Treasurer Joe Hockey: the man who knew to mulch
The day the Reserve Bank showed the government had failed to deliver on its economic leadership, Joe Hockey reached for the shovel. The treasurer said the record low interest rate was to help facilitate the green shoots that were beginning to emerge. It is, he said, as much about putting fertiliser on the new growth as anything else.
Not to be visited on this government’s head the harsh judgements he and the prime minister heaped on their predecessors every time the Reserve cut rates. Hockey then seized on Wayne Swan’s description of rates at 3 per cent as emergency levels. A month before the last election he proclaimed, “If interest rates come down today it is because the economy is struggling, not because it’s doing well.”
Then, of course, it was Labor’s spiralling debt and deficits that were the cause of the nation’s “budget crisis”. Little effort was made by these campaigning spruikers to temper their political hyperbole with a more honest strategic approach. Sure, you don’t praise your opponents when they are already on the mat; but you do hedge your bets on the reality you will face when you replace them. Instead, the tabloid journalist in Tony Abbott went for a dumbing down of the issues. Simple slogans prepared voters for no failure, mitigating circumstance or excuse. Remember “a government of no surprises and no excuses”?
It is apparent the Coalition leaders made then, and are making now, the politically dangerous and often fatal mistake of believing their own spin. Consider this: Tony Abbott promised there would be an instantaneous adrenalin charge in our economy as soon as Labor lost office. Maybe he was counting on the electorate not taking seriously his magic pudding concoction of promises. That was a huge miscalculation. After all, he was going to mean what he said and say what he meant. All major spending would be quarantined from cuts, no new taxes would be introduced and the deficit would be reduced. So important was deficit reduction it was the benchmark of prudent Liberal management.
Next week’s budget will confirm the promise of quickly returning the budget to surplus is well and truly “dead, buried and cremated”. The most important task Joe Hockey has is to completely recast the government’s policy agenda – away from conservative, fiscal rectitude to something that looks and sounds dangerously like what he has been condemning for the past seven-and-a-half years.
But as we embark on a new magical mystery tour, Abbott and Hockey have resorted to another headline-grabbing quick fix. In a sure sign a rush to an early election is playing seriously with the prime minister’s mind, the electorate has a new simple choice. Labor is for raising taxes, the Liberals are not. Never mind that the indications are the deficit is ballooning into record $40 billion-plus territory, according to Deloitte Access Economics. We are being promised a “credible path to return to surplus” but it will have to rely almost exclusively on spending cuts. Then again, these cuts will not “be at the expense of household budgets”.
It may be a rude question to ask but if the Liberals aren’t for raising taxes, how seriously will they take their own tax white paper? According to the government’s own budget documents, it is already a bigger taxer than Labor’s Wayne Swan. The average tax receipts to GDP ratio for Labor’s period was 21.9 per cent. Hockey has forecast 22 per cent this year rising to 23.1 per cent in two years’ time. Maybe the treasurer is hoping pay-as-you-go taxpayers won’t notice as they move up the tax scale thanks to unchecked bracket creep.
One Labor strategist cannot believe that the government has ruled out revenue measures on offer from the opposition. “Absolutely insane,” was his reaction. One is the policy to recoup $2 billion a year from multinationals that profit shift. Not only is that rejected but it appears the treasurer has been rolled in cabinet over his plans to impose a “Google tax”. A month ago he said he was working on the legislation and “was determined to do it”. With a flourish he added, “I see people who do not pay the legitimate level of tax in Australia as thieves.” This is one tax rise the punters, according to the Essential poll, actually approve of.
While the politics of the dumped Google tax seems dumb, leaving generous tax concessions in place for high-income retirees is understandable. This is Liberal heartland. Hockey made a virtue of this generosity after the Reserve Bank cut rates to 2 per cent. He pointed out this squeezes the returns superannuants rely on. And sounding like a politician who wants to win an election rather than fix his budget, he said: “It’s only Labor that wants to increase taxes on superannuation.”
On closer scrutiny Labor is hardly proposing a soak-the-rich attack. Its policy leaves most superannuants untouched. Only people earning more than $75,000 a year would be taxed and then on income over this amount at 15 per cent. Labor’s Chris Bowen described Hockey’s position as a “pathetic excuse for inaction”.
This episode starkly demonstrates budgets are all about priorities. Why Peter Costello’s excessive retirement income generosity in his 2006 budget is sustainable but the aged pension is not makes the point. However, the treasurer is now widely expected to ditch last year’s ill-conceived attack on 2.3 million pensioners by restoring the old indexation arrangements. Even here it may not be plain sailing, especially if the government still insists on paying for that by two of the nasties the senate rejects – namely withholding benefits to the young unemployed and ditching a raft of family benefit payments.
A plaintive Hockey begged the new Greens leader, Richard Di Natale, to “please, please offer us some bipartisan support in the senate”. It’s not that they never have. The Greens allowed Hockey to take the limit off the debt the government can accrue. But the treasurer’s pleading has found some sympathy in former Reserve Bank Board member and economist Warwick McKibbin. He says the only solution to the government’s budget difficulties is bipartisan support in the parliament. As with Chris Richardson of Deloitte Access, he gives the government credit for having a long-term goal on debt but laments the senate’s unwillingness to support its policies to get there.
These observations are either politically naive or partisan themselves. They ignore the fact that in Abbott we have the most divisive prime minister since Malcolm Fraser in 1975. Real economic reform was only achieved in Australia when the people elected the “great reconciler”, Bob Hawke, in 1983. The Hawke template was not confrontation and excessive partisanship but his ability to relate to voters and to win the economic argument in the parliament. Claims the Liberal opposition was mostly on board do not bear scrutiny. Policies with wide community support exert their own political pressure. Even there politics is the art of the possible and trust is the essential ingredient.
The opinion polls since the first Coalition budget suggest Tony Abbott and his government are running on empty when it comes to trust. The Newspoll this week was the 22nd successive poll that had the Coalition trailing Labor. It’s a trend Abbott has had some success arresting, although other polls are not so kind.
Research carried out by the Liberals’ long-time pollster Mark Textor shows voters are deeply worried about the country’s direction. They recognise the need for reform but profoundly distrust politicians’ ability to make it work. The Australian reported that the public does not think Abbott has any discernible strategy to manage the economic challenges.
Their doubts would have been strengthened this week. Abbott and Hockey are simply unwilling to argue for tough reform or to spread the burden. Chris Richardson says a long-term plan is needed. “Spending needs to be cut and taxes need to go up to close the circle.” The temptation to attack Labor as the big-spending, big-taxing party as soon as it dips its toe in the water is too great to resist. The short-sightedness is an opportunity lost to take the discussion out of the shock-horror headlines and to grab the political cover on offer.
We are being promised a budget that is measured, fair and responsible. Last year’s was merely “an important budget for its time”. Its assumptions that debt is bad and fairness is best served by looking after the top end are certainly looking very yesterday.
Even the government’s most enthusiastic cheer squad is pessimistic. The Australian Chamber of Commerce and Industry’s latest Business Expectations Survey was a grim document. It found: “Business expectations for the economy in the lead-up to the federal budget are on the slide ... Business confidence is weak and getting weaker.”
Joe Hockey will need a very big shovel to dig himself and his good mate Tony out of this one.
This article was first published in the print edition of The Saturday Paper on May 9, 2015 as "The man who knew to mulch". Subscribe here.