Economic think tanks setting the election agenda
In this story
So much in politics depends on the way issues are framed.
Ask people whether they approve of jobs and growth, for example, and you can bet they will overwhelmingly say yes.
Ask them, though, whether they approve of giving tax cuts to multinational corporations and they will overwhelmingly say no – support for this being as low as 3 per cent in some polls.
And yet the two are flip sides of the same coin in this election campaign. The Turnbull government’s 10-year goal of cutting the company tax rate from 30 per cent to 25 per cent is the centrepiece of its economic “plan for jobs and growth”.
Framing is everything. The people must be convinced the government’s plan will bring benefits to them, and not simply see money flow out of Australia to the benefit of foreigners.
Thus the government saw a big problem this week when progressive think tank The Australia Institute dropped a new report, “Company tax cuts: An Australian gift to the US Internal Revenue Service.”
The basis of the report was that under a tax treaty between Australia and the United States, American companies are credited by the US Internal Revenue Service for any tax paid here, but required to pay the IRS the difference between Australian and US corporate rates, which, at 35 per cent, are among the world’s highest. Thus any reduction in the Australian rate would simply increasethe amount payable to the US.
Using recent data from the IRS on corporate claims for credit on taxes paid in Australia, the report calculated that the US tax department would reap a windfall from the reduction in Australian corporate rates. In the first year after the government’s promised company tax cuts were fully implemented a decade from now, the report said “Australia will give a gift to the US of $A999 million, and $A11.01 billion over the decade beginning in 2026-27”.
The Australia Institute, undoubtedly the most media savvy of the country’s think tanks, had planned for maximum exposure. A copy of the report was provided to The Sydney Morning Herald on Sunday and a prerecorded interview done with the ABC’s AM program. It was formally released at 6am.
And it got good coverage. “In the first 24 hours we had 49 news stories,” says the institute’s director of communications, Tom Burmester. “Including Monday and Tuesday, we had 91 hits in media.”
In addition, three Facebook posts by The Australia Institute reached about 50,000 people. Its tweets on the subject were widely retweeted, including by Opposition Leader Bill Shorten and former Labor treasurer Wayne Swan.
It fell to Finance Minister Mathias Cormann to try to hose down the issue, and on Tuesday he appeared on AM to declare The Australia Institute claims “completely false”.
His interviewer, a business reporter, asked the obvious question: If the institute’s $11 billion number was wrong, then what was the right figure?
Cormann did not provide a number, although he did, on the third asking of the question, provide a rationale of sorts.
US multinationals, he said, “don’t, as a matter of course, remit those profits already taxed in other jurisdictions back to the US. In fact, you’ll find that they hold those cash reserves offshore, outside the US, around the world, for future investment.”
In other words, the IRS wouldn’t get the money because the multinationals would avoid giving it to them. Cormann’s suggestion is that this unrepatriated profit would be reinvested in Australia. Equally likely, though, it could simply join the $3 trillion-odd stockpile of money held by corporates in tax havens.
The Saturday Paper attempted to explore the issue further with Cormann, but a lengthy email exchange elicited nothing more than what he said to the ABC. No numbers, no hard evidence that The Australia Institute was wrong.
And the man who wrote the report, David Richardson, continues to insist he is right. He holds a master’s degree in economics, and worked for 17 years crunching data for the federal parliamentary library, as well as 11 years as a Labor Party staffer.
“We’ve simply reported and commented on the data provided by the Internal Revenue Service,” he says. “Anyone can have a look at the spreadsheets that the IRS publishes and find exactly what we found.”
The point to this story, though, is not so much one of who is right and who is wrong. It is the fact that over several days this week the finance minister spent a great deal of time debating not with his opponents in Labor or the Greens, but with a think tank.
Critics of The Australia Institute, such as Cormann, attack it as being “Green-aligned”.
And it’s true that the institute’s executive director, Ben Oquist, and its chief economist, Richard Denniss, previously worked for the Greens, as did deputy director Ebony Bennett.
It’s also true that Denniss holds a position as an adjunct professor in economics at the ANU, that Oquist previously worked with the public affairs company Essential Media Communications and that Bennett worked in the press gallery and for a polling and market research firm. Others among the dozen staff have strong backgrounds in economics, but these three are first and foremost political professionals.
Their Monday morning strategy sessions are heavily focused on the most effective ways to exert influence, be it by cosying up to Clive Palmer to sway his senate vote, or commissioning polling, or nutting out the optimum time to drop research to the media.
They’re lefties, to be sure, but hard-headed and non-partisan ones.
“I like to say I used to barrack for a political party,” says Oquist, “but now barrack for ideas.”
As I write, another fight is beginning over another piece of economic analysis by another think tank – this time the Grattan Institute – that suggests the government has vastly overstated the benefits to Australian jobs and growth that will flow from the corporate tax cut.
And there is an interesting backstory to this one, too.
The government did not produce the full Treasury analysis of the effects of the tax cuts during the budget lock-up this year. It released it quietly later.
What that Treasury paper shows, says Grattan chief executive John Daley, is that the company tax cuts will boost Australian incomes by not very much, and not until a couple of decades from now.
