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May 20, 2013

Sudden outbreak of responsibility from both parties on budget

The Coalition's sudden enthusiasm for spending cuts is rather hypocritical -- but a welcome embrace of fiscal responsibility. Both major parties are lifting their game, improving the dire standards in political debate.


Unexpectedly, Australia’s politicians have been infected with policy courage. And an opposition that was probably the most cynical and negative in Australian history has decided it can take a risk and not merely endorse some politically unpalatable spending cuts but even break the hitherto unbreakable rule of 21st century politics — never mention the GST.

The change from 2012, which was dominated by personal smear and an absurd opposition campaign against the carbon price, couldn’t be more striking.

In previous years, a bold decision like dumping the baby bonus and replacing it with a much smaller family tax benefit payment would have seen the Coalition and News Limited launching a coordinated campaign on Labor’s “class warfare”, notwithstanding Treasury spokesman Joe Hockey’s views on the age of entitlement.

This year, News Ltd has been all revved up and raring to go, but Opposition Leader Abbott has declined to play along, saying the “budget emergency” (which isn’t an emergency at all, judging by the Liberals’ plans for handouts) meant he might have to support it.

Indeed, The Australian Financial Review reported this morning the Coalition was considering opposing any baby bonus-style payments at all, and had begun walking away from its reflexive support for the iniquitous and hideously expensive private health insurance rebate.

There are plenty of dud savings in the Coalition’s list: slashing the humanitarian visa intake, punishing low-income earners on superannuation, delaying the 12% compulsory super levy. And don’t forget the $4 billion in unjustified handouts to forestall a Labor campaign on carbon price compensation. But it’s hard to go wrong with hacking into middle-class welfare.

“For a decade the GST has been a no-go area for both sides.”

Most of all, the Liberals are staring down a Labor scare campaign about tax reform extending to the GST.

For a decade the GST has been a no-go area for both sides. The slightest slip-up that suggested any willingness to consider any changes to the GST invariably prompted long bows to be drawn, huge leaps of speculation to be made and alarm bells sounded about a sinister agenda to lift the GST.

Now Abbott, while dancing around the issue, has declined to exclude the GST from his promised tax review. Of course, without the GST, such a review is entirely unnecessary while the Henry review sits unloved on Treasury bookshelves. Fixing the damage done to the GST by ex-Democrat head Meg Lees (while compensating low-income earners) would be a logical outcome from any serious tax review, and would go some distance toward relieving the pressure on state budgets across the country.

There’s considerable hypocrisy from the Coalition in all this. It’s not hard to Google up a statement, even relatively recently, from Hockey or another shadow minister defending or deploring a measure they’re now dumping or backing. But the hypocrisy is in the welcome cause of fiscal credibility.

It also demonstrates just how confident the Liberals are about victory, or more particularly about their capacity to resist a Labor attack on issues like the GST. Based on Labor’s form, the Liberal brains trust is probably right to believe Labor lacks the firepower to do them some real damage on budget issues, where voters trust the Coalition far more than Labor. That’s in contrast to industrial relations, where voters still regard the parties as far more evenly matched, and which accounts for Abbott’s enthusiasm for a moderate, step-by-step approach.

The result is, unexpectedly for the pre-election period of a parliamentary term in which the quality of political debate has reached a nadir, a sudden outbreak of responsibility on both sides and the bizarre spectacle of a pre-election budget dominated by a debate over who can wield the razor more effectively.

One of the virtues of the opposition’s belated fronting-up to fiscal responsibility is that it will get more practice articulating the case for complex or unpopular policy. One of the Labor’s biggest problems has been a learned helplessness when it comes to explaining policy that isn’t obvious or easy. The more you do it, the better you get, and the Coalition will discover it’s easier to do so in government if you’ve already done it in opposition, when the playing field is tilted against you.


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24 thoughts on “Sudden outbreak of responsibility from both parties on budget

  1. Gavin Moodie

    I agree with and think most important the last point that ‘The more you do it [‘articulating the case for complex or unpopular policy’], the better you get, and the Coalition will discover it’s easier to do so in government if you’ve already done it in opposition, when the playing field is tilted against you.’

    For this reason I have never been convinced by ‘small target’ lesson commonly drawn from Hewson losing the ‘unlosable’ election.

