Is
it fair to describe Peter Costello as a lazy Treasurer? Yes. He has
done just enough to stay out of trouble. In political terms, however,
the budget is a masterpiece. Already Wayne Swan has accused the
government of adopting ALP policy on tax and family payments. In other
words, the ALP has no policy, and no answer to the government’s
political initiatives. Eighteen months out from an election, and with
an election budget to come, the ALP is politically exposed. Swan was
harping on about productivity, education, and competing with China and
India. Costello was taking credit for guiding the Australian economy
through the Asian crisis, the longest drought in history, and terrorist
attacks. Let’s not forget “Labor’s Debt”. All up, a fine political
performance.

On
the economics, the budget is a touch underwhelming and has hardly
worked up a sweat. I predicted two weeks ago, on Radio National, that
the top marginal tax rate would be lowered to tremendous applause from
47% to 45%. The average OECD top personal income tax rate is between
44.5% and 45.8%. Costello’s happy at the average. Everyone got
threshold relief, and the 42% bracket was lowered to 40%. The
government has spent some money, but this does not constitute the
“comprehensive tax plan” that Costello promised in his opening remarks.
Business tax is marginally adjusted by changes to depreciation
allowances. To those who argue the government isn’t investing, the
answer lies here – the private sector now has a greater inducement to
invest via accelerated depreciation. In the grand scheme of things,
personal and corporate taxes are intertwined, and both are still too
complex and much more remains to be done. However, Costello has taken a
small step in the right direction. This is the first time since Paul
Keating was Treasurer that the top marginal rate has fallen.

The
surprise of the budget was superannuation. Government could either have
reduced tax on the way in, or on the way out. Eliminating the
contributions tax would have the greatest impact on future savings, so
abolishing exit taxes appears to have been the cheaper option for
government. It’s not clear how government is going to prevent retirees
from taking their super as a lump sum, spending big and then accessing
the aged-pension. The devil of this policy is very much in the detail.

On
the spending side, the government has been quite astute. Heaps of money
for defence force toys, and better pay for defence force personnel.
Lots of cash for medical research, doctors and nurses. Money for roads,
the Murray-Darling basin, families, rural areas, and older Australians.
Something will be done about pesky illegal fishermen. It would be
churlish to deny any of these worthy causes. It is interesting to note
that a family of three children is now considered to be “large”.

Costello
promised to ensure the integrity of the tax system. Specifically to
clamp down on international tax havens, and to audit high wealth
individuals. That may sound decisive, but it is lazy policy and an idle
threat. If the government knew where the money was, they’d have taxed
it already.

All up, a passable effort. The government is clearly
holding back a lot for next year’s election budget and the election
campaign itself.

Sinclair Davidson is a professor in the
School of Economics, Finance and Marketing at RMIT University. He
contributed two chapters to the Centre for Independent Studies recent
book “Taxploitation: The case for income tax reform” edited by Peter
Saunders.