The make-believe land of Turnbull, Morrison and co

Posted by on July 31, 2018 in Focus

The make-believe land of Turnbull, Morrison and co.

Frank Stilwell

The Federal Budget is supposed to be about responsibly managing the nation’s affairs based on the best available economic information and fiscal forecasts. If so, the legitimacy of this year’s budget is in question.

The budget received a mixed reception. Various articles and letters in the press after the budget expressed some sharp critique and a lot of economic wisdom. With the benefit of more hindsight, the problems, inconsistencies and cynicism embedded in the budget are even more evident.

Oh joy, what lovely rivers of gold

Surprise, surprise, according to the Treasurer, we're not in fiscal dire straits after all.

Evidently, the magic pudding has no limit. It is “Jobs and Growth” forever. Taken off-guard by an unexpectedly buoyant economic projection, the first day or two's coverage in the media was quite positive about the budget. We're all a bit thrown by good news, it seems.

Such is the strength of the economy and the certainty of continuing buoyancy in both the national and international economy that the Treasurer says we can afford tax cuts for all. Low and middle income earners can get some of their income tax payments back (although not until after they lodge their tax returns next year). High income earners are promised increasingly more tax 'relief' over the next seven years and beyond (indeed, for as long as they're sensible enough to keep the conservative Liberal-National Party Coalition in office). Big businesses would also get their share in the bonanza (if only the pesky Senators would do the right thing and pass the legislation they've been holding up). The Treasurer reassures us that the more post-tax income is shovelled to the top end of town, the more income we'll all keep getting.

The sadly short life of Rosie Scenario...

Quickly, a more sceptical mood set in among media commentators. Could we really be so sure that the rivers of gold would keep flowing? Treasury's economic forecasts have been wrong before — indeed, they're always wrong because forecasting relates to the future. The last global financial crash was not foreseen: what if another occurred? And does the Australian economy have a physically sound foundation?

Manufacturing and mining are not what they used to be. Construction, finance and services are the three pillars currently standing, but their continued prosperity depends on the broader patterns of demand. Wages are stagnant, so where will the growing demand come from? Ah, says the Treasurer, let's project faster growth in wages, rising to 3.5% per year which is nearly double the current rate. But projecting something doesn't make it happen. And cutting workers’ weekend penalty rates put more downward pressure on wages. Meanwhile, within a mere two weeks of the budget announcement, new evidence started to come to light about rather less buoyant international economic prospects. Oops.

Whatever happened to the 'debt and deficits emergency'?

Using increased revenues —whether they be big or small — for budget repair is what you might expect from a fiscally prudent Treasurer. People with memories of more than four years duration may recall that the Abbott government came to power warning of the fiscal precipice towards which the Australian government was headed under Labor.

Well, all the Coalition’s budgets since then have had huge deficits and the public debt has doubled. Yet the greater 'emergency' doesn't even get a mention now by the Treasurer. Perhaps it wasn't an emergency anyway. It seems that she'll be right mate, after all. He says he'll budget for a big deficit again this year — business as usual — while reassuring us that a budget surplus, albeit only a tiny one, is likely to occur within a year or two.

So the new tax cuts — and lots more to come — are affordable. In the fullness of time we might even pay back some debt, Peter Costello style. But even Costello — he who gave away most of the extra tax revenues generated during Australia's mining boom — seems to have been notably unimpressed by this profligate fiscal stance. Meanwhile, the public is left scratching its head about the whole situation, thinking 'do these guys really have a consistent story, let alone know what they're doing?’

On the road to a flat tax...

Although advocating free market principles, the government evidently now believes in long term planning. Not for restructuring the economy on ecologically sustainable principles. And certainly not planning to create a more equitable and cohesive society.

The single area where we really need long term planning, according to the Treasurer, is for tax cuts to benefit the rich. As a 'loss-leader', the first couple of years of the announced tax cuts are designed to benefit low to middle income earners, which is supportable by the ALP Opposition, but the longer term beneficiaries of the announced seven year tax reduction plan are the taxpayers with much higher income, approaching $200,000 a year and more. Evidently, these are the new 'forgotten Australians'.

 

The Treasurer's long-term tax plan to reduce their economic stress, centred on removing the 37 per cent marginal income tax bracket, has drawn predictably polarised responses (largely depending on 'which side of the fence’ you're on). Is it deliverable? Probably not. Is it desirable? Definitely not.

To have a flat tax marginal rate for annual incomes between about $40,000 and $200,000 would destroy the progressivity of the income taxation system. Any society concerned with equity should reject it, just as former Queensland Premier Joh Bjelke-Peterson's run for Canberra as a flat-tax advocate was dumped into the garbage can of political history.

Let's cut some spending, but only on people and institutions we don't like

You can infer a government's social priorities from its fiscal policies. Who gets more generous funding and who gets cuts? The favoured people are those whose votes need to be shored up. Elderly people evidently need to be especially cossetted. On the other side of the ledger, we might have expected that the LNP’s 'small government' rhetoric would translate into spending cuts on social programs.

