In his Budget Reply Address to the National Press Club Peter Hartcher in a piece Bowen seizes chance to make history reckons Labor’s plans amount to a trifecta:
- First, it has promised a tax cut almost twice as big as the government’s for lower and middle income earners, $928 a year against the government’s $530.
- Second, Labor has promised to spend more on its “inclusive growth” agenda centred around education, skills training and health care.*
- Third, it has promised to return the budget to a bigger surplus than the government’s planned $2.2 billion for 2019-20, and to press on to a surplus of at least one per cent of GDP.
Labor has been able to do this because of the work they have done on the revenue side, not so much from nixing the company tax reduction, which would only cut in later, rather the changes to negative gearing, dividend imputation, family trusts, retaining the increase of 2% to the top tax rate and other revenue measures. And a refusal to be bound by an arbitrary limit on revenue of 23.9% of GDP. Bowen pointed out that Peter Costello had exceeded Scott Morrison’s speed limit five times when treasurer.
There is a video of Bowen’s speech at the ABC.**
Two large contextual factors to the budget are that we have an aging population, plus growth needs to occur outside the traditional arenas of resource extraction and agricultural exports in a few chosen bulk commodities. Alan Kohler told us one night recently that Australia’s economic complexity was one of the worst in the OECD, about on a par with Kazakhstan, so there is plenty of scope for improvement. To prosper in the future we are going to need good social infrastructure that works in areas like health, education, skills, research innovation and justice as well as infrastructure in communications and transport. New Zealand has adopted a ‘social investment for their future’. They seem to be a bit smarter than we are in many areas of public policy.
The LNP approach has two main aspects – reduce corporate taxation and limit the size of government which is seen as a burden rather than as an investment. Necessary expenditure is continually being cut. For example, in the NDIS, 10 per cent of plans are requiring a review almost as soon as they have been established. People are waiting nine months for a review, because the program is under-resourced.
On autism, it appears the eligibility criteria are being changed to make it harder to access the scheme although:
- A Productivity Commission report had found more help at an early age saved the system money later.
Examples like this appear several times a week, which makes me wonder whether the LNP has any grasp of what the country needs in the medium to longer term, and whether the current government is fit for purpose.
As the budget issue plays out in the context of an election campaign it may come down to an auction on taxation.
Phillip Coorey in Top tax rate of 49pc will stay until budget is in strong surplus: Chris Bowen. Bowen has defined a strong or sustainable surplus as 1 per cent GDP. The LNP budget will not reach 1 per cent until 2026-27 due to the impact on revenue of the three-stage income tax cuts. Labor aims to get to a surplus at the same time as the LNP, but plans to make it sustainable much earlier. Final figures will not be available until the election.
Labor supports and almost doubles the first phase LNP budget tax cuts, from $530 to $928 for those on $50K to $90K. This phase is a tax refund at the end of the year, rather than a rate cut, so its effect does not pass on the higher income earners.
The second phase involves lifting the limit of the 32.5% bracket from $87K to $90K immediately and then phasing it up to $120K. In this phase the 19% threshold will also be raised from $37K to $41K. It looks as though Labor will support this phase.
The third phase sees this 32.5% bracket taken right up to $200,000, with the 37% bracket being eliminated entirely. It looks increasingly unlikely that Labor will support this, but will retain the 49% rate (with Medicare) for the top $180K plus bracket. However, Labor has a bigger warchest and is likely to offer bigger tax cuts than the LNP for middle Australia.
This image from The Conversation shows the initial and final effect of the LNP’s tax policy:
According to Jacob Greber Chris Richardson pointed out a few days ago that 47 per cent of tax payers actually don’t pay any tax. Richardson’s main point is that the conversation should be about tax share, rather than the amount of tax paid by the rich. In both policy offerings the rich end up paying more. The article contained this graph:
Today Greber was emphasising that Labor keeps the door open to Morrison’s middle Australia tax cuts with this table:
Currently the top 20 per cent pay 78.7% of the tax. Under Labor this would lift to 82.7%, but under the LNP it would also lift to 81.3%.
I think this if fair. Government is going to cost more in the future because of aging, because people want good services, which in any case are necessary for an improved economic future, and people are committed to assisting the disabled. Paying a little extra will not change the life-style of the top 20 per cent.
The Greens, helpful as ever, have come out against all tax cuts, claiming that they would increase inequality:
“This reckless tax auction is nothing more than a distraction from the millions of dollars stripped from our schools, hospitals and social safety net over the past decade.
“While Turnbull is busy squabbling with Labor over how much they want to rip out of Australia’s institutions, the Greens are proud to stand up for Medicare, our public schools and hospitals and the environment”.
I would suggest that it is untrue that Labor is ripping funds out of Australia’s institutions.
Presumably the Greens will increase the welfare to the poor. They always have plenty of money to disperse in their budget calculations.
A couple of days ago Phillip Coorey looked at the possible future of the senate in relation to tax policies, suggesting thatLabor’s tax strategy will face its own senate ordeal.
Labor has 26 in the senate, and the Greens nine. The LNP have 30 in the senate. Either way the going could be tough to reach the magic 39 votes needed.
Of the 11 on the crossbench only Pauline Hanson, the Centre Alliance’s Stirling Griff and Rex Patrick and Cory Bernardi have six-year terms. Coorey says they are all essentially low taxers.
Seven of them – Derryn Hinch, David Leyonhjelm, Fraser Anning, Brian Burston, Peter Georgiou, Steve Martin and Tim Storer – scraped in last time because they, or the disqualified/retired senator they replaced, were able to cobble together half a quota of votes as required in a double dissolution.
unless Labor and the Greens boost their Senate numbers to a combined 39 votes at the election, Labor’s $220 billion war chest could be reduced by between $50 billion and $100 billion.
That was before the Greens spoke.
Meanwhile across the ditch NZ budget 2018: government adopts investment approach to achieve valued outcomes:
- New Zealand’s Labour-led coalition government used its first budget to drive step changes in social and environmental outcomes. The investment approach to public policy has become the new orthodoxy for governance.
The investment approach can be defined as using evidence to quantify a public problem and then fund interventions that are likely to improve outcomes and therefore reduce future costs to government.
A pity the place is so cold.
Other commentary includes Katherine Murphy Labor to promise bigger surpluses to buffer Australia against global economic shock.
* I’ve used the phrasing from Phillip Coorey’s article.
** I posted a link to a transcript as well as the video at Australian politics.com, but on closer inspection it turned out to be the 2014 speech. I can’t find the transcript of the 2018 speech.