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19
Feb
2016

Treasurer Morrison on Government’s Economic Policies

Turnbull Govt’s Economic Policies

It is not often that one accepts most assertions and back up used by 7.30’s Leigh Sales when interviewing a minister from the Coalition Government. But her interview of Scott Morrison after he gave a 9 page address to the National Press Club (text here with 5 pages of Q&A) go to the heart of the problem with the performance of the government led by Turnbull since he became PM. The text of her interview with SM is set out below and attached are comments on the address by her, another ABC interviewer and Shadow Treasurer Bowen. Following are the main points arising from SM’s presentation and his interview with Sales.

Sales started by pointing out that “when Malcolm Turnbull challenged Tony Abbott five months ago, he said one of the reasons was that the then Prime Minister couldn’t provide the economic leadership Australia needed. He said the Government had to set out an economic course and make the case for it and that every month that passed was a month of lost opportunities. Yet five months into Malcolm Turnbull’s leadership, Australia’s still waiting for his government to articulate comprehensive economic plan beyond ruling out changes to the GST and an innovation statement” (see attachment on 7.30 Analysis). Leaving aside the socialist idea of a “plan”, such comments suggest an independent interviewer and differ from her first over-sympathetic interview with Turnbull himself.

It is evident that since Turnbull took over as PM his government has not really effected or announced any new substantive economic policy or change thereof and given no indication of the policies it is likely to follow other than those agreed with the conservative wing on climate change and same-sex marriage (the announcement of $1bn over 4 years for various measures designed to encourage/subsidise innovation is not new but an addition to existing policy which adds to budget deficits). It appears that much of this government’s time on economic policy has been taken up with internal discussions (and leaks) on a possible increase in the GST from 10% to 15% and accompanying cuts in income tax and compensation to those on low incomes.

SM offered difficult-to-follow explanations in his address (pages 6-7) of why the various GST options considered were rejected by Cabinet but perhaps the most likely was because “the times are not right for that” (page 7). SM’s rather confused explanation of the government’s decision not to increase the GST implies that Turnbull passed the buck to him instead of announcing it himself, which he should surely have done in view of his obvious initial inclination to support an increase. My guess is that a number of MPs with marginal seats would have signalled opposition because a 50% GST increase would be likely to have led to a loss of a number of seats even with accompanying income tax cuts.

In my view the decision not to increase the GST is to be welcomed because even if, as promised, there was no overall increase in the level of taxation, such a GST increase would have established a precedent for increases in the future without offsetting other cuts and Australia would be in danger of going down the big government track, as has happened in Europe. That possibility remains but, particularly as there is no agreement amongst the State governments, SM’s presentation appears to have made any such increase most unlikely under the Turnbull government.

So, if there is to be no increase in the GST, what is to happen to tax reform and possible reductions in income tax? In  his address SM mentions the measures being taken to increase tax revenues from multi-nationals (Page 7), which appear to be justified if they can be extracted. We also know that consideration is being given to increasing revenue from reductions in the usage of negative gearing and from changes to the treatment of superannuation for “high” income earners. But increases from these sources are likely to be fairly small if only because of their controversial nature and application to limited groups.

There is also the political difficulty that Labor is aiming to increase taxes in these areas and in his interview with Sales SM took the opportunity to label Labor as increasing tax revenues from superannuation and negative gearing and using the proceeds to raise the level of spending ie labelling Labor as “high taxers and high spenders”.

So, how is there to be a reduction in the level of taxation? SM says in his presentation that “what all that means at the end of the day is the only way to have lower taxes is to have lower expenditure” (page 7). The trouble is that the Coalition’s record on controlling expenditure is appalling. SM acknowledges in his presentation that “over the last two years… we have saved over $80 billion. But we have also had new spending of more than $70 billion” (Page 8). As Sales points out in her interview, this $10 billion saving (about 0.6% of GDP) “is a drop in the ocean when you look at the size of Australia’s GDP and the sort of deficits you’re looking at over the long term” (Page 6).

Unfortunately, SM gave no indication of the Coalition having a strategy as to how they might reduce spending. Also, towards the end of his presentation (Pages 8-9) he conveyed a very cautionary message on obtaining fiscal consolidation viz  The message in that – this is a long road. Our fiscal challenge that we inherited, there is no quick fix to it, there is no one statement, there is no one budget, there are budgets and budgets and budgets and budgets that are required to fix that problem. There is no one measure. There is no one thing. It is just the hard drilling through boards, as Henry Ergas was saying, of ensuring we get this back in the right position”.  

It is difficult to avoid the conclusion that, as reflected in what should have been a major statement of economic policy, SM’s speech leaves the Turnbull government cupboard bare. It is not surprising that his address is reported in today’s Australian as having received “a cool reception in radio and television interviews and he sparked an attack from Labor when he responded to a question on where the cuts would come from: The same way we’ve been doing it for the last  2.5 years.”

What is clearly needed is a strategy justifying  expenditure reductions in particular in middle class welfare by reference to the strong increase in real incomes over the past 20 years enabling an increased proportion of people to look after themselves. Related to that is the fact 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 would they vote Labor?

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