Malcolm Turnbull is hardly going to win votes by spruiking the economic record of his predecessor. And yet he hasn’t exactly made any headway on his own tax reform or budget repair agenda, writes Ian Verrender.
History, they say, is written by the victor.
Try telling that to vanquished former prime minister Tony Abbott, who appears to be taking great delight in reminding us at every opportunity that the Turnbull Government will go to the next election on the record of the Abbott administration.
When it comes to economic management, however, that’s not really the kind of record likely to win too many votes. For on any reading of the numbers, the Abbott-Hockey era was a bitter disappointment.
After convincing the electorate in 2013 that we were facing an economic calamity, dubbed the “Debt and Deficit Disaster”, Abbott presided over a budget deterioration during his two years in office that sent government debt soaring.
From $153 billion when he assumed office, net debt since has ballooned to $279 billion. It has risen from 10 per cent to almost 17 per cent of GDP.
Curiously, given the scale of the deterioration, there has been an odd silence from the Government about how to rectify the problem. Budget repair quietly has been swept off the agenda and under the carpet.
That is because it necessarily involves an overhaul of the tax system to lift revenue. Instead, the debate has devolved into a contest between those demanding ever greater tax concessions, which would apply even greater pressure on the budget.
Missing is any discussion about the broader economic challenges we face or recognition of the opportunities that have been wasted.
We’ve just emerged from a once-in-history resources boom, with virtually nothing to show for it. For a short period, it boosted our purchasing power – courtesy of a stronger currency – and made us all feel wealthier even as it hollowed out the economy. That period rapidly is coming to an end.
Unlike farming, services or manufacturing, resources are non-renewable. And the national tragedy is that the vast bulk of the profits from those never-to-be-replaced resources flowed to offshore investors.
The initial nobbling and eventual abolition of the Minerals Resources Rent Tax was a textbook study as to how an industry, with minimal investment, could shape public policy for maximum private gain.
As Professor Ross Garnaut correctly postulated at the time, the mining tax debate would mark the end of a brief period when Australian politicians felt empowered to enact economic reform in the national interest. He concluded:
At this dangerous time for the world and for Australia, it is important that we restore a capacity for Australian governments to implement policy in the public interest, independently of pressures from private interests.
Six years on and the times are no less dangerous. Nor have the lobbying powers of the various sectional interests abated.
Tax hikes have always been politically difficult. Now they spell almost certain political death.
John Howard barely scraped across the line in 1998 with his proposal to introduce the Goods and Services Tax, an experience that Malcolm Turnbull clearly is keen to avoid.
Having let slip vague hints of a broad overhaul of the tax system shortly after his ascension, involving possible changes to everything from the GST to negative gearing, capital gains tax and superannuation concessions, the prospect now is that if any changes are enacted, they will be minor.
If that’s the case, the impact on the deficit will be minor. Part of the problem is that Turnbull and his Treasurer, Scott Morrison, have promised that any changes to the tax system would be revenue neutral; that it’s all about improving the efficiency of the system.
That’s all well and good, but it ignores the fact that we have a structural deficit; our long-term spending is out of whack with our long-term revenue. Fixing it will require spending restraint and raising more revenue, all the while convincing the electorate of the desperate need for change.
According to the former prime minister, his replacement should abandon any plans of raising new taxes and concentrate instead on spending cuts to get the deficit under control.
If it were that easy, it would already have been done, perhaps even by Abbott when he was running the country.
Abbott’s supporters claim that it was all the fault of a hostile Senate that refused his spending cuts, an argument that ignores basic mathematics. Not approving cuts should merely have kept the deficit steady.
Over the last two years … we have saved over $80 billion. But we have also had new spending of more than $70 billion.
Even more damaging to the budget was the decision to axe the carbon and mining taxes. The carbon tax removal alone denuded the coffers of $7.6 billion a year. It was replaced by a subsidy called Direct Action, estimated to cost $1.5 billion over three years.
Election promises they may have been, but removing such a large whack of revenue has limited any opportunity for tax relief elsewhere. There’s just no more wriggle room.
When it comes to new taxes, Abbott’s abhorrence appears to be a relatively new phenomenon. It’s worth remembering that Joe Hockey’s first budget contained a temporary levy on higher income earners, a Medicare co-payment for GP visits and an increase in the fuel excise; taxes by another name.
One of the biggest challenges facing Turnbull on budget night and at the ballot box – whenever an election is called – will be how to keep the nation’s schools and hospitals functioning.
The Abbott government effectively stripped $80 billion out of health and education, passing on the funding responsibility to the states. That’s money they don’t have and it explains why NSW’s Mike Baird and South Australia’s Jay Weatherill were such strident supporters of an increased GST.
All these concerns, however, appear to have drifted into the shadows as the new PM pontificates on innovation and confidence.
The business lobby groups, in the meantime, continue to press the case for tax cuts, even in the face of revelations by the Australian Tax Office that show a third of all public companies and the largest private companies pay no tax at all. If recent statements from senior ministers are anything to go by, it appears they have succeeded.
The property industry looks to have scored a win too.
The PM has voiced his staunch opposition to the ALP’s plan to wind back negative gearing, a tax concession that has deployed hundreds of billions of dollars into loss-making assets, has made Australia among the world’s most expensive places to conduct business and transformed the country into a nation of landlords and renters.
If tax reform or budget repair ever was on a table, it may well have been the marble one that splintered under the weight of a former treasurer the night his boss was dumped.
Ian Verrender is the ABC’s business editor and writes a weekly column for The Drum.
This article was originally published on ABC’s The Drum.