  2. JackAubrey

    While it is pleasing to see the Opposition talking about reviewing the GST, there’s still a bit of fog around whether they are talking about the rate and application to current non-GST items like food, or whether it is just the State-by-State distribution formula. Joe Hockey’s “challenge” to the States to lead the review on the basis that the GST is a “State tax” is cowardly blame-shifting before the event. But at least the issue is on the table. Hopefully the Liberals also have a shopping list of inefficient State taxes to target in whatever deal emerges.

  3. Jimmy

    It helps the Libs be hypocritical when their backflips are just glossed over by the nedia, if Gillard had done the same thing she would be damned.

    And for all this good decision making from the Libs they stil have a whole lot of unfunded spending to be accounted for and are clinging to the idea there is no problem with education funding.

  4. Mark from Melbourne

    I suspect its less about fiscal responsibility and more about cheap politics. They get to take the savings whilst hanging it on the Government as being “objectionable”. Cake, see, eat.

  5. mattsui

    That playing field might be slightly less tilted, once the media haters have gotten rid of Gillard.

  6. klewso

    Why wouldn’t the Coalition be considering opposing any baby bonus-style payments and suchlike – it doesn’t need this sort of electoral bribery like Howard did – first up (this election) anyway.

  7. klewso

    Labor didn’t get enough practice at selling and “explaining policy that isn’t obvious or easy”?

  8. Warren Joffe

    Ism glad to say that it has caught up with the group think in Canberra BK what has been obvious to me for over a year – as I have said on Crikey and to anyone that will listen. That is because it was clear it would be good electoral politics, safe electoral politics and a huge advantage for a new government which wanted to be able to be fiscally responsible without being accused of breaking promises to simply say “this election is about trust; we will tell you what we would like to do and will try to do, maybe not as soon as we would like, but we make no promises”. I still predict that, a short time before the election all policy projections which might be taken to be promises will be cancelled except for the promise to try and govern so as to be re-elected in 2016.

    I am disappointed however that you BK can’t see that some “middle class welfare” is acceptable. E.g. If one can’t afford to cut taxes so the government is taking (largely to transfer to other Australians) less than 46.5 per cent at the margin of a person’s income isn’t it reasonable to target the educated career woman who is already forced by mortgage payments, HECs, the requirement to buy health insurance and the perfectly reasonable desire to send her children to a private school (expecially if she has a high powered job which doesn’t allow her to keep a beady eye on the local state school) and give her and her husband/partner concessions on health and education. It is not in the interests of any of us that our best and brightest have one or two children in their mid 30s rather than three or four at average age 30.

    Correspondingly you seem to have gone quite goofy in your logic when you say “punishing low-income earners on superannuation”. I suppose you are critical too of tax concessions which allow high income earners, i.e. those who pay a lot of tax, to save for an OAP-free retirement without having to do it out of heavily taxed residue from income. There was a lot that Costello got wrong but is it not ridiculous to give people a taxpayer provided lump sum who will never earn or save enough not to be largely reliant on taxpayers – mostly other people’s children and corporations that other people have financed – to provide their income and health care in in retirement (assuming they were ever employed)?

  9. Mike Flanagan

    I don’t believe they wll get ‘rid of Ms Gillard’ It is not over until the big lady sings mate. Bernard’s dismissal of Ms Gillards chances of returning to government are built on a historic perspective through the polls and although many may say that history often repeats itself, I wouldn’t be relying on that prediction on that flimsy reasoning.

    It is marvelous to see Bernard concede that Labour are being prudent when the evidence of both their prudence and fiscal acumenn in both dealing with GFC and its’ aftermath, has been on display for the past two years or more.
    Neither Abbott or Hockey, or even Turnbull for that matter, have shown any inclination to adopt a long term vision and stratagy, apart from the Hayekian and Freedmonite failed theorems.
    Even when reality drags them to the table they still depend on revising and rebirthing of the accounting principles to balance their books.

  10. Damon Roberts

    Pity neither of the major parties has the intestinal fortitude to call an end to Negative Gearing.

  11. Sam

    @Warren Joffe
    Interesting point about encouraging our “best and brightest” to breed. I do happen to agree with you that this is something that’s desirable for the nation. However, I disagree that this therefore justifies middle class welfare.

