Pollies’ superannuation, veterans’ benefits and now the Wentworth preselection.

The
political year has got off to a disastrous start for the Prime Minister
– and that’s only his dealings with his own party. His relationship
with voters is much, much worse.

Remember the reaction Malcolm Fraser got at the Brisbane Commonwealth Games back in 1982?

John
Howard provoked a less obvious but similar response when he turned up a
various sporting events over summer – extreme cynicism.

OK,
so it was only muttered cynicism – but if the economy was as wobbly as
it was in the twilight of the Fraser years it would have been louder.

The simple fact is is that the Prime Minister is considered competent – but that’s all.

He is not highly regarded.

Doubts
about his judgement, his age and his ability – let alone his integrity
– are growing daily. Voters are finally realising that all they are
offered are wedges, not vision.

The Government needs a big
bang to see off the Latham challenge. It needs a big bang to survive.
And the best man to deliver that is Peter Costello.

An
unlikely pair told us last week how Costello can save the Government –
and maybe even become Prime Minister before the next election.

They were Australian journalist George Megalogenis and former prime minister Paul Keating.


Taxing times


Last week, The Australian ran a series of stories called “Too Much Tax”.

Megalogenis opened the campaign with the sort of salvo unseen since the days of the dreadnaughts.

“John Howard owes voters a $3.8 billion income tax cut in the May budget.

“This
is the hard number behind bracket creep – the inflation tax sting that
is punishing the low-paid and pushing middle Australia into the
personal tax rates meant for the rich.”

It sounded like a big barrage – but Megalogenis was only using some of his artillery.

Megalogenis’ figures ignored the amount collected through bracket creep in the first years of the Howard Government.

How
much did that cost us? Luckily for the Libs, Megalogenis declared 2000,
the year of the Government’s alleged tax reform, as the starting point.

His $3.8 billion covers five years’ accumulated bracket creep, from 2000-01 to 2005-06.

Last year’s Budget returned just one year’s worth.

To
bring Australian taxpayers back to where they were in 2000-01, the
Coalition needs to return $2.8 billion next financial year – plus
another billion the following year.

They’ll need to spend that last billion because without it a few hundred thousand people will jump a bracket.

It
doesn’t take much demographic and political extrapolation to realise
that a good number of these are Liberal voters – Liberal voters with
kids and a mortgage.

The sort of people the Government needs this election year. The sort of people who are going to want to feel loved.

How will the Government do that? On Budget night, Peter Costello is going to need to hand over a box of Lindt. Gift-wrapped.

Last year’s “sandwich and a milkshake” didn’t go down well – and that set the Government back $2.4 billion.

Cozzie is going to have to splash out. He’s going to have to offer the punters a real treat. He has no choice


History repeating


In 2004 the Liberal Party must either confront a quarter of century of failure to act on personal income tax or face defeat.

Simon Crean – deservedly – is regarded as a joke. Labor, however, had one significant success during his time as leader.

Bob McMullin’s mantra “this is the highest taxing government in Australia’s history” not only sunk in with voters.

It got right under the Government’s skin. It made them act.

The tax cuts in last year’s Budget were small – but they were also an admission McMullin was right.

Even more significantly, they proved once and for all how John Howard cannot deliver tax reform.

Howard became Treasurer on November 19, 1977. His record on personal taxation was woeful.

The
famous “fistful of dollars” tax cuts promise t the ‘77 poll was
followed by two tax hikes in 1978 and 1979 thanks to the special
“income tax levy”.

That’s where the “Honest John” tag comes from.

The
Liberals promised to provide full indexation of the tax scales and an
additional income tax cut. Honest John broke both pledges.

Not
only were the tax cuts taken away and tax indexation abandoned but a
temporary income tax levy was applied to all Australians in Howard’s
first Budget – a retrospective income tax levy.

Howard promised that the 1.5 per cent levy would be lifted after 12 months.

Honest John broke that promise as well.

The 1.5 per cent levy was not removed. Instead, it was increased to 2.75 per cent.

Since March 1983, Howard and his partisans have blamed all of this on Fraser.

But Howard’s own record in government shows this is just spin.

