The Missing Economic Policy

The Missing Economic Policy

Today’s  Newspoll shows the two major parties are now on the same TPP (down from a steady 53/47 for the Coalition). Although Turnbull remains clearly preferred as PM, his indecisiveness over whether to raise the GST/cut income tax and his failure to produce any new substantive economic policy has contributed to the downturn (see Backbench cranks up pressure on Turnbull, Morrison by Dennis Shanahan). Turnbull’s general approach of not ruling any policy in or out –and  then not deciding on anything – has not helped and his net satisfaction rating is down to 10 compared with 38 in mid-November. As Rowan Dean put it in Saturday’s AFR, “Turnbull: The Force Awakens has lost business to Deadbill”.

My previous Commentary discussed this situation when assessing the presentation to the Press Club by Treasurer Scott Morrison and the publication by today’s AFR of my letter (see below) reiterates my suggestion of adopting a strategy of cutting expenditure.  The need for such a policy is reinforced by Turnbull’s sudden awaking and savage  attack on Labor’s policy of reducing the access to negative gearing (see attached article in The Australian “Fear Shorten, says PM, he’s out to smash house values”). This surely means that at least on  this occasion Turnbull has allowed something to be “taken off the table” and reducing negative gearing is no longer a possible major revenue source for financing cuts in income tax. Other possible revenue sources exist from adjustments to the treatment of superannuation and capital gains but in practice seem limited and open to criticism that income tax reductions are being financed by an increase in taxation.

As I have noted, in his Press Club presentation Treasurer Scott Morrison rightly said “what all that means at the end of the day is the only way to have lower taxes is to have lower expenditure”. Both Morrison and Turnbull have already signalled that State governments should not expect additional federal assistance and, while these governments continue to object to the  (post 2016-17) cuts in education and health announced by the Abbott government, the Turnbull government seems to have succeeded politically in maintaining that policy.

But how could a strategy of taking something away from individuals be sold politically in the lead up to the election?

As suggested in my letter, that could surely be based on the idea that government assistance to those with above average incomes of around $65,000 should be strictly limited because most on such incomes are capable of looking after themselves. Relevant are the strong increase in average real incomes over the past 20 years and that a significant part of the tax and social security system consists simply of churning taxes back from whence they came, that is to higher income groups themselves.

Such a strategy would not be popular amongst those groups. But the risk of a loss of seats would be small. To whom would the losers move their vote.

It is also important to recognise that there is a much greater case for increasing spending on defence than on not reducing benefits that go to upper income groups. In Why We Need to Beef Up Defence, Tony Abbott points out that Labor let defence spending fall to the lowest level since before the last war (1.6% of GDP) and that the threats from various sources have been increasing. He notes that, while the Turnbull government “continues to resist US requests to put at least some special forces on the ground” in Iraq, the ‘injection of Russian planes and missiles into the theatre” makes it important to have the right equipment in the area. There is also serious concern about the threat to Afghanistan, where Australian forces battled for six years, from increased militant Islamic forces from the Taliban and IS.

As an aside, Russia’s involvement in Syria has led to German complaints that one object may be to intentionally increase migration to Europe and Germany in particular. This it is argued may be designed to destabilise the European union and reduce the potential threat to Russia from Europe (see Merkel fears Putin sabotage).

Another need is to develop a coherent policy on workplace relations by making use of the Heydon Royal Commission report. When that report was published last December, Turnbull made a commitment to publish a comprehensive reaction  in the New Year. But while we continue to see reports of criminal behaviour of union officials and unjustified union action designed to disrupt business activity, a policy designed to reform an outdated regulatory system (sic) shows no sign of appearing.

In short, opportunities exist for developing a wide-ranging economic policy which could provide additional funding to finance a reduction in income tax, allow increased spending on defence, and upgrade the competitive situation in the labour market.