16
May
2017

Nonsense Claims that More Revenue Needed

Yesterday’s Commentary referred to three things which stood out from the post Budget polling – Labor remains 6 percentage points ahead, the very low net satisfaction ratios of both leaders suggest that voters want a change of leaders, and only 19% feel better off after the budget. Today we learn that, in “selling the budget” yesterday, Turnbull claimed that Newspoll showed there is majority support for the levy on the banks and the increase in the Medicare levy. He also claimed that, because the Senate has blocked spending cuts, “we obviously need to raise more revenue” (see Turnbull Defends Budget). This is absolute balderdash.

Budget Paper No 1 contains a Statement 6 which provides details of spending and in particular the addition to spending resulting from policy decisions by the government. Table 2 from that Statement, which is included below, has so far attracted little if any attention from commentators. But the increase in spending of 3.0% in 2017-18 and 4.9% in 2018-19 is importantly due to policy decisions of about $5 bn for each year. The following table shows the published increase in spending in each of those years and (in brackets) the increase without any policy adding decisions. In short, even if no policy decisions had been made to increase spending the Budget would still show a substantial increase in total spending.

Total Budget Expenditures

2017-18 $464.3bn +3.0%  (+1.9%)
2018-19 $486.9 bn +4.9%  (+3.8%)

The reality is that it is not only the Senate which is blocking spending cuts: the Turnbull government is blocking them too. What’s more it is blocking reductions in the deficit.

Another way of looking at it is that, if there had been no additional spending policy decisions of about $5bn in each of those years, there would have been no need for tax increases in either 2017-18  or 2018-19. Budget Paper No 1 Statement 5 shows that policy decisions are estimated to add $1.8bn to revenue in 2017-18 and $3.1bn in 2018-19.  In short, the government’s own spending decisions could be said to have forced the tax increases.

Today’s Australian editorial refers to the “forgotten people” to whom Menzies referred many years ago (see The Aus on Budget). He argued that “big business interests tended to look after themselves, as did organised labour, but the middle class often was forgotten. He primed his party to represent and serve the interests of “salary earners, shopkeepers, skilled artisans, professional men and women, farmers” and the like. “They are envied by those whose benefits are largely obtained by taxing them. They are not rich enough to have individual power. They are taken for granted by each political party in turn … and yet … they are the backbone of the nation.” Perhaps the main change since then is that the middle class has expanded and it is now awakening as the expansion in government is being seen as unnecessary and (to use the current phrase) as unfair. Think of what is happening in the US and the UK.

I also draw attention to Terry McCrann’s article in today’s Herald Sun (see McCrann on Budget). Apart from pointing out that almost all taxes end up being paid by individuals, Terry concludes thatthis Budget was framed for the next Newspoll. Well, that poll has come and gone, badly. It’s not going to get any better. The Budget is going to be — was always going to be — diced and sliced, exactly like the 2014 Budget it was supposed precisely not to be. The popular bits will be endorsed — the bigger spending, the bank tax; but not the nasties like the Medicare levy, as Shorten has already made clear. You will see slippage on the bottom line. And voters will still feel badly done by. So the government is likely to end up with the worst possible combination: a Budget that looks (and is) irresponsible and loses votes, or certainly doesn’t attract them”.

Will the Liberal members of Parliament wait until the next Newspoll?

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