Ironically, big business is driving the surge of tax revenue that both sides of politics are preparing to spend on voters at the looming federal election – yes, the same big companies that supposedly pay no tax. Led by the miners, including the coal miners, company tax has grown at twice the pace expected at the time of the May budget. Company tax accounts for half the projected revenue upgrade over the next four years – and the bigger part of the $9.2 billion election war chest the government included in Monday’s midyear economic and fiscal outlook.
The essential problem with this is, first, that the drawn-out task of budget repair has not yet been completed. Treasurer Josh Frydenberg has not yet actually delivered the first budget surplus since John Howard was prime minister. He’s still just forecasting one. And the treasurer who lost all grip on the nation’s finances, Wayne Swan – the treasurer that his prime minister Kevin Rudd since revealed was never up to the job – this week paraded his fantasy redistribution agenda in his new job as party president to the likely next Labor government. Second, even this uncompleted budget repair could easily be knocked off track by an overdue economic downturn that, unlike during the financial crisis a decade ago, would not have a sizeable surplus cushion to soften the blow and which would hit company profits and hiring.
Third, and most fundamentally, budget repair has failed to reverse the ratcheting up of government spending in the wake of the crisis. Even if nobody expects a return of the GFC, the lesson of the past 10 years is that budgets go off track easily but take years – even decades – to get back on the rails. After the political disaster of Tony Abbott and Joe Hockey’s 2014 budget, the Coalition largely raised the white flag on Labor’s spending monuments. Now it seeks to put a lid on the expansion of government by imposing a lid – 23.9 per cent of GDP – on how much of national income can be expropriated in tax. Labor let spending as a percentage of GDP blow out from 23.7 percent on taking office in 2007-2008 to 26 per cent by 2013-2014. But in six years of government, the Coalition has barely pulled that back: it will be 25.4 per cent this financial year, and still only 24.7 per cent in 2021-2022. Scott Morrison’s first budget in 2016 was a me-too affair that followed Labor’s lead on education and disability spending funded by a populist extra tax on the banks.
Treasurer Josh Frydenberg has not yet actually delivered the first budget surplus since John Howard was prime minister. He’s still just forecasting one. MICK TSIKAS
With government spending ratcheted up, a creaky and inefficient tax system has to be pushed to the limit to raise the revenue required to fund it. Labor does not even have the brake of the Coalition’s self-imposed tax cap to hold it back its tax-spend-and-redistribute agenda. While increasing the overall tax take, Labor has sought to deliver tax cuts to middle and lower income taxpayers through rebates that complicate the tax system, rather than genuine reform to sharpen the incentives to work, save and invest. It’s problem is that fair dinkum tax cuts would flow through to those who already pay the most tax, and who Labor wants to slug more. But, because it has not been able to counter Labor’s spending fetish, the Coalition is struggling to lighten the tax burden holding back the economy. Even its foreshadowed new income tax cuts would likely hardly return bracket creep. Workers still face a rising average tax rate.
Rather than glib slogans promising a return to some lost fair go, the next Australian government should focus on seeking value for money in providing public services including health and education, sustaining a genuine social safety net and maintaining national security. It should pursue genuine tax reform to promote the economic growth that will deliver a bigger tax base that, in turn, will support such public services as Australia’s population ages. And it should anticipate the likelihood that, after 27 years on uninterrupted growth, Australia’s economy is overdue for a cyclical downturn that would quickly reverse the tortured past decade of budget repair.
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