The Grattan Institute found that providing tax cuts in the never-never while reducing government expenditure from 24.9% of GDP in 2018-19 to 23.6% during the next decade will necessitate cutting existing programs by more than A$40 billion a year in 2029-30. That should have been the story of the week, but somehow it wasn’t.
That’s Scott Morrison saying the claim is “absolute complete rubbish”. I’ll come back to that. Worse was to come. By the end of the week Bill Shorten was accusing the Liberal Party of running a “low-rent, American-style fake news” campaign on a “ridiculous death tax scare”.
There has been a story flying around Facebook:
- “Labor, the Greens and Unions also have signed an agreement to introduce a 40% inheritance tax. Everything you own cannot go to your kids or next of kin at death 40% goes to the govt. Please share this with all your friends.”
From what I can make out, way back in march 2017 Richard di Natale was musing in public about a four-day week, death taxes and a ‘people’s bank’, plus other nice things. Thankyou Richard. The story has been bubbling away in the background like this one in July 2018, Pauline Hanson saying “Please explain” and one of her candidates raising it earlier this year. Now it has exploded like a rash on social media. The problem is these things don’t leave fingerprints. We should be in no doubt that the Liberal Party will do whatever they think is necessary to win. This has been the case since the Tampa election in 2001.
However, the inheritance tax incident exemplifies Katharine Murphy’s main point about the conduct of the campaign in How Shorten the Redeemer met Morrison the Disruptor – and decided to fight back.
Brilliant article, apart from thinking Queensland is one homogeneous place.
Murphy says that Shorten has been campaigning on cruise control since the 2016 election. He has a program to take us to the sunlit uplands while protecting the economy from shock and paying off debt. He’d like to tell us about it, calmly and sensibly, even if his style is a little boring.
He was obviously unprepared for ScoMo, coming over the trenches, firing madly in all directions, says Murphy.
Whatever metaphor you prefer, the strategy is clear. Confuse people, and Shorten, with a lot of big numbers, conjured up from anywhere and mostly patently ridiculous, to make Shorten look as though he doesn’t know what he’s doing with money. And if you can’t handle money, you can’t run the government. Say it over and over and over, so that when undecided voters step into the ballot box, they’ll think, things are not too bad, so why risk change?.
Shorten has been forced to engage.
Murphy made two other worthwhile points. She said that while Labor has Penny Wong, Chris Bowen, Kristina Keneally and others (the list is actually quite long) who can play a public support role, ScoMo has no-one.
Secondly, week one is a trial run, because no-one is paying attention. Not sure about that. I think people may have noticed Dutton suggesting Labor’s Ali France was using her disability as an “excuse” for not living in the Dickson electorate.
- The take-out from week one of the campaign is that while Shorten was less sure-footed than expected, you’d still rather be in his shoes than Morrison’s.
Below I’ve collected a series of items about the election in the style of Weekly salon.
Will the election polarise the vote?
On the 7.30 Report Laura Tingle told us that 96.8% of eligible voters had enrolled, that’s the highest since Federation and 720,000 more than in 2016. Between the major parties I suspect that is good for Labor, but it will be interesting to see whether the minor parties benefit. It’s a bit hard to read, but Newspoll of 14 April shows the combined primary vote of Labor and the Coalition at 78% (39 each), up 5 from June 2017, mostly at the expense of One Nation, down from 11 to 4, suffering from various scandals. The Greens and Other are flat-tracking at around 9 each.
Certainly the much spoken-about drift away from the majors is not currently in evidence. I’d assume that the influx of new voters is mainly the young, where the Greens are at their strongest. Fairfax-Ipsos usually gives an age breakup, where I have never seen the young Greens vote ahead of Labor. This may not be the case in inner urban seats, however.
Baby Boomers vs Gen X and Gen Y: the great generational divide
- Underlying the election battle between the Prime Minister and Labor Leader over taxes and climate change is an intergenerational fight over income, wealth and the future.
It’s young against old; workers versus investors and asset owners.
Labor’s tax crackdowns on negative gearing, capital gains, superannuation, dividend franking credits and family trusts are part of what Shorten argues is ending the “intergenerational bias in our tax system” and stopping the “war on young people”.
“You deserve better than a tax system which deepens inequality and entrenches intergenerational unfairness against Australian young people,” Shorten told the Labor faithful before the Easter break.
The baby Boomers benefitted from the expansion of university education, which was free to the older ones. Many were then promoted to good jobs relatively young, had tenure at universities, and got into the housing market before the prices started hiking. Having collected a good nest egg, some of them are now squealing like stuck pigs because, paying no tax in retirement, Labor wants to deprive them of a handsome annual gift from the taxation office in return for franking credits.
Many Baby Boomers are using self-managed super funds (SMSFs) to harvest franking credits. John Wasiliev in the AFR says that the average SMSF is $652,500, so that makes around $1.3 million for a couple. He reckons they can get 5% pa from that for an income of $53,505. He has a different calculator. Mine says $65,250, but I reckon 4.5% is more realistic, so $58,725 with no tax. Beyond that he says they get an annual gift of $11,745 from the taxation office.
