The 2018 Federal budget was released on Tuesday night, and our printing deadline means this article was written last weekend, but it is easy to predict what Treasurer Morrison announced in his budget speech.
Lower and middle income tax cuts. It is a federal election year, so this needed to be an election budget, and the phrase ‘tax cuts’ is a guaranteed vote winner. Factor in 30-plus losing News Polls, the heat from company tax cuts fiasco and fallout from the Banking Royal Commission, and the government needed a ratings boost. A budget that pivots towards “Howard’s Battlers” is a tried and true strategy to get the LNP across the line in the next election.
How are these tax cuts going to be paid for? Morrison banking on the current upturn in commodity prices for Australian exports, which have boosted government revenue. He was so confident of the increased revenue he recently announced the National Disability Insurance Scheme won’t need an increase in the Medicare Levy to be fully funded. And he is so confident of the longevity of rising exports he based the Federal Budget on it.
It would be easy to label this as magic pudding budgeting of the worse kind, but there was a deeper cynical and disingenuous undertone the government would like us to forget, and the numbers don’t lie.
In the lead up to the September 2013 federal election, the Coalition railed against the Labor government’s debt and deficit disaster and crowed of the Coalition’s superior economic management credentials. The gross national debt at this time was $272 billion, and deemed a Budget Emergency by the LNP, so severe that the election of a Coalition government was self-declared as the only way of ensuring Australia lived within its means.
The budget emergency was obviously a not-in-power emergency. After the calling for urgent fiscal restraint while in Opposition, the LNP has nearly doubled the gross debt in less than five years. Last week the gross national debt sailed past $524 billion with no fanfare, no mea culpa, and no moralising from the Murdoch press. Just more pressure for big business tax cuts from the vested interest groups and Coalition members. It is not merely a broken election promise, but something far more deceitful.
Taxation reform has disappeared too. In 2015 Treasurer Hockey talked about reform but “everything on the table” turned into tinkering around the edges. In 2016 Treasurer Morrison wanted to “grow the pie” but emphatically ruled out any changes to GST, even modest increases to 12 or 15 per cent in line with countries such as New Zealand and India. Increasing the GST, even to offset alterations to income tax thresholds, would have spooked ‘working families’ and that is not a vote winner. There is no mention in this budget of any method of altering the tax base.
So, the 2018 budget is a grab for votes, paid for by speculation that commodity prices will continue to rise (and failing to countenance another global financial crisis).
And the fundamental problem continues – long term strategic planning for the benefit of all Australians doesn’t fit the three-year election cycle and partisan politics.
The big picture – we have a geographically huge landmass populated by 24 million rapidly-aging people. Aging people are entitled to healthcare and social security, young people are entitled to education, and we all expect government services.
Scarce water resources and an arid climate push the bulk of the population to the boundaries. Living around the edge of the continent means expensive long-distance transport and utilities infrastructure.
An aging population means lower income tax receipts. A younger population that is underemployed and casualised means lower income tax receipts.
That the government has both a revenue and expenditure problem is so obvious, yet long-term planning escapes us. The vested interests flex their muscles and wallets, and the cycle goes around ad finitum.
Norway did it right. In 1990, with a view to its long-term economic future, and under a conservative government, it began heavily taxing and licencing oil companies extracting oil from Norwegian waters. The income goes in a Sovereign Wealth Fund that is now worth over $US1.1 trillion and owns 1.3 per cent of global stocks and shares. In 2017 the fund earned $US131 billion. The problem Norway is currently debating is to what degree inflation is caused by government spending, and the degree of diversification of the Fund’s investments. Such a terrible problem to have.
All we can look forward to is a return of the “budget emergency” after the next election.
*Greg Smart lives and works in Dubbo, and is keen observer of current affairs.
By his own admission, Greg Smart was born 40 years old and is in training to be a cranky old man. He spends his time avoiding commercial television and bad coffee.