    If we assume that ability has high positive correlation with wealth, then people of ability already have sufficient wealth to afford to have children. That they are not doing so might be because they consider a lower priority than career building or being able to travel. A few thousand dollars here and there is hardly going to change that. Even full income replacement parental leave may not change this behaviour because the not unreasonable expectation of the most able is that their income would grow with their experience, so time off from working represents not just a loss of that period’s earnings but also decreases future earnings.

    In short, we can spend a small amount of money on upper-class welfare and get no return, or we can spend an awful lot of money and get a moderate return. It’s a waste whichever way you look at it.

  12. BSA Bob

    Since when’s the playing field been tilted against this opposition? So many backflips from them, if Labor had abandoned & contradicted itself on so many positions we’d be hearing about it 25/7. But it’ll be funny to watch some of the beneficiaries Abbott’s made use of when they realise they’ve been chucked overboard.

  13. Warren Joffe

    @Mike Flanagan

    You go too far in calling the Labour [sic] government “prudent”. And why you say that has become evident in the last two years just puzzles me. What evidence has emerged since about May 2011 to demonstrate the government’s prudence? Apart from the scandalously mismanaged and wasteful response to the GFC after the very sound propping up of the banks and the first $10 billiion stimulus on which one might quibble over details but was pretty well designed to put a bit of a floor under dropping confidence, apart from all that which you may well not be referring to, was it not the greatest imprudence to keep on promising return to surpluses which was always unlikely to anyone with half a financial brain and was so imprudent that it contributed much to the government’s loss of credibility in the electorate?

    A fortiori, to attribute “acumen” is a joke. Acumen wouldn’t have engaged in a bit of highly selective cherry picking from the Henry Report and completely ruled consideraion of the GST off limits. Acumen would have ensured that the (as it turned out) unnecessary second stimulus package, as to most of it, could be phased down as soon as it was apparent that China was looking after us and confidence domestically had not collapsed us into recession. Acumen would have used the borrowed funds on economically productive infrastructure instead of school halls which are arguably more of an ongoing cost than a benefit economically speaking. No, acumen is shrewd which is the opposite of this government (and Rudd didn’t add shrewdness when you remember him going off to Copenhagen with a mammoth entourage boasting about Australia leading the world by word, policy and example only to find that the Chinese wouldn’t have him in the same room when they were meeting with the seriously important players).

    And how can one forget the NBN, most notably in how it came about as an overnight replacement for modest but failed policies on which Rudd was elected. Conroy took the package to Rudd and got his decision in the course of flight from Sydney to Brisbane. No messing round with real figures or cross-examining the experts. That shows “acumen”. Please don’t let them invest my granny’s money.

  14. Warren Joffe

    @BSA Bob

    You seem to subscribe to the conventional cant about media bias against the government and for the Opposition. But what is overlooked, generally as well as by you, is the peculiar role of unions and their favourable tax treatment.

    While the ALP no longer has a credible claim to be a grass roots party embodying the values and aspirations of a conscientious working class the unions are as important as ever, considered as a largely unified oligarchy of increasingly tertiary educated careerists, often the product of private schools includint those with the highest fees. Take the simplest evidence of much more influential bias than anything that appears in the print media or on the TV news. That is the effective campaign against the Howard government over Work Choices. Full on no-holds-barred campaigning with huge resources gathered up as tax deductible payments to the unions. And the public sector unions were a big part of it for no good reason.

    Unlike the press and electronic media the unions fortify their propaganda by insisting that they know and care what is good for their members and everything they do is directed to achieving the good of members. And the unions not only don’t pay tax but are aided to behave like rich churches proselytising and moralising by the huge rewards available to those officials who don’t become MPs but get plum appointments to major superannuation fund boards.