The Centre Alliance have promised to block the franking credit proposal and Labor’s superannuation reforms in the Senate, which is a cynical play to the
selfish Baby Boomers older voters.
UNICEF has just published a report identifying Climate change inaction, low trust in politicians, and addressing mental health in a survey of Australian teenagers entering or about to enter voting age. The Coalition has one of their few genuine initiatives in the mental health area, I understand because one of Josh Frydenberg’s staff who had suffered mental health problems and got in his ear. It’s one of the rare cases where Coalition decision-making actually connected with reality and need, rather than political exigency.
However, it is important that the young, who understandably want a planet to live on, can distinguish between the sham offering of the Coalition (see Cheap accounting tricks and sovereign risk: the Morrison government’s climate policy), designed to pretend they are doing something when they are not, and Labor’s I think honest and pragmatic beginnings to addressing the crisis (see Labor’s climate action plan 2019 – a “dog’s breakfast?”.
Containing cancer bills
There is an excellent article in The Saturday Paper by Julie Lambert.
Labor has announced a $2.3 billion pledge to cut out-of-pocket costs for cancer patients. The Coalition response has been to variously claim that many cancer-related Medicare items are currently bulk-billed, implying the funding was not needed, and then health minister Greg Hunt labelled it an “irresponsible hoax” that would blow a $6.8 billion hole in the budget. This is quite deliberate, cynical and designed to discredit and confuse.
Labor never intended to pay all the costs. Grattan’s health economist Stephen Duckett says bulk billing rates are about 20% and Labor’s plan aims to lift that to 80 to 85%. Currently each year medicos are losing a further $40 million of income through the Medicare freeze and inflation.
Currently getting cancer – 145,000 Australians are expected to be diagnosed with cancer this year – can make you poor. Seems the Coalition just wants to play politics.
Fairy tale budget promises
So far in the campaign a consideration of policy had been lost in a miasma of large but meaningless numbers, so we need to get a grip on what is going on.
ScoMo and Josh Frydenberg have been telling us that the budget is “back in the black” and that people who work hard will be rewarded with substantial tax cuts, and that the nation’s budget debt, which has doubled under the LNP’s two terms, will disappear during the next decade like the morning mist. The surplus of $7 billion next year sounds like a large number until you match it with spending of $500.9 billion. Then it sounds like a rounding error. This makes it look large:
Now imagine what the graph would look like if it showed the $500 billion it sits on in the y-axis.
The $7 billion actually includes $1.6 billion of NDIS expenditure that will not happen essentially because the government has put a cap on the numbers of staff employed on the program. Then $5 billion is Future Fund dividends, which are a ghost entry, because they must be brought to book but are not available to be spent.
The surplus never reaches 1% of GDP which characterises a ‘fair dinkum’ surplus, around $20 billion in today’s dollars, before it dips in 2022-23 when the first tax cuts turn up. And here’s what the tax cuts look like (from How much you save under Labor and the Coalition’s tax plans at a glance:
Look at who gets the lolly and when it comes.
I expect Labor will have more to say, since Chris Bowen has made it clear that surpluses of 1% of GDP will take priority over tax cuts. If and when tax cuts are possible, priority will be given to income earners of less than $40,000, who, according to Shorten, number 3.4 million.
Now look at this one out to 2030:
The formal budget only covers the area between the dotted lines, up to 2022-3, the so-called “forward-estimates period”. Economist Richard Holden explains the rules in Vital Signs: the ‘ball-tampering’ budget trick they don’t want you to know about:
- During those four years, cuts need to be specified, or economic parameters need to be varied. And with good reason. That way the actual assumptions the government is making, however fanciful they may be, are plain for all to see.
But beyond the four-year period no such discipline applies. This allows governments of all stripes to make very specific claims about, for example, tax cuts they plan to deliver without having to be at all specific about how they are going to pay for them.
This is all just a conjuring trick. Politicians try to get us to focus on the tangible, specific thing we want – tax cuts, more money for hospital or schools, free cancer treatment – while obfuscating how they are going to pay for it.
It’s dirty pool. It’s not cricket. It’s the kind of thing a mob accountant does. Pick your favourite metaphor.
Holden says that’s what Frydenberg and Matthias Cormann did, and Wayne Swan also did it under Labor. He believes that only punishment at the ballot box will cure this bad behaviour.
Holden says that such conjuring is why Grattan can bell the cat in calling a $40 billion pa hole in expenditure forecasts. Paddy Manning at The Monthly in Fiscal wolf in sheep’s clothing: The PM’s tax cuts mean radical austerity says The Grattan Institute’s John Daley told him:
- “Overall the Coalition tax cuts as planned are only affordable if we see spending restraint that we have not seen for the last 50 years.”
