I’VE BEEN HORRIFIED this week to read that a so-called “deficit tax” is a key measure to fix the state the ALP left the federal budget in; that urgent and drastic action is needed is beyond question, but introducing “a great big new tax” is no way to take it. The political ramifications of such a measure threaten to be existential, and are an affront to millions of Australians who want government out of their lives rather than cement its centrality to them.
If Australians were genuinely committed to profligate government spending — underpinned by a tax-and-spend mentality — the Rudd government would have been re-elected last September.
The fact it wasn’t derives from many factors, of course, but two of the big reasons the Liberal Party won the election were a) it persuaded a clear majority of voters that the mess the country’s financial affairs were in was genuine, and needed harsh remedial action, and b) because resentment over Labor’s “great big new taxes” — Tony Abbott’s own phrase — cut deep.
The last thing the Liberal Party can afford to do — for so many reasons — is to start slugging all and sundry with hefty new taxes instead of squibbing what should be a straightforward, if brutal, process of spending cuts.
Last week in this column I posed the rhetorical question, in an article: what is government even for? Government in my view has a clearly defined role to play in the administration of various functions of state and to collect and distribute revenue to fund them, but there are some things government simply should not be involved in, and regrettably the fingers of the state have slid further and further into people’s pockets to fund an increasing array of indulgences that are further and further removed from its proper place in everyday life.
Faced with a budget haemorrhaging $50 billion or so per year, and with debt having gone from -15% of GDP in 2007 to 25% now, and set to peak at 46% in a few years’ time if the rot isn’t stopped, it should be obvious that the primary targets ought to be extravagant spending packages designed to buy off various constituencies rather than taxing the living daylights out of all and sundry to retain them.
This column has been supportive of plans to implement a $6 co-payment on GP visits, in part because it fits sensibly within the government’s mantra that it will “spread the pain fairly” in fixing the budget, and because the ballooning public health system requires something to help rein in costs: if such a charge deters people with itchy fingernails and minor sniffles from wasting the time and resources of GP clinics and public hospitals unnecessarily at public expense, so much the better.
But I cannot and I will not support or defend — even in the name of loyalty to the Liberal Party — the plan to jack up income taxes for anyone earning more than $80,000 per annum in the name of a so-called “deficit tax.”
One of the happy consequences of the golden years of the Howard government is that incomes in this country have grown almost exponentially; even in 1996, $80,000 was the sort of salary relatively few employees commanded, and even politicians weren’t paid much more. Today, it’s not much more than the average income.
It’s been reported that anyone earning more than $80,000 will face an increase of one percentage point in tax on every dollar above that level; for those earning more than $180,000, the increase is 2%.
In other words, this won’t just hit a few rich toffs, it will hit will hit hundreds of thousands — if not millions — of people.
It might not sound like much of an impost, but the measure will directly and disproportionately target Coalition voters: even in spite of the fragmentation that has occurred in recent decades in the correlation between incomes and political allegiance, those on higher incomes are still far more inclined to support the Liberal Party.
Prime Minister Tony Abbott is apparently referring to the planned impost as a “temporary levy” and claiming, as such, that it is not a tax: this kind of argument might fly in selling a tweak to the Medicare levy to cover Ansett entitlements, or even to a $6 co-payment to see a doctor. But it doesn’t cut it when it comes to what is, in brutal clarity, an income tax hike.
This measure directly contravenes the most explicit election promise Abbott made: that there would be “no surprises.” Having campaigned against “great big new taxes” in the carbon tax and the mining tax, he is apparently readying to inflict one of his own.
It is beyond question that savage action is required to haul the federal budget back into shape. People expect that. In fact, there is a compelling argument that to a great extent, Abbott and his colleagues were elected to do precisely that.
But to do so whilst putting a huge additional impost on people’s incomes — whilst nonetheless taking the axe to significant spending that will also affect the same group of people adversely — is akin to committing political seppuku.
Make no mistake, there is much that can — and should — be cut.
