Opinion

Paul Bongiorno
Turnbull and Morrison’s pre-election budget positioning

The TV news bulletins and the cartoonists had a field day. The prime minister had been joined on his campaign-style swing down the Queensland coast by his new Coalition deputy, Barnaby Joyce. And Malcolm Turnbull had provided the press with an image they could apply immediately to his government.

As Joyce glowed red-faced behind him in the stifling humidity of a Rockhampton morning, Turnbull proclaimed: “It’s not Thelma and Louise, it’s Barnaby and Malcolm. But we’re on a road trip and we’re having a great time.” The plotline of the 1991 movie has two women escaping their dull lives on a road trip, at one point killing a man and later driving off a cliff in a kind of suicide pact sealed with a kiss. It was too great an invitation for Labor’s Bill Shorten, who quipped: “At least Thelma and Louise had a plan.”

The colourful and mercurial Barnaby Joyce, described as “divisive” by Nationals colleague Michael McCormack, is sure to provide more than a contrast in style to the urbane city slicker we have as our prime minister. Joyce chose to remain in his agriculture portfolio in the latest ministerial reshuffle but as deputy prime minister he brings considerably more clout to any dissonant views he might hold.

Even before he got the top job, he was loud in his dismissal of any changes to the GST. At a time when the treasurer and the prime minister were pursuing a hike in the tax to pay for company and income tax cuts, not to fund state spending, he was using an old song sheet. Joyce said it was a states’ tax and could be changed only if all the states demanded it. That, of course, was the premiers’ understanding as well. Joyce’s lack of enthusiasm was fuelled more by the fact the Nationals represent the poorest electorates in the country. Their constituents would be hit very hard by any rise in a tax on consumption. Previous experience suggests they would not be impressed and would take their votes elsewhere.

This week, Joyce’s Liberal bedfellows finally took the problematic proposal off the table. Turnbull cut through the political heat haze he had created: “I can assure you that the government will not be taking a proposal to increase the GST to the election.” But would you believe politics had nothing to do with it? Turnbull said modelling suggested the pain would not deliver the economic gain he was looking for. Former Labor treasurer Wayne Swan, who the Liberals crucified for removing the GST from the Henry tax review, says he could have saved them the time and money. Shadow treasurer Chris Bowen put it even more bluntly: “Malcolm Turnbull is scared of an increase in the GST because he’s scared of politics; he’s scared that it might see his government defeated.”

Confirmation of the government GST retreat came in the wake of Labor deciding to be very brave on the tax reform front. After a battle, Shorten and Bowen persuaded shadow cabinet the time had come to slay a couple of sacred cows. Massive tax concessions for investments in property, known as negative gearing and capital gains tax discounts, should be radically trimmed, they said. The saving to the budget over 10 years, according to the Parliamentary Budget Office, would be $32 billion.

Shorten’s plan would allow negative gearing only for new housing and apartments, not for existing stock. The idea was put forward by none other than former treasurer Joe Hockey. Just before he closed the door on his parliamentary career, he kindly suggested to those staying behind that they should cut company and income taxes by being “wiser and more consistent” on tax concessions, “in particular concessions on superannuation should be carefully pared back”. And reflecting expert advice he had received from treasury, he continued: “In that framework, negative gearing should be skewed towards new housing so that there is an incentive to add to the housing stock rather than an incentive to speculate on existing property.”

Scott Morrison attacked the Labor plan as another version of the pathetic mining tax that raised no revenue. He conveniently ignored Labor’s grandfathering of existing arrangements that would still deliver almost half a billion dollars in the fourth year of the budget estimates. He also used “taxable income” as a way of saying the concessions in fact benefit middle-income earners more than the wealthy. But reducing your earned income to “taxable income” is the job of tax accountants: the richer you are, the smarter the manipulator you can afford.

Fairfax economics editor Peter Martin says tax office figures show that 64,000 negative gearers report taxable incomes of less than zero. They use negative gearing to do it, and if this were their real income, banks would not lend to them in the first place. Morrison has not ruled out doing something on negative gearing. He just wasn’t announcing it at his National Press Club address on Wednesday.