But the government has presumably learned a lesson from (cigar smokin') Joe Hockey's infamous attempt to do that in the 2014 budget. There's an election due within a year, don't you know? So now the principal targets are only the ‘enemies of the state'. The ABC, of course: cutting its budget for the next three years by $84 million is an act of vindictiveness and widely seen (and in some quarters, celebrated) as such. Regular viewers of what the ABC actually does are mostly dismayed by the allegations of bias. Surprise, surprise, privatising the ABC has now got onto the Liberals’ agenda and got clear majority support at the Party’s meeting in June.

Cuts to the funding of APRA and the ABS are equally bizarre. At a time when the Big Banks are so publicly in disgrace, cutting the financial regulator's funding doesn't seem smart, unless  you take the view that APRA should be punished for doing such a weak job. And cuts to ABS; hmm, maybe just in case it was thinking about publishing more data on what's happening to wealth inequalities?

Getting expenditure 'off the books' enables us to live now, pay later

Mysteriously, some big government infrastructure projects don't appear as budget spending items. Smoke and mirrors? A pea and thimble trick? No, it is now well-established neoliberal practice for getting private companies to do the project development, construction and management so that the projects appear (or, rather, don't appear) as 'off budget' items.

Developing public-private partnerships is the polite term for the process. Privatising the profits and socialising the losses is the real name of the game. The accounting looks impeccable for the time being; and the bailouts would come further down the track (so that doesn't matter, does it?).

Does turning a blind eye make problems disappear?

Sins of omission compound sins of commission. Ignoring the plight of the unemployed people living on Newstart payments is punitive. Even the business organisations recognise this is stupid as well as unfair: having nearly one million consumers with such low incomes makes the prospects of Jobs and Growth recede further.

People with incomes below the official poverty line also have difficulty in affording the expenses of job-seeking. Meanwhile, young people working in increasingly insecure labour markets but aspiring to buy homes (crazy dreamers) are left to face their plight with nothing done to address the bizarre housing situation in the capital cities.

The environment, women and other 'left-wing' concerns also remain out-of-picture. Climate change: nothing. Child care policy: nothing. Foreign aid: slides to lowest ever level. The internationally agreed target for development aid is O.7 per cent of each nation's GDP, but Australia's contribution is now down to 0.2 per cent. Meanwhile, defence spending is ramped up, more subs are on order and billions are being allocated to develop an export-oriented international armaments industry. So much for Australia being a good 'global citizen'.

Fix the ceiling (at an arbitrary height)

When your economic base is collapsing it is always good to fix your gaze on the ceiling, isn't it? The Treasurer's decision to set an upper limit of 23.9 per cent for government revenues as a proportion of GDP has been almost universally seen as arbitrary. Interestingly, there is no corresponding upper limit on spending. Yet big spending commitments are inevitable: for the NDIS, school funding, the costs of an increasingly hi-tech medical system for an ageing population, and so forth.

You don't need to be a first-class accountant to recognise that is likely to lead to bigger debt and deficits down the track. Wouldn't it be more sensible to take stock of what should be spent to create a good society and then design the tax system to produce that revenue, based on people's ability to pay? That way we could get both nation building and social justice. The Nordic countries have done it for decades, and their significantly higher levels of public expenditure and tax have not created the economic disaster that the Treasurer evidently wants us to fear.

Don't worry about the economy: keep your eye on the election

As almost all commentators agree, the budget is really all about the next general election. It is largely devoid of economic logic and principles and only explicable in terms of short term political posturing. Some have, very unkindly, called the tax-back centrepiece an election bribe. Will it have traction? Perhaps. But if it does, Labor’s promise to effectively double the amount for tax relief for low and middle-income workers, logically, should have even more appeal.

In any case, this political game seems to have a rather old-fashioned ring about it. Many people in the electorate have evidently become increasingly cynical about political behaviour like this. ‘An extra $10 a week in your pocket’ doesn’t outweigh the concern that, as a society, we need to give greater priority to public spending on creating a more equitable and sustainable future, or even just to paying off debt. There seems to be a lot of support 'out there' for having better public infrastructure and services funded by a more broadly-based and progressive tax system.

Well, bring it on.

Economic issues matter, as do issues of social justice and ecological sustainability. It all gets mediated through political choices, however. That's called democracy.

The choices the Australian people will face at the next Federal election will be particularly clear. It can re-elect a bumbling government that is beholden to 'the top end of town' and devoid of any coherent strategy for an equitable and sustainable society. Or it can turn to opposition parties, such as the ALP and the Greens, who offer clear alternatives.

Labor now has the pole position. It will have more revenue at its disposal: it will not give tax cuts to big business, it will restore the budget repair surcharge on high incomes, introduce changes to negative gearing, remove the capital gains tax discount, and tighten up on the use of trusts and other tax rorts. It is therefore better placed to undertake both budget repair and improved spending on health, education, and other public services. It will face budgetary choices, as ever, but it can do so on firmer terrain.

Meanwhile, the Coalition's 2018 budget operates in a make-believe land that Turnbull, Morrison & Co. have created in a desperate attempt to make their shabby operation look fit for purpose. Hopefully, the fantasy/nightmare will soon be over.

Frank Stilwell is Professor Emeritus in Political Economy at the University of Sydney. An earlier version of this article appeared on the website of the Evatt Foundation.

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