He
was elected in March 1996, but didn’t deliver a tax cut until the
2000-01 financial year – and that came with the largest indirect tax
hike in our nation’s history.

In eight years as Prime Minister, Howard has delivered just two cuts.

One every four years. Great work.

Compare it with what those nasty socialists in the ALP did after they took office.

In the first eight years of the Hawke Government, there were six – count ‘em – tax cuts. That’s more than one every 18 months.

Across the life of the Hawke and Keating Governments Labor delivered a total of seven rounds of tax cuts.

The top marginal rate fell from 60 cents in the dollar to 47.

If
we’re going to be very generous, we should acknowledge Howard’s Family
Tax Initiative as a sort of tax cut for one section of the community.

Even
then, it was more a way of extending family payments and only worth
about $2 billion per annum – less than the sandwich and milkshake tax
cut.

The Hawke Government extended family payments, too – while delivering tax cuts.


Where to from here?

George Megalogenis defined much of the problem – and he also stated a solution, too.

But first, over to the other fellow we mentioned, Paul Keating.

Keating must understand Peter Costello’s dilemma.

He’s
a former Treasurer who was charitable enough to put a prime minister
past his prime and unable to deal with the challenge of an opposition
leader bursting with ideas out of his misery.

Last
Thursday, writing about one of the Government’s big plans in the Sydney
Morning Herald, he said “there is nothing wrong with Peter Costello’s
proposed superannuation changes, but there is nothing brave about them
either. They are very much the outcome of a typical exercise in
Treasury tinkering”.

Blud oath.

“Nothing brave.” “Treasury tinkering.”

John
Howard has proven himself unable to deliver on one Liberal fundamental
– reward for initiative, represented by lower personal tax rates.

He also seems unable to deliver on another – cutting through red tape.

The
business of government and public policy making has changed since
Edmund Barton’s day – even though they won’t acknowledge it down at
Treasury or across the lake on Constitution Avenue.

Here’s Costello’s chance.

We
know for a fact that plans such as welfare reform and a national paid
maternity leave scheme have become bogged down in interdepartmental
rivalry and disagreements between captured ministers.

The Treasurer needs brave thinking, not tinkering.

Peter Costello must seize the proposal Megalogenis offered on Saturday in The Australian – Tax cuts key to 80,000 new jobs – “radical, but modestly priced, reform”.

The plan outlined in The Australian:

“Tackles
the two main problems in the tax scales with two discrete measures.
First, the top two thresholds are adjusted in the same way as for the
neo-traditional tax cut. But the bracket creep at the bottom is
returned as a targeted tax cut. The jargon for this is an earned income
tax credit. In essence, it is a new $30-a-week tax handout to all
workers that mirrors the means test for the family payments.

“This
is similar to the policy Kim Beazley failed to sell to the electorate
at the 1998 GST poll and Howard has been reluctant to pursue it since.
But it stacks up better than either of the previous two options. The
dual tax cut delivers more winners than the tax cut-welfare benefits
model: 55 per cent v 45 per cent. But, importantly, it secures more
than twice as many jobs – 78,918.”

The Australian warned “a
poll-driven tax cut – however it is configured – involves a trade-off
between votes and jobs. The price for fiddling with the tax scales,
instead of root and branch reform, is to choose a higher unemployment
rate than is necessary”.

Its option hands back $3.8 billion in bracket creep and creates 80,000 extra job.

If the Treasurer wants to take it on, one of his key numbers people is in just the right position.

Enter the Member for Sturt, Chris Pyne. Pyne, along with Joe Hockey, is one of Costello’s key numbers people.

He
is also Parliamentary Secretary to the Minister for Family and
Community Services, Senator Kay Patterson – someone with no reason to
love John Howard after her experiences in the Health portfolio.

Put Treasurer Costello and Patterson and her vital portfolio together and the big bang is possible.

If
Peter Costello was prepared to take on the might of the trade unions as
a barrister in his early thirties back in the days of Dollar Sweets,
what are a few First Assistant Secretaries and other posh-titled
pencils pushers to him in his current role?

Get your copy
of Menzies’ Child off the bookshelf, dust it down, and have a look at
what Gerard Henderson has to say about the Libs in the 1970s.

At the end of their 34 years in government, they had become dependent on the public service for advice and ideas.