What he did do was throw a big hint on where he was headed. He said the vast majority using the device are modest-income earners such as nurses, teachers or police. “Two-thirds of those who use negative gearing have a taxable income of $80,000 or less. Seventy per cent own just one property and 70 per cent have a net rental loss of less than $10,000. So the preferred option, I am told, is to put an $80,000 ‘taxable income’ ceiling on the concession.”

This proposal could earn more than Labor’s plan in the short term if there were no grandfathering, but that would mean applying a retrospective tax. It would hit people who have entered into investments on the basis of the current arrangements. No doubt, it would give him more money for “modest” income tax cuts, which the treasurer now says is his goal.

Curiously, slipping under the radar is the fact neither Turnbull nor Morrison have attacked Labor’s cutting of the capital gains tax discount from 50 to 25 per cent. That would raise $7 billion and so far has not raised any squeals from the rent seekers attacking the negative gearing proposals.

But hardliners such as Tony Abbott ally Zed Seselja are urging Turnbull and Morrison to leave negative gearing alone. Instead, the Liberal senator wants an all-out attack on Labor – a scare campaign on mum-and-dad investors to replace their scare campaign on the GST. It would help give credibility to Morrison’s mantra, repeated ad nauseam, that he is about cutting taxes and spending not raising them like Labor.

The problem for Morrison is that if he does touch any concession it would have the same effect as raising taxes. He gives the impression that he will fund “spends” by real “saves”. And “saves” are not tax rises, he insists. If he is not going to rely on churn or a mere switch in the tax mix, he is going to have to cut very hard. Major tax reform is no longer in view. Again it gives the impression that a lot more work will need to be done not only on a coherent policy but also on a coherent message.

Before Christmas, Morrison likened repairing the budget to a holiday car trip where the kids keep asking “are we there yet”. It’s looking more like a Thelma and Louise nightmare ride. Perhaps that’s why he switched the metaphor to a cricket Test match. Repairing the budget is no Twenty20 Big Bash, he said. “It requires Test match tactics. It takes Test match endurance. It takes a really clear understanding about what your principles are.”

Amen to that, but let’s not forget the context of this game. This is a pre-election budget.

Turnbull is about consolidating and winning a mandate in his own right. The time for bravery is year one after an election victory, providing you haven’t done a Tony Abbott and ruled out everything you want or need to do. A less hostile senate or even one you control is also a live concept in the mind of government strategists.

Already, they are taking heart from the ascendancy Turnbull continues to have over Shorten. Even though the latest polls suggest the crown is slipping, he still looks and sounds like a prime minister who impresses voters. One of Labor’s hardest heads thinks so. Gary Gray was once Labor’s national secretary and campaign director. He’s announced he’s quitting parliament at the election and said, in his usual matter-of-fact way, “historical averages mean it is unlikely Labor as a first-term opposition will win it.”

This is why a double dissolution is in play, putting to the polls all the senate as well as the house of representatives. It would mean a wipe-out of most of the current crossbench. Only Nick Xenophon would be certain to survive. Reform of the senate voting system would further enhance the position of the major parties. Finance Minister Mathias Cormann was left with carriage of this in the reshuffle because he is close to sealing the deal with the Greens.

Labor is unsupportive but agrees with ABC election analyst Antony Green that theories the reforms would give the Liberals a majority are mathematically dubious. What they would do is improve the Coalition’s position, which is not something in the opposition’s interests.

At the last election, according to several Liberals, the difference in the vote for the Coalition between the house of representatives and the senate was surprising in many seats. “People,” one told me, “wanted to put a handbrake on Tony Abbott.” The vote switch in some seats was as high as 25 per cent. Turnbull, they are hoping, will reverse that.

That’s why the prime minister has taken the foot off the tax reform accelerator. He has no plans to drive off a cliff.

This article was first published in the print edition of The Saturday Paper on Feb 20, 2016 as "Thelma and Louise ride again". Subscribe here.

Paul Bongiorno
is a columnist for The Saturday Paper and a regular commentator on ABC Radio National Breakfast.