Morrison’s budget play
Next Tuesday Treasurer Scott Morrison will unveil the government’s blueprint for survival. His political opponents are convinced one bold move would go a long way to achieving it. And it’s giving Bill Shorten nightmares.
Not that he’s admitting that publicly. In fact, the exact opposite. On Monday, in a big set piece pre-budget speech, Shorten said: “I hope, for Australia’s sake, that they drop the centrepiece of the last election campaign and the last two budgets.” He was referring to the enterprise tax plan, the grand vision to create jobs and growth by giving corporations tax relief to the tune of $80 billion.
That’s the latest calculation, as another year is added to the plan. Don’t believe the bravado. The anxiety in the Labor camp is palpable. The rabbit out of the hat on budget night could be a dead company tax. The budget speech would become Shorten’s nightmare on Parliament Drive.
“It would be a shocker,” was the frank admission of one senior strategist. That’s because Labor has made these tax cuts the focus of its attacks on the government. Its linking of the behaviour of the biggest corporations set to benefit, namely the banks, has added ballast to the campaign. And if you can believe the eighth annual Per Capita Tax Survey, it is working a treat. It found 62 per cent opposed the tax cuts for large businesses. That includes more than 55 per cent of Coalition voters.
The government rejects exempting the banks from their plan, dismissing the calls as a “morality tax”. Shorten is undeterred. He says “it is immoral to give the big banks of Australia a $17 billion tax handout, especially in light of the shocking and predatory revelations of the royal commission that the Turnbull government never wanted to see exposed”. He calls the tax proposal a “monstrosity” and a “reverse donation” to the Coalition’s “buddies at the big end of town”.
For Morrison to walk away from this policy would severely test the government’s credibility, if not destroy it completely. But it didn’t stop him dropping the Medicare income tax levy hike and its delivery of revenue worth $8 billion. And this was after a year of insisting his absolute commitment to it. According to The West Australian, plans to axe the energy supplement for pensioners, another unpopular measure to raise revenue, will also be ditched. This measure, to raise $1.4 billion, was being blocked in the Senate and was causing a lot of electoral pain, according to government backbenchers.
Emptying the credibility bank is a risk the treasurer is prepared to take, and perversely it may be working. At least for now. Even though the treasurer and his senior cabinet colleagues opposed a royal commission into the banks 263 times, according to an Opposition tabulation, voters seem to be in a more forgiving mood now the inquiry is under way. This may explain a recovering trend in the opinion polls, with the latest poll average further narrowing Labor’s lead to 3.6 points. This has some Labor insiders baffled. But it may encourage Morrison and Malcolm Turnbull to go for broke and reverse their key prescription for the economy on the same grounds as the other backdowns: the Senate won’t pass it, the people don’t want it and we can’t sell it.
Stealing Labor’s clothes is nothing new. The Liberals’ founder, Sir Robert Menzies, made it an art form. Morrison was channelling the great man on Tuesday when he laid into Commonwealth Bank and sounded utterly anti-business in his reaction to the Australian Prudential Regulation Authority’s damning report. The treasurer sooled APRA on to the bank in August, in a vain attempt to head off calls for a royal commission after revelations the bank had allowed massive money laundering through its automatic teller machines.
APRA found there was a complacent culture, dismissive of regulators; an ineffective board that lacked zeal and failed to provide oversight; a lack of accountability and ownership of key risks by senior executives; a remuneration framework that had no bite, was reactive and slow; and internal systems and processes that were underresourced. Morrison said he was shocked by this “rap sheet” and said every director on every board in Australia should read the report and heed it. Remarkably, APRA did not impose any fines or demand that heads roll. Morrison said some already had and more would follow.
This was a hollow performance as far as the shadow treasurer, Chris Bowen, was concerned. He accused Morrison of grandstanding after running “a protection racket for the banks for the last two years”. By now, he said, we should be receiving the final report of a royal commission had the government not resisted Labor’s calls.
Ironically, if Morrison does run away from his firmly held economic policy prescription, he will save his budget $80 billion over a decade. So far we are in the dark as to how he intends to make up the shortfall from measures already binned. However, there has been a significant tax-led budget recovery this year, one unforeseen by the treasurer and underestimated in his midyear review. New Department of Finance figures show a rolling annual budget deficit of $14 billion, the lowest since 2009. Company tax revenues are up 23.3 per cent, personal income tax revenues up 5.4 per cent. The overall tax take is up $57.5 billion.
According to the Deloitte Access Economics Budget Monitor, this could allow the treasurer to deliver tax cuts worth $8 billion a year. But Deloitte’s chief economist, Chris Richardson, warns the revenue surge won’t last. He explains it as companies paying tax again after writing off their post-global financial crisis losses. And he fears the treasurer will give it all away with election sweeteners. Labor, on the other hand, is promising firmer fiscal consolidation to fund its spending and income tax cuts, attacking multibillion-dollar tax concessions and discounts.
If Shorten is having nightmares over the thought of Morrison demolishing his politically toxic corporate tax cuts, the Business Council of Australia (BCA) has signalled it is putting together a war chest estimated at $26 million to campaign for them. Here, the Liberals should be careful what they wish for. Newly re-elected president of the Victorian Liberal division, Michael Kroger, has been highly critical of the BCA for its failure to effectively prosecute its case backing government efforts to look after its interests. When he founded the Liberals seven decades ago, Menzies was adamant it would be a broad-based party and not a captive of business as its forerunner, the United Australia Party, was perceived to be.
BCA chief executive Jennifer Westacott insists her organisation is “not and never will be a partisan organisation”. Apparently she can’t help it if only one side of politics thinks the same as her on what is “good policy”. A more realistic assessment comes from the Australian Institute of Company Directors. Its chair, Elizabeth Proust, told ABC Radio she thinks the campaign to protect the business tax cuts, whether it is overt or covert, is “highly unlikely to be successful”. She said the focus on company tax reductions alone has been misguided. Her institute would prefer to see broader tax reform.
Surely undermining any campaign, no matter how expensive, is the stench coming from the banking royal commission. The APRA report is just extra evidence that business is doing more than Labor or the advocacy group GetUp! to give itself a bad name.
But another Morrison policy somersault isn’t the only thing playing on Shorten’s mind. Out of the blue one of his most promising up-and-comers, Tim Hammond, has announced he is quitting his seat of Perth within weeks. Not being able to complete his first term in parliament has drawn sympathy from other MPs but couldn’t come at a less convenient time for the leader.
Labor’s margin in Perth is 3.3 per cent. A byelection there could be a reprise of the tight race in Batman. The Greens attracted 17 per cent at the general election and the Liberals may not run, to save money and to try to stall Shorten’s momentum. Hammond rejected an offer to go to the back bench and hang on until the election, citing urgent family issues that for once are genuine.
The Perth byelection may coincide with four others if the High Court rejects Labor senator Katy Gallagher’s arguments that she had “taken all reasonable steps” to renounce her British citizenship. A decision is expected soon. Three Labor MPs – from Tasmania, Western Australia and Queensland – and Centre Alliance MP Rebekha Sharkie in South Australia – may then fall foul of the same interpretation. The stakes are high all round. The Liberals couldn’t avoid running in at least three of the seats where on paper they should have a good chance of wresting them back.
Those chances will depend in no small way on how bold or brazen the treasurer is next week.
This article was first published in the print edition of The Saturday Paper on May 5, 2018 as "To risk it, or tax it? Wind down the sell and axe it?". Subscribe here.