The ABC election team on Budget night suggested that the purpose of the 2018 budget was to generate talking points that the government could use in the forthcoming election campaign. It has been going on for a while. Turnbull ScoMo and all reckon they offer “jobs and growth” whereas Shorten is going to hit you up for $200 billion extra in taxes, and simply can’t be trusted to run anything.
Shorten says Labor is going to “bring the fair go back into the heart of the nation.”
To me the nation is at a cross-roads. One way offers a small-government straight jacket with firmly embedded tax provisions that permanently reward success. The other seeks to provide the necessary infrastructure (human, services and physical) for everyone and the nation to become the best they can be, and to take care of those on the fringe.
The 2018 budget has three main features:
- First, low to middle-income earners are going to get tax relief of up to $530 per annum, as a refund at the end of the financial year rather than through a cut in the tax rate, hence there is no call on the budget during the first year. Plus the extension of the Medicare Levy by 0.5% will not be necessary.
- Second, revenue is to be capped by law at 23.9 per cent of GDP. Any more has to be given back to the people.
- Third, there will be L-A-W tax cuts in the never-never. In seven years time, beyond the forward estimates, the 37% tax bracket will be deleted in three stages so that the tax rate from $41,000 to $200,000 will be an even 32.5%. The phases are uncosted, but will cost $140 billion over 10 years. It is promoted as eliminating bracket creep, but takes no account of what bracket creep there will be in the next seven years.
Peter Martin has important information in assessing the accounting that the budget is based on.
Here’s the cash balance from The Conversation:
A second article from The Conversation gives us the forecasting record:
Peter Martin explains that only the next two years are forecasts. Beyond that Treasury uses projections, which are based on past performance.
Treasury seem to regularly get the forecasts wrong. This time:
They say wage growth will climb from 2.1 to 3.5 per cent, and growth in consumer spending will climb to 3 per cent. They were released as the Bureau of Statistics reported that retail sales had been flat for the past three months, meaning the turn-up will be have to be dramatic.
The projections simply have no chance of being right. However, the promise of the sunny uplands of budget repair and significant tax cuts depend entirely on the projections being correct or underestimated. If the projections are wrong the main alternative, is to make further spending cuts or rip more out of the poor, as they are doing with their program to dock people’s welfare if they repeatedly fail to pay fines. This has been denounced by advocates as a “brutal” measure that will drive those on the lowest incomes into homelessness and/or crime.
That’s while 1200 staff are being ripped out of the already overstretched Department of Human Services in this budget.
This example reflects the values underlying the budget, and the LNP approach to how they govern.
There is news and analysis aplenty on the budget at the AFR, the ABC, the Conversation and The Guardian. However, I found Tim Colebatch at Inside Story most instructive (thanks to John Davidson for the link).
Leigh Sales put the outrageous proposition to Bill Shorten that the 32.5% tax rate for $41K to $200K was ‘fair’. Here it is:
- A cleaner on $30,000 a year would get a tax cut of $200. A nurse on $80,000 would get a tax cut of $540. But a lawyer on $200,000 a year would get a tax cut of $7225 — thirty-six times as much as those on low incomes.
The best measure is the gain in incomes after tax. Everyone earning up to $100,000 a year, the vast bulk of Australians, would get an increase in disposable income of around 1 per cent — and that’s their only tax cut for fifteen years. Those on $200,000 a year would get a boost in disposable income of 5.4 per cent.
Colebatch points out that the budget contains the dubious assumption:
- that spending growth from 2019–20 will be contained to average just 1.1 per cent a year in real terms over the next three years — which implies real falls in per capita spending, since the population is growing by 1.6 per cent, and the government wants it to stay that way.
That is only half the 2.1 per cent average growth in real spending over the government’s two terms in office — in which the austerity has been pretty severe in many places, including the lack of wage rises for many public servants.
Colebatch has worked out that if nominal GDP is forecast to grow by 18.7 per cent over the next four years, then only disability services and schools are growing in expenditure, given that an increase in the aged pension expenditure is inevitable. This is how it works out:
Some of the cuts are astonishing, but that is the Turnbull government’s vision of how we are meant to live and thrive.
