CONTRIBUTIONS TODAY in the Murdoch press by former Treasurer Peter Costello highlight the bind the Abbott government finds itself in with a tricky federal budget looming, and the degree to which it has surrendered the debate to economic vandals in the ALP and the
Communist Party Greens, who block most constructive measures in the Senate. Treasurer Joe Hockey has a tough but clear path to walk. Whether he does remains to be seen.
Today’s article is aimed at sharing two items from Sydney’s Daily Telegraph — an op-ed piece by Howard government Treasurer Peter Costello, and the paper’s editorialisation of his argument — to highlight what ought to be a no-brainer for a responsibly calibrated government (and especially one moulded by liberal and conservative thought) in contrast to the high tax mentality that underpinned current Treasurer Joe Hockey’s loathsome 2014 federal budget.
The old adage that “no nation ever taxed its way to prosperity” seems to have been honoured in the breach to date under Hockey’s approach to budget repair, relying heavily on a mixture of bracket creep, additional income tax slugs aimed at the core Coalition voter base, and a sympathetic view of various band-aid measures such as new bank taxes, multinational taxes, a populist increase in GST from online purchases by lowering the threshold at which it applies that is uneconomical to collect, and so forth.
Add in the clamour for other taxes from those who are the enemies of both the Liberal Party and Australia’s best interests — Labor and the Greens — on superannuation, individual companies (read: their detested News Corp) and, incredibly, the besieged mining sector, and what we have is a recipe for taxing Australia into economic oblivion in the name of taxing it into economic security.
It is true that this column has, once or twice, advocated a windfall tax on banking profits (built, it must be said, on reaping obscene fees, penalties and charges from the banks’ customers) as a way of effecting redress upon the budget deficit.
But that advocacy, made with no enthusiasm whatsoever, was born of sheer frustration with the inability of governments — first led by Julia Gillard and now, it seems, stewarded by a Liberal Treasurer apparently bent on perpetuating the “tax as salvation” myth — to find the appetite for serious structural reform of Australia’s tax base, and to build on and expand the foundations of an efficient and simple tax regime as laid down by Costello over 12 successful federal budgets between 1996 and 2007.
The idea that taxes that are as broad as possible and levied at relatively low rates is counter-intuitive only if it is accepted that businesses will pocket profits rather than hire people if their taxes are cut, and the proof that such a conclusion (even now, 40 years after it first gained prominence) is wrong can be seen in the “Thatcher miracle,” the “Reagan miracle,” and everywhere else so-called supply-side economics were implemented in the 1980s, leading to employment growth, steady rises in prosperity, and budget surpluses achieved from — surprise, surprise — rising revenues off a base of taxation measures levied at lower rates as broadly as possible.
It is refreshing of late to see that Hockey is showing signs of at least putting the GST (and possible increases to it) onto the table, for consumption taxes are an efficient and straightforward way of raising significant revenues to enable the business of government to be carried out.
Based on his track record, however — and the woefully inept record of the Abbott government to date in selling anything — it is doubtful this conversation will progress very far.
Instead, great attention is being paid by the government to the favourite hobby horses of the Left — slugs to superannuation, making it harder for the self-funded to continue to pay for themselves in retirement without government handouts, and chasing multinationals to reap a windfall no Western country has, in fact, reaped to date — and this merely shows how far control of the economic debate has been surrendered by this government, and the degree of real influence the economic vandals and wreckers in the ALP and the Greens still retain over a conservative administration elected, in part, to explicitly end such madness, not perpetuate it.
Remember, too, that both Labor and the Greens are pledged to the reintroduction of carbon and mining taxes as soon s they are restored to office.
Even extending the current GST at its present rate to cover everything except healthcare spending (remembering that at present it applies to just 48% of all goods and services in Australia) would be enough to fund offsetting increases to pensions (thus insulating the less well off from its effects) and to enact modest cuts in income and company taxes, and without the complicated fancies being bandied about for new and inefficient taxes.
Doubling the GST, to 20%, would enable benefits for the needy to by increases further, alongside a program of slashing other taxes rather than raising them.
But I think Hockey — were he truly ambitious — ought to contemplate going further again, with an even greater program of cuts to personal income and company taxes sitting alongside a broadening and lifting of the GST.
The experience of such a program of tax realignment internationally has been that businesses — far from simply banking fatter profits — will hire a lot more people, simultaneously cutting welfare expenditure and increasing PAYE tax collections; those employees would obviously spend more on goods and services, increasing GST revenues, and the collective impact of these measures would be an overall increase in government revenues from a regime that imposes lower rates of taxation generally.
Yet the flat Earth proposition put by the Left — that only higher taxes can fix the criminal negligence inflicted on Australia’s finances by its own hand when last in office — is doggerel.
If Hockey took the road less travelled (in Australia) of far broader but overall lower taxes, he would provide the Abbott government with a powerful point of difference, and a compelling proposition to sell electorally.
He would also be able to equip the Liberal Party with a series of double dissolution triggers based around tax cuts (the compulsory Labor scare of a GST rise notwithstanding) as the package is inevitably blocked by an opportunistic Senate, controlled by Labor with the Greens, and bent on obstructing their way back into office so they can get on with the job of taxing Australia into economic irrelevance.
And the end destinations of this process?
On the one hand, a double dissolution election based on slashing taxes, raising pensions, and a program for low tax torpedoed by Labor and the Greens. The idea of an election to confront the Left over its petulant torpedo of wholesale tax cuts is a delicious one.
On the other, capitulation: continuing down the route of higher taxes, bracket creep, the Left’s populist new taxes, and a likely electoral hiding from angry voters who rightfully feel betrayed.
I know which is the better option, and it isn’t throwing new taxes around like confetti.
Hockey should listen to Costello, confront the government’s opponents head on, and press ahead with the broader, lower, more efficient tax plan that would boost economic activity and — crucially — fill the government’s coffers by increasing the size of the economic pie, not taxing it into disincentive and disrepair.