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Crikey says: no way out of debt levy pickle

Joe Hockey’s rhetoric doesn’t match the OECD outlook. The new anti-green polemic from Ian Plimer. More redundancies at Fairfax — photographers will go. Why H&M will kill Myer and David Jones. The Liberal fundraising machine in the Top End. It’s all downhill for wind farming in Australia. And how to stop domestic violence: cut gender inequality.

What a pickle the federal government has got itself into over a deficit levy.

There are now no options that enhance its credibility: walking away would mean the damage done so far will have been for naught; instead, the government will look like it lacks spine. Proceeding with the levy will be a broken promise, for a Prime Minister who more than most politicians has made a virtue of keeping them.

But the levy is cack-handed in policy terms, not just political terms. There is no need for a rush back to surplus in the next two years, even assuming a levy is high enough to raise sufficient revenue to materially make a difference to the deficit. The likely consequence of a levy is a hit to consumer spending (with flow-on consequences for GST revenues for state governments) at a point when the economy should be accelerating back to trend growth on the back of more traditional sources of growth — housing construction and consumer demand — than we’ve seen in recent years.

Treasurer Joe Hockey is right in arguing Australia has a significant challenge on long-term fiscal sustainability. Fortunately, there are a number of options for pursuing this without a rise in personal income tax rates: reducing the staggering $29 billion a year (and rising) in incentives for superannuation saving, re-instituting the indexation of fuel excuse that the Howard government abandoned in a panic in 2001, and reducing family tax benefits payments to considerably lower levels — there should be no reason why any household above average weekly earnings obtains such support. And Hockey should copy Peter Costello and direct the returns from asset sales to paying down debt, rather than blowing them on infrastructure investment.

What it shouldn’t be doing is returning personal income tax levels to where they were under Costello.

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  • 1
    Dogs breakfast
    Posted Wednesday, 7 May 2014 at 1:15 pm | Permalink

    It’s all true, a confected emergency had them believing their own BS, which then necessitated an emergency policy response that was political rather than economic in nature, that has subsequently come back to bite them in the bum.

    Couldn’t happen to a nicer bunch of d…wads!

    As for this “there should be no reason why any household above average weekly earnings obtains such support.”

    This could only be written by someone without children, and certainly someone who doesn’t live in Sydney, who doesn’t understand that the act of having children is in Australia’s case, a beneficial social act as much as a life decision, and who probably isn’t aware that the average wage is around the $65 - $70K mark at the moment.

    But apart from that, yeah, of course, why shouldn’t children grow up starving!

  • 2
    zut alors
    Posted Wednesday, 7 May 2014 at 1:57 pm | Permalink

    Frankly, I welcome the new levy/tax/levy/tax.

    It will disenchant many who voted for Abbott & his frontbench phoneys, the scales may finally fall from their eyes. They can ponder whether the ALP really were appalling in government as portrayed by Murdoch.

  • 3
    AR
    Posted Wednesday, 7 May 2014 at 2:17 pm | Permalink

    Like Zut, I for one welcome our new Tax as the essence of toryism, lie and promise anything to obtain office then have no idea what to do when there, the dog catching the car.
    The amazing thing now on 2 Government Broadcaster is the trope that the polls show we have forgiven the arsonists of the economy and are attacking the firemen”. Not sure if this is some sort of Bradbury 451 reference.

  • 4
    David Penington
    Posted Wednesday, 7 May 2014 at 3:17 pm | Permalink

    Family tax benefits, especially the part for stay at home parents, were John Howard’s way of producing something like income splitting for families (a bit like the farmers and accountants get via trusts) while disallowing it for people without children. From that perspective, it’s not really welfare for above average income families, just a tax adjustment/equalisation.

  • 5
    Lyn Gain
    Posted Wednesday, 7 May 2014 at 5:44 pm | Permalink

    I too welcome the proposed new deficit tax, but not mainly because it will make the Government look bad. It should be welcomed because it is the only progressive option on the table in terms of either income or expenditure - it will help reverse a decade of regressive income tax cuts. And I would really like to see some evidence about that nonsense that it will badly affect consumer spending.

  • 6
    Mark Heydon
    Posted Wednesday, 7 May 2014 at 7:20 pm | Permalink

    I take issue with the bald statement, unsupported by argument or evidence, that “Hockey should copy Peter Costello and direct the returns from asset sales to paying down debt, rather than blowing them on infrastructure investment”.
    Infrastructure investment is not “blowing” it. It is the stuff which makes us more productive, increases our standard of living and makes our lives more comfortable.
    The budget surpluses in the Howard/Costello years were in part built on the back of chronic under-investment in infrastructure, which anyone currently living in Australia lives daily, with public transport services old and crumbling towards third world standards, pedestrian internet speeds, traffic which moves at a snails pace, ports that can’t cope with the volume of mineral exports, freight with no alternative but to be moved by road, etc.
    If the infrastructure passes a cost benefit analysis, it is economic vandalism NOT to go into debt to fund it.

  • 7
    Posted Wednesday, 7 May 2014 at 9:44 pm | Permalink

    Why is Crikey arguing for low taxes for high income earners?

    I suspect the tax is being pursued for political, not economic reasons to demonstrate that everyone is sharing the pain. But of course the tax levy will be temporary, presumably removed just before the next election, while the cuts in services and transfers to the poor will be permanent.

  • 8
    Johansen Frank
    Posted Sunday, 11 May 2014 at 5:23 pm | Permalink

    Proceeding with the levy will be a broken promise, for a Prime Minister who more than most politicians has made a virtue of keeping them.

    Are you from another planet. This man and his cronies have not kept any of the promises (lies) that got them into government. You would have to be a big Liberal supporter to believe that b —  — -it!

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