  15. Mike Flanagan

    Hi Warren; Thanks for your response.
    Prudence is in the Keynesian $200b expansion of Government outlays in a $1.5T economy. Thus preventing this nation from following the rest of the western world into a recession, that is now showing classical signs of morphing into a depression.
    German and UK growth is now measured in fractions of a percent. France is entering a recession and southern European countries are mired in a depression that is devel0oping a lost generations for years to come from double digit unemployment, with over 50% of their youth being discarded from any employment opportunities for years to come.
    Acumen is in realising that 70%, or more, of the economy is built on internal consumption, and thus realising that China represent only 20% of our exports and probably equates to less than 10% of our economy.
    Currently most of China’s impact is in highly capitalised products like mining that are relatively low users of labour who form the bulk of the nation’s consumption and GDP.
    Acumen is also apparent when you see a government gradually withdrawing their stimulus while maintaining a progressive refocusing of the nation, and its’ resources, to attend to the challenges we face in the future.
    The progressive refocusing of the nation by Ms Gillard’s government is exemplified by the coherent approach to nation’s school policy in the BER, Naplan , Standardisation curricula and Gonski.
    And as for the NBN, it had been ALP policy long before they acquired government and will lift this nation to the forefront of the world in innovation, expression and world stage presence.
    Need I say more?

  16. AR

    it was painful & irksome listening to Sen Sinodinis on RN tonight trying to argue that the Howard Baby Bonus & doubling of the First Home Buyers Grant(aka Sellers subsidy)was tight at the time but an abomination now.
    It just occurred to me that he is probably the puppet master in LotO office, our very own Darth Cheney/Shrub relationship.

  17. klewso

    Channelling Howard back into the PMship.

  18. David Hand

    Bernard, your statement, “an opposition that was probably the most cynical and negative in Australian history” puzzles me. I know that ever since McTernan arrived in Australia, any cabinet minister within 2 metres of a TV camera and microphone ensured they told Australia that Tony Abbott is not a fit human being to be in parliament, but I’m surprised you so unthinkingly accept their propaganda.

    On reflection, I’m not surprised.

  19. Dion Giles

    Taxation through a GST is regressive, which means its effect and purpose is to shift the tax burden from those on high incomes to those on low incomes. The GST was introduced to fund a reduction of the corporate tax rate from 36% to 30%. Increasing the GST take is more regressive than introducing it in the first place.

  20. Warren Joffe


    I have heard the suggestion that Howard’s and many Labor government’s subsidies to first home buyers (sometimes by tax or duty relief) mostly for the benefit of sellers and I understand the argument. But I have never heard the proof or seen convincing empirically based evidence. Can you provide that? Obviously if you pay X some money to buy Y it is going to tend to push the price of Y up to some extent. But that doesn’t get you very far especially if you find that most first home buyers, or just many, are buying from professional builders and developers which means that they make extra taxable profits.

  21. Warren Joffe

    @Mike Flanagan

    No you need say no more. You have passed the test of loyalty and should fit in nicely for a few months work with John McTernan propping up the PM and even persuading some of her colleages to treasure her.

  22. Warren Joffe

    @ Dion Giles
    Accepting your definition of “regressive” in relation to taxation instead of the more logical meaning that it connotes a higher tax rate on lower income, purchases or wealth, I ask, nontheless, why do you think it sufficient to say introducing and increasing the GST is regressive (if you don’t count the compensatory offsets anyway) to condemn it?

    Are you in favour of no taxation for the masses and leaving it to the chief who owns all the pigs to give the fests, arm the warriors and provide for your granny’s funeral. That is no taxation at all on the poorest 98 per cent? What taxes are appropriate to use in order to take some of the stream of income and expenditure of low income people for purposes and expenditure to be determined by government? None at all? What about the user pays principle as in water rates. Or don’t you think the relatively poor should be taxed at all, directly or indirectly?

  23. Mike Flanagan

    You would be hard pressed to equate me with McTernan, even after six or more generations I still check my spuds for pommy blight before eating.

  24. Dion Giles

    To Warren Joffe

    “No tax on the poorest 98% of the people” is a straw man which elucidates nothing. Regressive taxation means people on lower income pay a higher proportion of their total income in taxation, not a higher rate in the dollar. Flat rate is regressive.

    Tax regimes that worked in the past may be worth re-examining. The tax structure before the imposition of the GST drew more from direct taxation on a progressive scale in which the proportional tax take rose with income. The sales tax regime was adequate when the rate was set for specific goods and services based on estimates of the nation’s benefit, rather than flat GST. Tariffs set on imported goods were related to national/international goals including the discouragement of illegally logged Indonesian timber or the mass killing of Bangladeshi clothing workers. During the war the tax rate was lower for income actually earned by the taxpayer’s own “personal exertion”.

    The top-“earning” 1% would not like any of the earlier regimes (since abandoned in response to organised pressure) but they left more of the national income to the 99%.


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