“Ending the age of entitlement” is the government’s creed, and to date has attracted it nasty headlines and outraged noise from the Left over everything from lifting the pension age to slicing family tax benefits to reforming the disability support pension. Even so, such measures — whilst painful — are urgently required.
In fixing the budget it is inevitable that a lot of people will be worse off. Tough questions, after all — as Andrew Peacock was once wont to say — demand tough answers.
But from the standpoint of political saleability, the Liberals’ own election campaign was prosecuted in such a way as to ensure that whilst cutting popular spending programs would certainly hurt, there should be no reason doing so would endanger its hold on government provided the budget was properly managed and sold.
That caveat, clearly, does not extend to a rise in income tax when (from a budget savings perspective) there is plenty of low-hanging fruit apparently to be left to flourish on the vine.
Expensive utopian fancies such as the National Disability Insurance Scheme: set to cost $22 billion dollars a year once fully operational, this program — whilst based on a worthy enough idea — is so patently unaffordable it should have been the first thing to be axed.
Labor’s payoff to the teacher unions, the Gonski package — which, in short, throws up a huge pool of additional education funding with no caveats insofar as educational outcomes are concerned — should have been the next. Putting an $8 billion pool of money in front of education unions which will do no more than fund annual pay rises for teachers is foolhardy, and when the same teachers are turning out illiterate kids doesn’t even address the problem it claims to resource schools to resolve.
Certainly, family tax benefits and the like should not be immune; I’m a dad of two little kids and it would hurt my family as much as the next guy’s. But I accept the idea of spreading the sacrifice, and a few dollars less each week seems a reasonable ask.
But not — not — by taking them out of my pay just to fund the kind of extravagances, with price tags running into the tens of billions of dollars, that are set to escape the cull.
I’ve suggested before that the First Home Buyers’ Scheme is past its use-by date: the cost of housing is now so ridiculously inflated that the handout this program offers won’t help a First Home Buyer to buy anything. The historical effects of this very program are partly to blame for this. Yet it still accounts for about $4 billion every year in government outlays. It is time to scrap it.
In fact — from the top of the tree with the NDIS, down through every level of government and encompassing handouts huge, middling and petty (like the one we looked at last year) — there is an awful lot of money gushing like a torrent out of Treasury coffers that shouldn’t be spent at all. The targets for Abbott and Treasurer Joe Hockey to slash at are plentiful indeed.
Abbott and Hockey are axing, rightly, billions of dollars in allegedly Green spending that the carbon tax was to fund; yet another brown Labor paper bag full of money, this time to buy off the
Communist Party Greens. The programs should go: all they are, as a British political figure recently described such measures, is “green bullshit” that forces up the cost of essential services.
But it is one expenditure cut that has been confirmed amid a mountain of others that should have been as high on the list, if not higher, that will be left untouched.
In that context, raising income tax to pay for them is unjustifiable. It is inexcusable. And any conservative government advocating income tax hikes before all available options for spending cuts have been exhausted is, quite frankly, pandering to the wrong constituency.
I hope this dumb measure is abandoned, and quickly.
Because if it isn’t, this will be the issue that costs Abbott government: not after multiple terms in office, but in 2016.
I am amazed that a government led by such an intelligent individual, surrounded by a competent team of ministers and having won office in the backwash of perhaps the most incompetent government in the country’s history, could be so appallingly stupid as to even contemplate the gamble with its very existence the “deficit tax” represents.
The budget shortly due to be delivered by Joe Hockey ought to be the proof of this government’s economic management credentials, and it should — in the ordinary course of events — lead to a trim, tight ship based on lower taxes and lower — properly and efficiently targeted — government spending.
If it includes the “deficit tax,” it could well prove instead to be the government’s suicide note.
It doesn’t matter what you cut: someone, somewhere, is going to be pissed off — and very noisily so. But the Abbott government has a mandate to “eliminate waste and get government spending under control.”
It does not have a mandate for this.
Abbott and Hockey should unilaterally rule out a “deficit tax” once and for all, and get back to cutting out the kind of programs that should never have been legislated in the first place.