They
were helpless without them in opposition, and despite all the noises
Malcolm Fraser made, they were like lost children reunited with parents
and felt safe back in the loving arms of their senior bureaucrats after
1975 – even though the agendas those bureaucrats were there to
implement had changed massively in the three short years the Libs had
been out of office.

That is one of the key reasons why
the Fraser years ended in failure – why the Libs presented no good
reasons to the electorate to keep them in power and were wracked with
doubt themselves.

John Howard is a product of these years – never mind how much he and his supporters might like to deny.

And
the Liberal Party looks much the same as it approaches this fourth
election since Howard returned to the leadership as it did in the lead
up to the fourth election under Fraser in 1983.

It’s a big bang or nothing.


The big bang


John Howard’s had eight years to make a big bang happen. He hasn’t. He’s failed on tax reform. He’s yesterday’s man.

Peter Costello has got to sort all the ingredients out and mix together. He hasn’t got much time. The Budget is on May 11.

But
if the formula works and it goes off the way it should, he will win the
Liberals another term in office – and have earned the top job for
himself.

The sooner it happens, the sooner Howard can go
and the Government’s new era can begin – and the sooner we’ll see why
Peter Costello should be prime minister.


Some endnotes for the record…

Fellow wonks, don’t we look after you at Crikey?  Here, for your
delectation, is a breakdown of the changes in the rates of personal
income tax since 1978.  Compare and contrast:

Period

Total Taxable Income

Total Taxable Income Marginal Tax Rate

Not less than $p.a.Not more than $p.a.cents per dollar
From 1 February 19781
3 751
16 001
32 001
3 750
16 000
32 000

and over

0
32
46
60
From 1 July 19781
3 894
16 609
33 217
3 893
16 608
33 216
and over
0
33.5
47.5
61.5
From 1 July 19791
3 894
16 609
33 217
3 893
16 608
33 216
and over
0
34.57
48.57
62.57
From 1 December 19791
3 894
16 609
33 217
3 893
16 608
33 216
and over
0
32
46
60
From 1 July 1980 1
4 042
17 240
34 479
4 041
17 239
34 478
and over
0
32

46

60

From 1 July 19811
4 196
17 895
35 789
4 195
17 894
35 788
and over
0

32

46

60

From 1 November 19821
4 596
19 501
35 789
4 595
19 500
35 788
and over
0
30
46
60
From 1 November 19841
4 596
12 501
19 501
28 001
35 001
4 595
12 500
19 500
28 000
35 000
and over
0
25
30
46
48
60
From 1 December 19861
5 101
12 601
19 501
28 001
35 001
5 100
12 600
19 500
28 000
35 000
and over
0
24
29
43
46
55
From 1 July 19871
5 101
12 601
19 501
35 001
5 100
12 600
19 500
35 000
and over
0
24
29
40
49
From 1 July 19891
5 101
17 651
20 601
35 001
50 001
5 100
17 650
20 600
35 000
50 000
and over
0
21
29
39
47
49
From 1 January 19901
5 101
17 651
20 601
35 001
5 100
17 650
20 600
35 000
and over
0
21
29
39
47
From 1 January 19911
5 401
20 701
36 001
50 001
5 400
20 700
36 000
50 000
and over
0
20
38
46
47
From 15 November 19931
5 401
20 701
38 001
50 001
5 400
20 700
38 000
50 000
and over
0
20
34
43
47
From 1 July 20001
6 001
20 001
50 001
60 001
6 000
20 000
50 000
60 000
and over
0
17
30
42
47
From 1 July 20031
6 001
21 601
52 001
62 501
6 000
21 600
52 000
62 500
and over
0
17
30
42
47

Hillary Bray can be contacted at [email protected]

Peter Fray

Fetch your first 12 weeks for $12

What a year. Here at Crikey, we saw a mighty surge in subscribers throughout 2020. Your support has been nothing short of amazing — we couldn’t have got through this year like no other without you, our readers.

If you haven’t joined us yet, fetch your first 12 weeks for $12 and start 2021 with the journalism you need to navigate whatever lies ahead.

Peter Fray
Editor-in-chief of Crikey

JOIN NOW