The cost of Coalition tax cuts
The tax cuts impasse between the government and the opposition has opened the way for a familiar play from the senate crossbench. As Scott Morrison was basking in the warmth of a holiday in Fiji, it was the Centre Alliance senator Rex Patrick who was taking full advantage of a moment in the sun.
Patrick learnt the trick at the feet of an old master. For years he was right-hand man to the South Australian independent senator Nick Xenophon. And Xenophon always shone when the government and opposition were at loggerheads over key legislation. The formula is simple, but skill is required in its implementation: make as much noise as possible and be the last to fold in the negotiation.
Treasurer Josh Frydenberg and his sidekick in the senate, Finance Minister Mathias Cormann, insist the parliament has no option but to pass all three stages of the $158 billion tax package. Their argument is that the election gave a mandate to the full package. In his reply to the new shadow treasurer, Jim Chalmers, Frydenberg threw Labor’s campaign rhetoric back at the party. He reminded the opposition it “repeatedly claimed” it would have a “mandate for your tax agenda if you were successful at the election”. He said, “Well, the Australian people decided to back in our plan to provide tax relief for all working Australians and we urge you to respect their verdict.”
Chalmers had written requesting the total cost to the budget in each year of the components of the 2018 and 2019 packages, and the total cost to the budget of any tax relief for those in the highest income tax bracket of above $180,000. The shadow treasurer cited three estimates from different think tanks, ranging from $77 billion through to almost $90 billion. Chalmers said Labor was ready to “urgently pass the first tranche of tax cuts to address the weakness in the economy on your watch”.
The treasurer says it’s all in the budget – go read it. What’s not in the budget, however, short of heroic assumptions of cuts in outlays and rises in wages, is a credible way to pay for the tax cuts without either plunging the budget into deficit or dramatically cutting services and pensions. Senator Rex Patrick joins the opposition in wanting to see more detail behind the assumptions. He says, “We need to work through the $158 billion in a careful manner.”
Patrick gives short shrift to the mandate argument. He says the mandate season is over. “It gets wheeled out by both government and opposition during each election campaign in an attempt to pre-charge policy initiatives that will involve controversy once a new parliament is formed.” Indeed, voters elect a parliament and those with the numbers get to pass their agenda. The numbers aren’t there for the Coalition in the senate, so it doesn’t have an unalloyed mandate to pass whatever it likes through both houses. In the upper house it has 35 senators, still four short of the majority needed.
The government’s numbers could be improved if the prime minister heeds the siren call from Liberal defector Cory Bernardi from South Australia, who is offering to rejoin the fold. There is enormous resistance across the party to any return of this prodigal son. One Liberal says: “He’s a rat, he’s a rat, he’s a rat who has denied the party a number in the senate for years and should not be rewarded.” Another powerbroker says loyal members value loyalty “and hate backstabbing egomaniacs”. While a Bernardi return would make the government’s task a little easier, it would still need to deal with the new bloc of the two Centre Alliance senators led by Patrick and their new ally, the re-elected Tasmanian Jacqui Lambie.
Patrick and his colleague in the house of representatives, Rebekha Sharkie, are worried what the structural change of much flatter taxation will mean, with its loss of billions of dollars of revenue. “How will we continue to fund the pension and aged care?” Sharkie asked in an interview with The Australian. “Ultimately if you shrink the pool something’s going to miss out.”
She continued, saying, “the most responsible thing the government could do is break up the three stages”.
From Washington, Frydenberg told RN Breakfast that Labor just wanted to deny Australians their promised tax relief. He pointed to the success of Trump’s $US1.5 trillion tax cuts in boosting the United States economy, with stronger growth and falling unemployment. But do Australians really want to emulate America? The Trump administration has plunged its budget into historically huge deficits. President Barack Obama’s healthcare reform – woefully inadequate by Australian standards – has been trimmed and Washington doesn’t spend billions funding church schools. Economist Richard Denniss says there is no way American levels of taxation can deliver the sort of services we demand from governments.
Still, some in Labor are arguing the whole tax package should just be waved through. The argument goes that it’s not the opposition’s job to save the government from itself. Except the moment of truth is not going to arrive for five years. Who knows who will be in government by then? On the other hand, a senior Liberal says Frydenberg should hang tough. If Labor refuses to pass the package in its entirety then it can be blamed every day until the next election for denying tax relief to working families.
That may be good politics but it is certainly not good fiscal policy. This week there is more evidence of a dramatically slowing economy, contained in the quarterly housing prices. As the Reserve Bank governor keeps warning, the country needs stimulus right now. Denniss says there is “no limit to the way the Liberals will play politics with the economy”. Perhaps, but if they hold on to the tax cuts as an all-or-nothing package, and the cuts don’t pass, it would add about $1.5 billion a year to the bottom line for Frydenberg’s much-vaunted surplus. In a recent speech in London, the treasurer gave this his absolute priority.
Labor says the first tranche, giving low- and middle-income workers a tax rebate of up to $1080 each, could be passed in the first hour of a reconvened parliament. It’s an offer Anthony Albanese keeps making. There was even a suggestion Morrison should cut short his sunbathing in Fiji and call back the parliament next week – the writs finalising the election are expected to be returned by as early as Monday. In rejecting that call, Cormann opened the way for Chalmers to repeat the charge that the failure to deliver the tax cuts by July 1 is the first broken promise of the Morrison government.
Rex Patrick is not so fussed by this undelivered timetable. He says the treasurer has now promised to deliver the relief within the financial year and it won’t matter if it takes another three weeks to break the impasse. He is waiting for the resources minister, Matt Canavan, to come back to him with ways in which rising energy prices, particularly gas prices, won’t erode the stimulus intent of the tax cuts. The Centre Alliance expects the government to address its concerns, he says.
Elsewhere, the Centre Alliance–Lambie bloc could play a critical role in any plans the government has to make it easier to deregister unions. Morrison and his employment minister, Michaelia Cash, have seized on the storm engulfing controversial construction union leader John Setka and signalled the government is looking to reintroduce deregistration legislation. Labor, the Greens and Centre Alliance struck down the legislation in the senate last year, and Patrick has indicated he is lukewarm on the matter.
The South Australian senator says the banking royal commission showed business was not beyond breaking the law. He says any bill requiring drastic penalties for unions and their miscreant leaders should be matched by similar treatment for business leaders. The shadow minister for industrial relations, Tony Burke, says last year’s bill “was a mess”. It did not deal fairly with industrial issues and “if they bring back the same bill, they can reasonably expect the same answer”.
Albanese strikes a similar note. He says the construction union plays an important role in workplaces. He says you don’t hear from the government about the other side of the equation – employers not paying people properly, occupational health and safety issues in a very dangerous industry, and the use of foreign labour. He told 2GB you don’t hear from the government on building standards that have seen residents forced to flee crumbling high-rises in the Sydney suburbs of Homebush and Mascot.
Albanese says his move to expel Setka from the Labor Party is the right thing to do, because Setka doesn’t uphold Labor values. Albanese is refusing to be intimidated by threats to withdraw financial support from Labor by the construction union and its allies in the union movement. He says he doesn’t respond to threats, which he says reinforce the fact there is a problem. He sees it as a predicament that plays into the government’s anti-union agenda. He says, “There’s no doubt that every time I’ve seen Mr Setka get publicity, it hasn’t been positive and it hasn’t reflected well on the Labor Party, or indeed on the trade union movement.”
This article was first published in the print edition of The Saturday Paper on Jun 22, 2019 as "Last resort wear". Subscribe here.