- “…the numbers that are built into the forwards assume spending growth materially lower than we have seen at any stage for the last 50 years, at the precise point at which we are expected to see substantial ageing of the population. Let’s just say it looks kind of aggressive.”
Note he said “the numbers that are built into the forwards”, so the cutting appears in the early years, not just in the virtue signalling in years beyond.
On the night after the Budget I heard Peter Martin say that there was line after line in the budget where expenditure tapered unexpectedly over the years. I heard another authoritative commenter interested in demography say that the budget papers actually forecast an increase in immigration, just after the government had formally capped it. Also the fertility of Australian women was forecast at 1.9, increasing without explanation from the present 1.7. It seems fictional numbers were inserted to make those graphs look the way they do.
I can assure you there is more deliberate conning. For example $365 million for preschool is included for 2019-20 only. It has been one year at a time and continues to be so. The result is that it is costed at zero in the following years.
There is another one where large savings in program delivery, from memory in the order of over $2 billion, were included just for changing the computer system and delivery methodology. Unbelievable.
Paul Karp at The Guardian has done an Explainer: is the Coalition planning $40bn of secret spending cuts?
- It is true that the budget shows spending to GDP will shrink from 24.6% to 23.9%, and spending would be $40bn higher if that were not the case.
The idea that shrinkage can be achieved without major cuts to programs relies on the assumption the government can keep spending growth at 1.3%.
I suspect no sane economist would think that possible.
On Insiders we were told that the Budget assumes that government services will cost less because of wage restraint. Yet income tax receipts, by far the biggest revenue source, are premised on wages increasing faster than inflation. Here is the budget record on predicting wages growth:
Only in 2012-13 (I think Wayne Swan’s last budget) has the actual outcome exceeded the budget forecast. Since then the record of prediction is downright embarrassing. Six years in a row we’ve been seriously misled.
We know that the mid-year MYEFO regularly produces bigger changes than the skinny surplus forecast in Year One. The rest is pure fiction, consciously planned that way to con the electorate.
There is an interesting session on taxation The joy of tax at ABC RN with Peter Martin, Gigi Foster and Bob Breunig, Professor of Economics at the ANU. Apparently in Oz every $100 of tax raised costs us $12 because of complexity requiring hordes of accountants. NZ do it for half the cost, and other countries are going even better.
Breunig also tells why zero company tax makes sense. Companies pay out better dividends and you collect it from the shareholders.
Advance Australia is a conservative group formed to counter GetUp. Some bright sparks there invented the idea of Captain GetUp:
Apparently he’s been running around in Warringah, so Junkee asks How Did Captain GetUp Go So Terribly, Horribly Wrong?
Basically it is a silly idea, as Junkee said in Some Enemies Of GetUp Have Created A Superhero To Take Down GetUp, And Oh Boy:
- After all, nothing says “clear political messaging” than having to start every sentence with a reminder that you are not, in fact, from GetUp, despite having GetUp quite literally written all over you.
And nothing — nothing — appeals to voters more than the muffled voice of a guy inside a bobble-headed orange spandex suit yelling “I am Captain GetUp the truth crusader!”
And yet, while Advance Australia clearly hoped Captain GetUp would inspire hearts and minds, so far he’s mostly inspired confusion. If he does not represent GetUp, why is he covered in GetUp logos?
Where will the election be won?
Kevin Bonham has Labor in the lead around 52-48 TPP, which means Labor has its nose in front, but we have a contest. Tim Colebatch in Over the top with Scott looks at betting information as well as region by region and particular seats.
The Guardian looks at the seats Labor and the Coalition have to win.
Since the 2016 election the ACTU has had a long target list of Liberal seats:
- In all, there are 16 ACTU target seats and a total of 28 targeted by unions, including peak bodies in each state and ACTU affiliates.
- Before the 2016 campaign the then ACTU secretary, Dave Oliver, promised it would build a “permanent campaigning capacity”, with organisers employed in marginal seats throughout the term of the 45th parliament.
The Greens are no doubt targeting a limited number of seats.
I think we can write Clive Palmer off. He’s spent a mozza advertising everywhere, but I think he’s passed his use-by date.
Independents could struggle because of the sheer cost of campaigning, but we’ll have Bob Katter and Andrew Wilkie for sure. Adam Bandt for The Greens will be there, and if voters are peed off with the two majors we might get 3-5 of them. The Liberals might knock off Labor here and there, such as Herbert in Townsville (won by 37 votes in 2016) and Braddon in Tasmania (1.7% in a by-election last year).
My betting is for a hung parliament, but I have no clue as to who will form government. Australia would be a better place, however, if GetUp get their men, in which case Labor will probably form government.
In the senate, I’m hoping people are done with One Nation, but we’ll certainly have a crossbench beyond the majors and The Greens. The crossbench favours conservatism, and Labor would have a hard time enacting it’s revenue-producing measures.