As treasurers go, Scott Morrison is no Paul Keating. He’s not even a Peter Costello when it comes to wit and making speeches. Morrison is dully combative and unimaginative. Even his own side found little that was inspiring in Tuesday night’s nationally televised budget address. His opening lines bombed badly, triggering spontaneous mirth from the Opposition benches. But what he was about to unveil was no joke.
For some reason, Morrison led with rhetorical questions: “What have you achieved? What are you going to do now?” When the Labor laughter died down, he revealed a seven-year plan to flatten Australia’s progressive tax system. It is the most radical assault on one of the cornerstones of the Australian fair go. The current system is based on the idea that those who earn more can afford to pay more tax. But flat tax is beloved by uber-conservatives. It is championed by Pauline Hanson and was a major policy driving the insane “Joh for PM” campaign run by then Queensland premier Joh Bjelke-Petersen in 1987.
Morrison judges that his proposal to deliver four tax brackets rather than five, with the middle rate of 32.5 per cent running from $41,000 all the way up to $200,000, is in line with Liberal and National party values, as he told the House when he introduced a bill to enshrine his plan in legislation. He is asking the parliament to make L-A-W tax cuts, to come fully into effect in 2024-25. That’s six budgets and two federal elections away. Paul Keating’s legislated tax cuts before the 1993 election didn’t survive long after his victory, as economic reality bit hard.
Voters are being asked to buy a pig in a poke. Morrison wants them to take him on trust. This is despite the fact he is a treasurer whose budget last year did not foresee the massive revenue increase that materialised over the past four months, a revenue lift that Treasury has baked into its forecasts for the forward estimates and projections out to 2025. In all budgets, assumptions are contestable, but some of the key ones in this budget are close to unbelievable.
The $140 billion cost of delivering the full tax package is unfunded. Even Morrison admits it’s impossible to do this so far out. He is assuming the “good times will role on”, as The Age’s economics editor Peter Martin says. The treasurer is apparently relying on wages growth to boost his revenue from workers paying more income tax. One of the most contentious claims is that wages growth will climb from 2.1 to 3.5 per cent, along with consumers opening their wallets. Martin says these forecasts were released as the Bureau of Statistics reported that retail sales had been flat for the past three months, “meaning the turn-up will have to be dramatic”.
Analysis by The Australia Institute says that the government’s continuing labour policies will suppress future wage increases. “This includes its own 2 per cent cap on wage increases” for hundreds of thousands of federal public sector workers. The government is “restraining wages growth for its own employees to barely half of what it hopes for the whole economy”.
The institute modelled the distributionary effects of the tax plan when it would be fully operational in its seventh year. It shows “the benefits flow overwhelmingly to the highest income earners who get 62 per cent, while just 7 per cent of the benefit goes to the 30 per cent of Australians on the lowest wages”. TAI calculations claim someone earning $40,000 a year will get a tax cut of $455 a year, while someone earning $200,000 will get a tax cut of $7225 a year.
Robert Deutsch of the Tax Institute thinks the abolition of the 37 per cent tax rate and the broadening of the 32.5 per cent one is very expensive and damaging to the progressivity of the system. A more colourful assessment comes from former treasurer Wayne Swan. He says what it amounts to is a “Trump-like race to the bottom in tax, where the government intends to continue to starve some of the productive infrastructure in our economy – particularly education and training”. Swan warns that the government is trying to camouflage a massive restructure of the personal income tax system, “which I think the Australian people will not buy”.
But in an ambit claim that is designed to bring on a stoush with the Labor Party, Morrison says his three-stage tax reform plan is “all or nothing”. The first stage of the plan will deliver four million low-income Australians the full $530 tax offset from July this year. They will receive it as a lump sum in July the following year, when they do their tax returns – that is, after the election. Ten million Australians will share in the rebate, but it reduces to zero for incomes above $125,000.
Labor says it will back the 2018 tax offset but beyond that, Bill Shorten says, “the government’s engaging in a massive hoax on Australians”. Morrison and indeed Malcolm Turnbull’s resolve will be tested in the Senate. On the company tax cuts a similar ultimatum crumbled when they were forced to settle for tax relief for companies with turnover up to $50 million. They are still battling to deliver for the banks and other major corporations. Morrison hinted in his post-budget Press Club lunch that he is open to negotiate, by saying he wasn’t prepared to “hypothesise about the Senate”.
But Shorten upped the ante in his budget reply speech on Thursday night. He has gone further, with more generous tax cuts while at the same time promising to match the government’s budget surplus next year. Shorten is gambling on voters actually meaning what most of them say when they tell pollsters they support higher taxes to fund better services in health, education and infrastructure. This is the spending the government derides and attacks Labor over.
There’s no doubt it is Liberal holy writ to describe tax cuts as giving the people’s money back to them and that “they know best how to spend it”. One thing is for sure: they won’t be spending it on roads, schools, hospitals or the military. Shorten makes no apologies for the fact his better fiscal position is based on closing down tax loopholes and multibillion-dollar concessions.
So far, Shorten’s arguments on negative gearing, capital gains tax discounts, family trusts and shareholder cash handouts have been resonating. He zeroes in on housing and rental affordability as a fairness issue, where first home buyers’ taxes are used to “subsidise property investors to buy their fifth and 10th property”. He is critical of adult family members using discretionary trusts to minimise their tax while “everyone else has to pay the normal tax rate”. He says “it’s not sustainable to provide income tax refunds to shareholders who don’t pay income tax”.
There will be an early electoral test of these competing visions and arguments as the citizenship fiasco has claimed four more victims. Three Labor MPs and Rebekha Sharkie of Centre Alliance (formerly the Nick Xenophon Team) are gone. Joining the parade will be Labor’s Tim Hammond, who quit for family reasons, making it two byelections in Perth. The trigger this time was the High Court defining clearly what “all reasonable steps” means, ruling Labor’s Katy Gallagher was ineligible to sit in the Senate because the renunciation of her British citizenship was not complete when she nominated.
Shorten faced a hostile news conference midweek because of his cockiness last year that Labor’s vetting procedures were foolproof and he could give a rolled-gold guarantee his MPs would not get caught out like the Liberals, Nationals and Greens had been. He was adamant he and the party had acted in good faith on strong legal advice and he had nothing to apologise for. He claimed the High Court had developed a new “stricter” citizenship test. This is something Attorney-General Christian Porter disputes. Labor refuses to release its legal advice. The court has made it redundant anyhow, just as it did on the advice that made Malcolm Turnbull so sure then deputy prime minister Barnaby Joyce would be ruled eligible.
Shorten says he will make the byelections a referendum on the $80 billion corporate tax cuts. The government is sure to try to make them a referendum on Bill Shorten. Porter says Shorten has already failed a test of character by avoiding transparency and accountability last year when he didn’t refer his MPs to the court along with the Nationals. He said he acted like a “trade union leader”. These are three very dirty words in the Liberal lexicon.
The Liberals are briefing journalists that their research shows Shorten is unpopular and was a negative in the Bennelong byelection. Shorten shrugs off these attacks. His preparedness to take the policy fight up to the government has shielded Labor from his unpopularity for the past 18 months in the opinion polls. Indeed, the latest poll average has Labor maintaining its lead, now slightly extended to 4 per cent.
But there’s no doubt the stakes are high for Shorten and Turnbull. These byelections are happening at a most inconvenient time for both of them.
This article was first published in the print edition of The Saturday Paper on May 12, 2018 as "Singing budget regard".
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