Scott Morrison’s pre-budget bluster
Bluster and arrogance are the hallmarks of Scott Morrison’s time as treasurer. These elements account for much of the malaise besetting the Turnbull government. And yet on Morrison’s shoulders rests the next big opportunity for the Coalition to begin impressing voters. Not that the signs are good.
Take for example Morrison’s dismissal of opposition demands that he produce the treasury modelling to show the economic benefits of his $24 billion corporate tax cut. That’s the one for businesses with a turnover up to $50 million, which he managed to get through the senate last week. He said, “If you go down the pub and you talk to small-business people, they’re not talking about econometric models. What they’re talking about is how they are going to grow their businesses.” The 3.2 million businesses now defined as small will certainly welcome the fact they will have to pay less tax. These are the Liberals’ claimed constituency. What is not so certain is that the other 13 million on the electoral roll will be impressed if they, one way or another, have to pay for it.
And – just by the way – in opposition this treasurer was scathing of the Rudd Labor government for failing to provide modelling for its $4 billion Australian Business Investment Partnership. That was the so-called Ruddbank. Morrison said the number of jobs that would be generated was made up. He told parliament, “There has been no treasury modelling produced, and it was no doubt a figure literally plucked out of the air.”
Maybe aware that he had won only half of the battle to implement the 10-year “Enterprise Tax Plan”, Morrison shied away from saying it would deliver half the benefit. Remember the treasury said of the whole project it would deliver a 1 per cent growth dividend and a wage increase of $2 a day – and that wouldn’t be for 20 years.
The economist Saul Eslake is just one who points out there is plenty of evidence to show giving smaller companies a tax cut doesn’t generate the claimed benefits in jobs and wage increases. Joe Hockey, in his second budget, was very generous to small business. He gave a 1.5 per cent tax cut and an enlarged instant asset writeoff. Wages didn’t grow; they are stagnating. Unemployment and underemployment are increasing and the budget deficit is ballooning.
The Liberals, now responsible for the deficit, have long stopped demonising the oceans of red ink in which they themselves are swimming. Still, the treasurer is onto something by demanding the opposition says whether it will repeal the cuts or not.
Labor is more than happy to fight on living standards, and to frame its arguments against the $50 billion 10-year time frame set for the jobs and growth plan. Bill Shorten says he can’t answer the question until the government explains how they are funding the tax cuts. He says he is waiting to see the answer in the budget. “Where is the money coming from, Malcolm, that’s going to pay for your $50 billion tax handout to big business?” he asks. “Is it coming from Medicare? Is it coming from schools? Is it coming from family payments? Or is it coming from pensioners?”
The deal last week has done nothing to blunt Labor’s attack on tax cuts for big corporations while there are wage cuts for workers. Shorten says he’s “defending penalty rates so that families and working people can make ends meet”. Helping that attack is the government’s submission to the Fair Work Commission on the minimum wage. It does not support a rise and instead is urging “a cautious approach”. Some Liberal backbenchers are looking for more nuance, such as urging the commission to implement a decade phase-in of the penalty rate cuts. The issue is playing very badly in their electorates.
All of that is difficult enough but out of right field comes the Lycra-clad Tony Abbott. Enjoying the attention his annual Pollie Pedal charity fundraising bike ride gives him, the former prime minister was more than happy to throw in his penny’s worth. To the fury of many of his colleagues, he raised doubts about the legitimacy of a senate deal that won the corporate tax cut breakthrough. Despite brazenly admitting he hadn’t looked at the specifics, Abbott characterised it as smelly. He told Sky News, “I do want to make this point: you should never agree to do something which is wrong to get something which is right.” He said the government should argue on the merits of the legislation rather than horsetrade. So much for politics being the art of the possible.
Turnbull saw it for what it was, more undermining of him. Furious, he hit back hard, reminding his backbench that Abbott was a hopeless prime minister. He reeled off his successes in the parliament against his predecessor’s failures. Many of these are conservative holy writ, such as tough anti-union laws; free speech reforms, which were partial but real; childcare reforms; welfare cuts; and, of course, the company tax changes.
“Think about what we’ve been able to do since the election,” he said. “We’re getting stuff through the senate. We’re delivering, we’re governing, we’re proving that if you’re prepared to negotiate, you can get things done in the 45th parliament.”
But it is what Turnbull is not allowed to do that is damaging his government and constraining what Morrison can put in his budget. Tony Abbott’s sniping is one thing. The other is the agenda of the Liberal conservatives. This lethal combination keeps the government on the wrong side of issues widely supported by the Australian public. The most glaring examples are a hamstrung energy policy and tax arrangements that are affecting housing affordability and the budget bottom line.
On Wednesday, the prime minister and the treasurer went to extraordinary lengths to interpret into nothingness a scarcely veiled warning from the Reserve Bank governor Philip Lowe over capital gains tax and negative gearing. Lowe linked the popularity of interest-only loans to the overheated property market. He said they allowed investors to take advantage of the “taxation arrangements that apply to residential property in Australia”.
Morrison gave the impression that to touch them would see the bubble burst and investors burnt. So he’ll keep pumping hot air into it instead. His colleague, Finance Minister Mathias Cormann, thinks touching them would break an election promise and, besides, he is about tax cuts not ending tax concessions. This is ideology gone mad. The prime minister stubbornly insists it’s all about a lack of supply. Never mind that his arrangements keep genuine home buyers at a disadvantage when they come to bid against investors wanting a second, third or fourth property. Shorten makes this point strongly, while at the same time reminding everybody his policy is to grandfather existing investments.
What is on offer for Morrison is bipartisan support to help take the heat out of the property market while at the same time improve his budget. He may still tweak the capital gains tax discount if he wins that battle with Cormann. In the meantime, he has floated the idea of a complex plan to allow people to access their super savings to buy a home. This is an idea previously condemned as a bad one by Turnbull and Cormann. It looks very messy. Labor says it’s more chaos from the government. More than likely it’s just the pre-budget silly season.
The same dynamics seem to be at work with a market price on carbon pollution. An emissions intensity scheme would take a huge burden off the budget, make polluters pay, and facilitate Australia’s meeting of its emission reduction commitments. As with negative gearing and capital gains tax, the overwhelming view of business, economists and other experts is behind an EIS. Turnbull argued persuasively for such a mechanism back in 2009, before Abbott rolled him for the leadership. Abbott’s views are as hard as ever here. This is the most likely explanation for what he found wrong with the Xenophon corporate tax tradeoff bringing forward renewable energy measures.
Old heads on the government backbench aren’t holding out for Morrison to provide a circuit-breaker in May. Good budgets – that is, ones the public don’t get too upset with – tend to disappear within the first sitting fortnight. Even tax cuts are taken for granted after the first payday. What they are looking for is a vision for Australia that captures the imagination. There was a hint of that in the Snowy Mountains hydro expansion.
But the fear is the public has given up listening. Turnbull, unlike John Howard in 2001, lacks the authority to take the government in a dramatic new direction. Very much to the point, his government also lacks the money to do it.
In this context, Morrison’s bluster and arrogance definitely do not help.
This article was first published in the print edition of The Saturday Paper on April 8, 2017 as "Sutherland bluster".
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