Turnbull talks up his $75 billion program for transport infrastructure as if it is all happening here and now, but it is a ten-year program, and much of it has been moved off budget. Actual spending on transport infrastructure is falling.
There is more in Colebatch’s article, but finally:
Australia has the eighth-lowest taxes of the thirty-four nations in the OECD. In 2015, the only countries where taxes were lower were Chile, Ireland, Korea, Mexico, Switzerland, Turkey and the United States. Twenty-six countries had higher taxes, most of them much higher, including successful economies such as Austria, Canada, Denmark, Germany, Israel, Japan, the Netherlands, New Zealand and Britain.
The government appears to want tax versus spending to be the election issue. It has chosen to fight on weak ground in economic terms, and, I suspect, political terms. It will make for a historic ideological battle.
The only decent summary I can find of Shorten’s budget reply is Phillip Coorey at the AFR.
Labor will almost double the tax rebate, giving $928 as against $530 for income earners between $50,000 and $90,000. It tapers up to $50,000 and tapers down after $90,000, cutting out after $120,000. That will include the 10 million lowest paid Australians according to Shorten.
Other than that, while promising to pay down debt faster, Shorten is focussing on education (schools – $17 billion more over 10 years, universities and TAFE) and on health in repairing the cuts of the last five years.
The LNP is benefitting from a $35 billion windfall (over four years, I think, so about $9 billion pa), of which it is spending roughly half, leaving the rest as budget repair, or to make further promises before the election.
Labor’s war chest derives from the official budget forecasts, plus policies relating to negative gearing, capital gains and other sources not so much affected by the vagaries of economic conditions. Central, of course, is the $85 billion over 10 years in corporate tax cuts saved. It is said to total $200 billion over the next 10 years, or $20 billion per annum. The latest I’ve heard is that it is actually $350 billion, or $35 billion per annum.
One way of judging Labor’s effort is to compare it with other countries. The Greens noted that to achieve the OECD average, as they suggest:
“Despite what the Liberals say, Australia is a low taxing nation. It is the 8th lowest-taxed among the 35 OECD nations. Australia’s combined tax-to-GDP ratio is 28.2% for all levels of government in 2015. The OECD average is 34%.
“If Australia collected the same amount of tax as the average OECD nation then we would need to collect an additional $94 billion per year”.
That would mean lifting the federal revenue take to about 30% of GDP.
Stephen Bell and Michael Keating have recently written a book Fair Share: Competing Claims and Australia’s Economic Future. There is a podcast at The Conversation, which I haven’t listened to. Bell, spoke to Emma Griffiths and answered listeners’ questions on Focus last week.
Stephen Bell is Professor of Political Economy at the University of Queensland and a fellow of the Academy of Social Sciences in Australia. Michael Keating is the former head of three Australian Government departments: Employment & Industrial Relations, Finance, and Prime Minister & Cabinet. He is a visiting fellow at the Australian National University and a fellow of the Academy of Social Sciences in Australia.
They have put together a case for lifting federal expenditure to about 27% of GDP. As far as I can make out that is about $50 billion extra per annum. If we did that we could have a compassionate society that works as a society and provides opportunities and a decent life for all within it. Labor seems to be heading in that direction, though still well short.
The LNP’s philosophy seems based on individual effort and rewarding effort and merit. However, it is in fact rewarding success, which is different, and shows its true colours by how it treats those in need or on the fringe. There is a strong element of punishment in what they do. It is a relic of the poorhouse of 17th and 18th century England, along with a stratified society with entrenched elites.
However, such is the state of politics which road we take may depend on sloganeering and scare campaigns rather than a seriuos policy debate. I blame John Howard with his anti-refugee 2001 election, Abbott turbo charged the practice after gaining the leadership, and Turnbull after promising better is a fully signed-up practitioner.
Update: There has been quite a bit of analysis showing that under the Coalition’s plans the rich will get richer. This graph is too good to miss: