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Feb 5, 2014

How the age of entitlement is being restored for the Liberals' friends

Declaring that the age of entitlement is over makes sense as long as voters believe it's fair. But the government is being anything but.

Treasurer Joe Hockey has emerged as the spine of a government that, a little like the Howard government, has arrived in office on the back of community unhappiness with its predecessor but unsure what it actually wants to achieve once it’s finished pulling down Labor’s work. Hockey’s resolute holding of the line on rent-seeking, after the disgrace of the GrainCorp decision, is welcome. But his salesmanship is letting him down. And, worse, so is his consistency.

Having tolled the bell yet again on “the age of entitlement”, Hockey has left the government open to allegations that entitlement is actually only over if the government wants to target the unions involved in your business. Otherwise, the spigot of taxpayer money is still open. No one in the government has been able to explain the difference between SPC Ardmona and the handout to Cadbury’s Hobart factory except Sharman Stone, who pointed out it was in a marginal seat, nor the difference between the SPC and another handout to a Tasmanian seafood processor (announced by rugged individualist Jamie Briggs). And that’s before you get into tax expenditures, which are a mishmash of generations of often conflicting policy objectives.

Governments — all governments — love to hand out taxpayers’ money for political benefit. Sometimes it doesn’t even have to be a marginal seat — the government promised to waste $10 million helping to redevelop Brookvale Oval for Abbott’s local footy club. Every time the government hands out a seven-figure amount from now on, Hockey’s words about the end of the age of entitlement will be used to belt the government.

But there are more substantial inconsistencies, because for the Liberal Party’s mates and supporters, the age of entitlement isn’t over at all; in fact, it is being restored.

First, there was the reversal of Labor’s decision to require better record-keeping and reporting for fringe benefits tax on novated leases. Note that this wasn’t a tax rise, as widely portrayed, but merely a requirement that people currently avoiding, or possibly in some circumstances evading, tax demonstrate they are doing so for the legitimate reasons they claimed. It was designed to end a straight-out tax rort perpetrated by the parasitic salary packaging industry, at the expense of every taxpayer without a novated lease. Hockey has reinstated the rort, at a cost to the rest of us of $1.4 billion over four years.

However, that’s as nothing compared to the government’s plans to reverse Labor’s Future of Financial Advice reforms, quietly revealed right before Christmas by Assistant Treasurer Arthur Sinodinos. Sinodinos proposes to dump the “opt-in” clause for financial advice fees that requires financial planners to actually get their clients’ permission to automatically skim off fees every year for advice clients have never sought and don’t want. Sinodinos also wants to get rid of requirements for advisers to reveal fees to existing clients and dramatically water down requirements designed to end the conflict of interest in which financial planners push clients into products planners stand to benefit from.

“… good treasurers don’t just take tough decisions, they skillfully explain them to voters and bring the electorate along with them.”

While much of the financial planning industry, large and small, is eager to move to a professional model for the financial advice that would turn away from the decades of self-interest and fee-gouging of clients, a rump of planners with close ties to the Liberals want to retain their ability to exploit the disengagement of most Australians about their superannuation in order to skim off a never-ending line of fees. The Liberals, in any event, strongly support the retail super sector of the industry, run by the big banks and AMP, which routinely underperforms the industry funds despised by the Liberals for trade union involvement.

Sinodinos’ changes may cost financial planning clients, i.e. ordinary consumers, $130 billion in lost retirement savings, which the age pension system of the future will have to help make up. It puts all other handouts by government in the shade.

At the same time, the government has also scrapped Labor’s plan to tax superannuation earnings over $100,000 a year for high-income retirees (i.e. Liberal voters) at 15% — while dumping assistance for low-income earners to increase their super contributions (i.e. Labor voters).

Perceptions of equity are the key here. When Hockey correctly talks about needing to explain to the community the need for a change in the way they view entitlements, whether it’s via the Business Council’s Commission of Audit or through refusing handouts to businesses, the message will only be politically effective if voters perceive that there will be equity in the reform process. If politicians tell voters they need to make a sacrifice, they need to make sure voters believe there will be equity in that sacrifice, that no one section of the community is getting a free ride while the rest of us are giving something up.

But financial planners are having their free ride restored. So too novated lease users and the salary packaging companies. So too high-income retirees.