That’s because a large part of the additional economic activity resulting from the cut to taxes will be “conducted by foreigners”.
“So initially most of the tax cuts flow offshore. That’s a net loss to the Australian economy,” Daley says.
“Gradually this is forecast to stimulate investment, and then this extra activity comes to outweigh what we’ve given up to foreigners.
“Treasury’s own modelling shows the effect on Australians’ incomes is negative for about eight or nine years, and thereafter is very small.
“The full effect on GNI [gross national income] is modelled to be about 0.6 per cent of GNI, 20 or more years into the future.”
His more detailed analysis went up on The Conversation website on Wednesday night. On Thursday morning, Prime Minister Malcolm Turnbull was asked about it by media following him on the campaign trail.
Was Daley right in concluding the net benefit of the tax cuts was only half the headline benefit being spruiked by the government?
“No, he is wrong,” said Turnbull, tersely.
But he offered no reasons why. And it is unlikely he will be able to cite any reasons, given that the Grattan analysis was essentially a distillation of the government’s own modelling.
Once again, the point is that the government is being held to account not by its political opponents but by independent experts.
This is turning out to be very much a think-tank-driven election, and the flak the government is getting over its corporate tax cuts is only the latest example.
In so many areas of policy the parameters of debate have been set by think tanks, and by these two, Grattan and The Australia Institute, in particular. The most obvious ones are negative gearing and tax concessions for superannuation.
John Daley has an old cartoon on his office wall that portrays negative gearing as a sacred cow.
But the negative gearing of property is no longer such a sacred cow. A substantial portion of the electorate has come to see it as a tax dodge that overwhelmingly benefits high-income earners at substantial cost to the rest of the community.
And the reason for that in large part is the work of think tanks, picked up and amplified by the more serious elements in the media, or available direct from the source online.
It is The Australia Institute whose analysis showed the cost to government revenue of negative gearing and the associated capital gains tax breaks was $7.7 billion a year, and that the beneficiaries were mostly rich – 67 per cent goes to the top 20 per cent of income earners, and just 4 per cent to the bottom 20. It was the Grattan Institute that showed the top 2 per cent of income earners claimed half of all capital gains.
What’s interesting about The Australia Institute is that it does its work very much at a retail level, using social media, public forums, podcasts and snappy online synopses of its serious research, and comment pieces in the media to push its left-of-centre agenda direct to the public. For it, the other big issue, superannuation, was but one aspect of a broader agenda: that Australia is a low-tax country with a revenue problem and that taxes on the rich must rise in order to fund services. Their first paper on the subject was produced in 2009.
“We were working on superannuation tax concessions seven years ago,” Oquist says. “It takes time, getting things on the agenda.”
The Australia Institute is overtly political. Grattan is not. It sets out to be centrist. “We work very hard at gaining disapproval from all sides,” says Daley.
Yet both organisations are driven by evidence and data. The Grattan Institute worked for a long time on getting super up as a reform issue, as well, but it chose different means to its ends.
“We framed our argument in terms of taxing superannuation according to its purpose, which is exactly the way the government has talked about its proposed changes,” Daley says. “The government’s direction and language are consistent with what we were saying, although we would have liked them to go further.”
But the bottom line is that it’s on the agenda now, along with negative gearing, capital gains tax, and the big question of corporate tax cuts. Not to mention a host of other, smaller issues: the respective think tanks can point to a variety of policy areas, from health to education to the environment, where their policy prescriptions have been picked up by one or other of the parties.
There are more than just these two, of course. The Centre for Independent Studies produces credible work on the right. And there are a number of smaller outfits, such as the McKell Institute, and the Institute of Public Affairs, which these days is generally viewed more as
a lobby group.
So why is the work of think tanks so prominent in this election?
In part because of the peculiar circumstances of it. The government dropped its budget then immediately called the poll, which meant the usual analysis, that would have played out over weeks and months in estimates committees and media commentary, is so compressed. The easiest way for media to get a quick fix on things is to refer to the work of think tanks and academics.
But it’s more than that, says Daley.
“First, a number of think tanks like Grattan, TAI, CIS have worked hard over the past five years,” he says. “There is a lot more high-quality policy work done now than there was five years ago.”
He includes also the work of the parliamentary budget office, which is in effect a think tank, in that it provides independent policy analysis.
“Second, we have serious journalists really interested in engaging with academia and the think tanks, who use the research to inform what they write. That’s really healthy development.
“I also think that the public sector has got out of the business of backgrounding journalists. There are still plenty of people in the state and federal bureaucracies who understand the issues in immense detail, but by and large they do not talk to journalists off the record anymore.”
Finally there is the matter of trust. To an increasing extent people are not prepared to take on trust the assertions of lobby groups and politicians. They want proof.
Malcolm Turnbull, Mathias Cormann, and for that matter all politicians, should take note.
It’s no longer enough to simply deny, or say “he’s wrong”.
Like the think tanks, they need to show the evidence.
This article was first published in the print edition of The Saturday Paper on May 21, 2016 as "Think tanks calling the shots". Subscribe here.