OPINION | Economic stability under threat by messy election promises
The first few months of 2019 will be a dangerous time economically in Australia.
A Government on the ropes will be out to buy votes and an Opposition sacred of blowing it at the last minute will be almost forced to match every bribe.
And economically it is a bad time to pour money into voters’ pockets because the economy is going along reasonably well and does not need any stimulus.
A further difficulty is that any new spending in the form of tax breaks will be very difficult to reverse. Once you give voters lollies, it is very hard to take them away.
Former Treasurer Peter Costello once said that the best savings measures a Treasurer can make is not to launch a spending program in the first place. He was talking about Labor’s National Disability Insurance Scheme. But his homily applies equally to tax breaks, perhaps more so because at least the NDIS has some moral under-pinning.
Some of the richly undeserved tax breaks the Howard-Costello Governments handed to superannuation accounts and self-funded retirees have been notoriously difficult to unwind, such as the cash tax rebate for franked share dividends to people who are paying no tax in the first place. The scheme should never have been introduced – the idea of a tax deduction for people paying no tax is laughable.
Other Howard-Costello tax breaks (notably halving the capital gains tax) and inefficient spending on private health and private education are so ingrained that the likely voter backlash is preventing any sensible reversal.
The Howard Government squandered far too much of the mining boom on vote buying.
It is frightening that the Morrison Government now has nearly $10 billion in uncommitted and unexpected windfall tax receipts. These have come in as companies’ deductions for losses carried over from the global financial crisis wash through the system.
That money should not be blown away on voter bribes. But I suppose the best we can hope for is that the bribes are not permanently embedded, but temporary one-off hand-outs.
That said, evidence is coming in that the reversal of foolish election-time hand-outs is not as difficult as previously thought.
For example, Labor has promised to partially or fully reverse the Coalition’s freebies on capital-gains tax; negative gearing and the cash rebate for franked dividends paid to untaxed or low-tax people.
Standard political thinking is that this would cost Labor votes among those most affected, typically Australians over 50.
However, this week’s Newspoll suggests that this is not happening.
Prime Minister Scott Morrison and his Treasurer, Josh Frydenberg, have been hammering Labor over its promise to end the franked-dividend freebie for months. They have called it the “retirees’ tax”.
Alas for the Coalition, the retirees are not listening. The poll has 45 per cent of people over 50 disapproving of Morrison’s performance, a steady decline since last October.
Support for the Coalition among those over 50 has been steadily declining from 50 per cent at the 2016 poll to 44 per cent in July, 41 per cent in August and a further point lower at the latest poll.
Perhaps the over-50s are not as selfishly attached to their hip-pocket nerves as the political class imagines.
The self-imposed shyness by politicians on both sides to do anything which leaves anyone worse off seems misplaced.
A better view might be that a lot of voters do not mind governments raising some extra revenue provided it is done fairly and the money goes to worthwhile things, particularly public health and public education.
But that has not happened for decades.
The hallmark of the Howard years was tax concessions to the well-off or the grey vote. The hallmark of the Abbott years was unfair cuts on those who could least afford it. The hallmark of the Turnbull years was tax cuts for the big end of town and an inexcusable flattening of the income tax regime so that someone on $37,000 is on the same marginal tax rate as someone on $89,000.
Meanwhile, wages stagnate and inequality rises.
The French economist Thomas Picketty has shown that inequality is bad for a nation’s economic performance overall, especially when it gets extreme. And it affects social cohesion. We are not there yet but we are heading that way.
Only governments have the power to do a bit of redistribution.
So how do we deal with this vast legacy of tax escapes for the wealthy – superannuation, capital gains, negative gearing, no GST on private health and private education spending, and so on – and the consequent build up of wealth for the fortunate few, especially through the housing boom?
Well, it will be politically difficult to unpick it bit by bit, because each unpicking would still invite a storm of protest.
However, when you look at where all this wealth ends up, there is an obvious single-hit way of clawing some of the wealth back for broad public purposes – an inheritance and gift tax for estates above, say, $5 million indexed.
Australia is one of the very few developed countries in the world without inheritance taxes.
Queensland abolished them in the 1970s and the other states and the Commonwealth quickly followed. No government has shown any inclination to wind back this largesse.
However, if a government pledged to spend everything raised on, say, affordable housing, schools, hospitals or roads, it might get a bit of support.
The case for restoring inheritance taxes gets stronger as time passes. In the 1970s, when they were abolished, everyone had a reasonable prospect of owning their own home. These days luck of birth counts for much more than hard work in the housing market.
An inheritance tax would go some way to changing that.
Once one state started, the others would inevitably follow and some of the tide of inequality would be reversed.
Meanwhile, in the next few months we will see whether a Government can irresponsibly try to buy an election and lock the Opposition in to the same irresponsibility, or whether one or both sides opts for more fairness and economic good sense.
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