Australia can now assess the cost of the Liberal Party’s switch in September 2015 from Prime Minister Tony Abbott and Treasurer Joe Hockey to Malcolm Turnbull and Scott Morrison.
Most indicators of economic health have deteriorated significantly since then: hours worked per person, real wages, underemployment, household income, GDP growth, government debt and interest on the debt. But by how much?
The Parliamentary Budget Office (PBO) has now released its medium-term projections following the 2017-18 budget Scott Morrison delivered two months ago. This shows the likely impact of Morrison’s decisions over the next decade.
In June 2015, the PBO released its report on the projections associated with Joe Hockey’s 2015-16 budget.
By comparing these documents we can measure the losses pretty accurately. Both were prepared by the same independent authority, using the same data sources and methodology.
In 2015, the PBO forecast that budget deficits would reduce significantly under Hockey’s economic settings. From a deficit of $25.8 billion in 2016-17, reductions would follow until the 2019-20 budget yielded a $0.9 billion surplus.
Total deficits for the four years 2016-17 through to 2019-20 added up to $46.2 billion.
That’s a hefty blowout from Treasury’s forecasts before the 2013 election, based on Labor’s settings. A $63.0 billion deterioration, in fact. Just over those four years. But it now gets worse.
The 2017 PBO report revised those projections using the settings Turnbull and Morrison have now established. Total deficits for the same four years — 2016-17 through to 2019-20 — are now $92.6 billion, more than double the estimates under Abbott and Hockey.
Net debt was forecast in the 2015 report to max out at $325.4 billion in 2018-19 and then decline. Just two years on, that has blown out to a projected peak of $376.4 billion in 2019-20. Thus Turnbull and Morrison are borrowing an extra $51 billion.
Naturally, the interest bill goes up commensurately. Just over the four years 2016-17 to 2019-20, the interest projected in 2015 was $63.5 billion. That is now out to $66.2 billion. The longer term, however, looks particularly grim.
Public debt interest was forecast in the 2015 report to comprise 3.3% of total government payments by 2025-26. The latest report forecasts interest at 3.9% of all outlays by 2027-28. That is more than will be spent on the National Disability Insurance Scheme, or job-seeker income support. It will be higher than the family tax benefit. It is more than four times road and rail infrastructure funding.
Evidence keeps piling up that company tax non-collections are the major causes of the worsening economy.
The 2015 PBO report shows company tax receipts for 2014-15 at $68.0 billion. The 2017 report shows this at $68.0 billion for 2016-17 also. Huh? Fair enough if company profits were the same both years. But we know they are not. The Bureau of Statistics showed (see file 5676.0, table 11) that company profits just for the first quarter of 2017 are an impressive 28.4% higher than the same period in 2015. It could be higher still when we get the June quarter figures.
An extra 28.4% of $68 billion is $19.3 billion, more than half the current deficit. That is a reasonable estimate of the revenue leakage due to non-collection of corporate taxes due.
Taxes on salaries
While company tax collections are declining, taxes on workers’ wages are increasing. In 2015, tax receipts from wage and salary earners were $177.0 billion, or 50.4% of total tax receipts. In 2017, tax receipts from wage and salary earners were up to $194.0 billion, or 51.5% of total tax receipts.
Company tax declined from 19.4% to 18.0%.
The PBO’s latest report admits something the government wants hidden: the tax hike “is predominantly due to a projected rise in personal income tax receipts over the entire medium-term period, largely as a result of wage increases driving income earners into higher income tax brackets, combined with the increase in the Medicare levy from 2019–20″.
Was it worth it?
In just the four years 2016-17 to 2019-2020, the additional costs to Australians following the change of PM and treasurer include $46.4 billion in deeper deficits, $51.0 billion in extra net debt and $2.7 billion in interest on the debt. Most of that is due to an estimated $70 billion in uncollected company tax revenue.
That’s just for those four years. Never mind the years beyond.
Of course we will never know if the same deterioration would have occurred had Abbott and Hockey stayed on. We do know, however, that the rest of the developed world has advanced on virtually all indicators.
Who would have thought the Abbott/Hockey years were “the good old days”?