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Here’s what I posted as a comment to Business Spectator and the Conservation sites yesterday. The Coalition is struggling with the budget but don’t seem to have many ideas up their sleeves. Malcolm Turnbull and Scott Morrison have replaced Tony Abbott and Joe Hockey, but this doesn’t seem to have made much difference …

The Coalition has now spent 2.5 years treading water on revenue issues. I’m not sure Morrison and Turnbull have much more of an idea than Hockey and Abbott. If another 2% of voters (i.e. swinging voters) feel this way in the next few months, the government could be in trouble, and remembering that the Coalition only had about 46-48% of the vote under Abbott.

Abbott and Hockey talked of a ‘budget emergency’, which was always nonsense. Then they proceeded to chop taxes and spend a heap on pet projects. That was never going to fix the budget. The measures that would have hit the sick, the poor, the old and the young, but didn’t get through the Senate, would have given the budget some slight short term relief but no good for the economy, or the budget in the longer term.

Morrison still doesn’t seem to think we have a revenue problem. We’ve had a revenue problem since 2008 when the GFC sent revenue through the floor (as it did in countries all around the world), falling from 25-26% of GDP to 21.5% in 2010-11. It still hasn’t recovered (at 23% of GDP), unlike the situation in many countries.

Morrison and Turnbull seemed to be testing the waters on increasing the GST. That didn’t work and they more or less dumped it but not quite, which caused various contradictory statements. Now it’s totally dropped but they don’t seem to have anything else specific. This showed in Morrison’s nothing talk to the Press Club.

There are all sorts of things the government could do but they don’t seem to want to. The government needs to look at things like tax concessions on superannuation, property investment, etc at the high end, corporate tax avoidance and evasion, carbon pricing (its abolition is costing the budget $18 billion over four years according to the Parliamentary Budget Office), etc as well as some expenditure cuts (expenditure is at 26% of GDP; it was 24.9% in 2008-09 to 2012-13 and that was with the stimulus packages to keep us out of recession; mining and China wouldn’t have been nearly enough) before it can reasonably think about income tax cuts. Or they will never come close to a surplus, let alone reducing the debt.

Then there’s bracket creep. Treasury modelling showed the average tax rate would go from 24.4% to 26.6% by 2020-21. Morrison described it as a job killer and growth killer. Theoretically, that would be the case if the money isn’t spent. But it’s a trade-off between growth and reducing the deficits and debt. I’d probably let bracket creep go another couple of years and implement the measures I outline in my previous paragraph. Federal government debt has increased from around $265 billion to $410 billion under the Coalition, or about $5 billion a month, and the deficit is twice what it was in 2012-13.

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