intoned Treasurer Josh Frydenberg in the press conference at tonight’s lock-up, explaining why the government will not even try this week to legislate the big tax cuts that are the centrepiece of the 2019–20 budget. But it’s trust in the government that is in question tonight, because the whopping $158 billion in tax cuts on offer in this budget are unlikely to happen. Frydenberg called them the “biggest tax cuts since the Howard government”. Standing beside him, Finance Minister Mathias Cormann also invoked the Liberal great, saying the key question for voters in the coming election was: “Who do they trust to deliver income tax relief for hard-working families?”* If the Morrison government had not sunk into a minority through its own ineptitude, or had scheduled more sitting days and chanced its arm in the parliament, the voters would not have to take the promised tax cuts on trust – the cuts might have been legislated. As things stand, we race to an election with something flimsier than Paul Keating’s L-A-W tax cuts of a generation ago, which were legislated but never happened.

To explain, tonight’s promised $158 billion in tax cuts over the decade are made up of short-term and longer-term relief. The short-term relief – a doubling of last year’s low- and middle-income tax offset worth up to $2160 for couples about to file their tax returns for this financial year – is made conditional on the re-election of the Coalition government in May, presumably to sharpen voters’ focus. The longer-term tax relief – a lowering of the 32.5 per cent tax threshold to 30 per cent from July 1, 2024 – is made conditional on the Coalition winning the election after that! It’s that later flattening of the tax scales in the out-years that accounts for the vast bulk of the promised tax relief – a whopping $95 billion or 60 per cent of the cuts forecast over the next decade. So tonight’s budget takes a certain suspension of disbelief – a fake budget, offering fake tax cuts.

Tonight’s $158 billion tax cuts are additional to the $144 billion in cuts over a decade slated last year, when Malcolm Turnbull was prime minister and Scott Morrison was treasurer, in the most radical flattening of the income tax scales in decades. Frydenberg said he can’t trust Shorten with the tax-package legislation, because “last time he sought to pick and choose”, supporting the low-income tax offset but rejecting the later flattening of the tax scales. Finance Minister Mathias Cormann said he was “not prepared to haggle with the Senate” all over again, and that the government would first seek a mandate from the people, presumably expecting that if it were re-elected the parliament would pass its tax legislation before June 30. All that will be legislated this week are the one-off Energy Assistance Payments for pensioners and veterans, worth $284 million.

The federal budget lock-up is probably the biggest mansplain on the calendar (it will be a small mercy when a woman finally becomes treasurer) and Cormann spoke in lofty terms tonight about how the government had achieved “stage one” of its grand project to restore the nation’s finances, and would now embark on “stage two”, paying down the debt. “This not the time to change direction,” said Cormann, “and go back to Labor’s discredited approach of the past.” Well, let’s look at this government’s own record on debt.

The Coalition spent many years arguing that debt was far too high, and there is no doubt that former treasurer Peter Costello’s historic paydown of net debt to zero held Australia in good stead during the financial crisis. Debt jumped during the financial crisis under Labor, and has continued to rise as the federal government funds the biggest defence spend since World War Two, infrastructure such as the NBN or the $100 billion pipeline of projects flagged tonight. A lot of that is good debt, but it comes at a cost. The treasurer’s speech tonight highlights that the annual interest bill last year was $18 billion, which “could have built 500 schools or a world-class hospital in each state and territory”. Okay, but gross debt has ballooned under the Coalition, from $319 billion in 2013–14 to $560 billion in 2019–20, a jump from 20 per cent of GDP to 28 per cent – and that’s almost twice the 30-year average of 15 per cent. Net debt has jumped from $210 billion to $361 billion over the same six years, rising from 13 per cent to 18 per cent of GDP. Frydenberg has set a goal of eliminating net debt by 2029–30, but once again we are off in the never-never. 

The government preaches spending restraint and lower taxes, as if they are virtues that require no further explanation. Then, it proceeds to attack Labor’s planned tax increases for property investors and “self-funded” retirees, coming at precisely the wrong time, using lines we will no doubt hear many times between now and the election. “It never ends well to increase taxes to chase higher spending,” Frydenberg said in the lock-up.

The unasked question tonight was: can Australia afford this massive $302 billion loss of tax revenue? Our politics is addicted to tax cuts, but, as anyone who has ever struggled with addiction can attest, there comes a point where the temptation is accompanied by a knowing fear: the empty thrill of another hit comes with full foresight of the difficult battle that will follow to give up all over again. Australia is at exactly that point: the sugar-hit in the polls from a tax cut the country can’t afford will be weak and short-lived, and followed only by more grinding frustration. It has taken too long – 12 years – to restore the budget to surplus, even as debt has ballooned. There is too much hardship and inequality already, too much underfunded social and economic infrastructure, there are too many challenges coming down the line for there to be very much celebration when the Commonwealth government loses revenue it desperately needs. The Coalition wants to make the Commonwealth $300 billion poorer? That’s our government, buckling if not on its knees. “Pssst … wanna tax cut?” No thanks.

*Fifteen years ago, up against the insurgent Mark Latham, Howard said the looming election was about trust – specifically, “Who do you trust to keep interest rates low?”

 


Budget reaction
 

“Scott Morrison’s first budget as treasurer in 2016, also a pre-election budget, offered nothing for families earning between $37,000 and $80,000. Zip. Zilch. Zero … We know how that story ended. The Coalition, favourites to win, came within a whisker of losing.”

“Talk about retrospective. In his determination to quickly inject money into the economy (for economic as well as political reasons), Treasurer Josh Frydenberg has reached back in time to give us an extra tax cut on income already earned during the financial year that’s about to finish.”

“Given the election is nigh, it is hardly surprising that much of this budget is about neutralising Labor. What is surprising is that it is more modest than anticipated. It’s a budget for the political times tempered by the economic times.”

“The government has adopted a firefighter approach to its political troubles, aiming a hose of money at at-risk seats or areas where Labor is threatening it.”

Paddy Manning

Paddy Manning is contributing editor (politics) at The Monthly and has worked for the ABC, Fairfax, Crikey and The Australian. He is also the author of three books, including a recently updated unauthorised biography of Malcolm Turnbull, Born To Rule?

 

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