Voters already believe — regardless of how they vote — that the Liberals look after the big end of town and are less interested in low-income earners. Labor is using that as a theme of its criticism over the government’s lack of support for manufacturing. Without careful management, the government will reinforce those perceptions, perceptions that it wants low- and middle-income earners to make sacrifices while it looks after its mates. It will not merely undermine support for its reform, it will undermine support for the government itself.

As Hockey should know, good treasurers don’t just take tough decisions, they skillfully explain them to voters and bring the electorate along with them. So far, Joe’s just been good at the former.

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40 comments

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40 thoughts on “How the age of entitlement is being restored for the Liberals’ friends

  1. Jimmy

    And this article didn’t even cover the winding back of means testing on the private health insurance rebate or the all to generous Paid parental leave scheme or the ambitions to get more money into private schools.

    Since months in and this govt is already living up the fears most had.

  2. Dez Paul

    I think you’re being too kind to Hockey, Keane, but at least you achieve some balance. I would urge Peter Hartcher from the SMH to read this after the huge steaming pile he excreted the other day:

    http://www.smh.com.au/federal-politics/political-opinion/joe-hockey-gives-government-muchneeded-direction-20140203-31xbo.html

  3. bluepoppy

    Perceptions are not always reality however the Liberals record and current behaviour indicate a real preference for governing for benefit of the rich and influential. In this aspect the perceptions reflect reality.

    Examples include an almost complete disregard for the environment and for applying pressure to get rid of the Super Profits Mining Tax. A tax that would ensure a fairer share of the benefits of our resources. It was politicised and took priority over good government. Coalition comments about workers and low income employees having to bear the burden of economic prosperity (so the rich can become richer) is all the evidence requird to see where this Party’s priorities lie.

    This Coalition government is not shaping up and the inconsistencies in decisions reflect a party about power and politics not about doing what’s best for the electorate. The lack of transparency around the TPP is another area of great concern, albeit the Labor government was also remiss in this area.

  4. Hamis Hill

    Treasurers “skilfully… bringing the electorate along with them”; in the face of a vandalistic media intent destroying those same treasurers?
    How’ll Joe go?

  5. Scott

    “fringe benefits tax on novated leases. Note that this wasn’t a tax rise, as widely portrayed, but merely a requirement that people currently avoiding, or possibly in some circumstances evading, tax demonstrate they are doing so for the legitimate reasons they claimed”

    Incorrect. And I thought Jimmy would have picked this one up.
    To go from a sliding scale based on km’s to a flat rate of 20% (when previously <15,000 got you 26%, 15,000-25,000 got you 20%, 25,000 to 40,0000 kms got you taxed at 11% and over 40,000 kms at 7%) is a tax increase for those travelling over 25,000 kms a year.

    FBT is about the value of the car the user receives. Obviously the more you drive a car, the less it's value so, in theory, the less you should pay in FBT. The changes were bad policy and pure environmentally rather than tax related.

  6. Jimmy

    Scott – The issue is that the FBT on cars is a complete rort – the sliding scale is completely abused because no one ever gets checked that they did the Kms and none of the KM have to relate to work.

  7. Jimmy

    Oh and technically Scott tha amounts you are talking about aren’t “tax” they are the employee contribution amount which is income in the hands of the employer.

  8. Honest Johnny

    The behaviour of the salary packaging industry and the L/NP opposition in response to the long overdue reform of the statutory formula method of car fringe benefits was an absolute shameful disgrace. God knows this government will need to raise every dollar of tax it can to fix the structural problem (not enough revenue) in the budget. Allowing the car FBT rort to continue will cost the budget $350 million per year.

  9. Jimmyhaz

    ‘Joe’s just been good at the former.’

    I’d argue heavily against this as well. None of the cuts that Hockey has made, and is going to make, are required, or even slightly beneficial, for Australia as a whole. They’re merely born out of an ideology that ignores reality.

    I do find it laughable that they claim that taxation won’t bring us into surplus though, even if that is correct (and it is), why have they increased the tax burden on the lower classes then?

  10. Malcolm Street

    Money for GMH – no
    Money for SPC – no
    Money for two Tassie producers – yes!

    Hockey has his work cut out when all we’re seeing is blatant pork-barrelling ahead of the Tassie state election.

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