29 January 2016
by Phillip Coorey

Labor's big spending versus Coalition's tax overhaul

The federal election has begun as a race between big-spending social policy and a tax overhaul, after federal Labor put education on the agenda with a promise of an extra $4.5 billion for schools by the end of the decade.

As cabinet met to discuss increasing the GST to 15 per cent to fund income tax cuts, Opposition Leader Bill Shorten said Labor would honour fully the Gonski school-funding package it implemented when last in office.

The states that signed on to the needs-based funding model devised by businessman David Gonski – NSW, Victoria, the ACT, South Australia and Tasmania – would have the full six-year funding deal honoured.

It would cost an extra $4.5 billion in 2018 and 2019 and take to $37 billion the cost of school funding over the decade. The other states could negotiate a deal if they so chose.

When the Abbott government won office in 2013 it promised to honour just the first four years of Gonski, arguing that there was no money in the budget beyond that.

While the Turnbull government accused Mr Shorten on Thursday of policy that would drive the budget deficit even higher, Mr Shorten said the extra money would come from tax increases Labor has already promised.

Hike in tax
These include a hike in tobacco excise, budgeted to raise $47.7 billion over 10 years, superannuation tax changes budgeted to raise $14 billion over the same period, and a clampdown on multinational tax avoidance that Labor says will raise $1.9 billion over four years. Labor has vowed to scrap the government's promised $1000 baby bonus for couples with a stay-at-home parent.

"We do believe of course in fiscal responsibility. But what I get is that life doesn't boil down to this sort of bleak choice, where Malcolm Turnbull, Scott Morrison and the Liberal team say, 'If you want any improvements in your education or hospitals you have to have a 15 per cent GST'," Mr Shorten said.

"Today is also a shot across the bows of the federal government's absolute hunger to put a 15 per cent tax on the price of everything. We can properly fund our schools without making the cost of living an intolerable burden for middle-class and working-class people in this country."

The federal government, which is contemplating increasing the GST from 10 per cent to 15 per cent and applying it to the existing base, will not use any extra revenue for school and hospital funding.

Treasurer Scott Morrison has said repeatedly that all extra revenue would be used to fund compensation for low- and middle-income earners and cuts to personal and company income tax. The aim is to ensure no overall increase in the tax take but make the tax system more productive and generate growth and revenue.

There was a warning for all parties on Thursday regarding spending promises, when new figures suggested Australia's terms of trade is falling faster than the government forecast in its budget update just six weeks ago, raising the spectre of further multibillion-dollar revenue write-downs that would delay the return to surplus yet again.

Terms of trade down
A rout in global commodity prices led by iron ore, coal and liquefied natural gas led to an acceleration during the December quarter of a five-year plunge in the terms of trade, which is now about half its 2011 peak and at a decade low.

The collapse puts renewed pressure on Mr Morrison to find a solution to Australia's entrenched fiscal woes, with December's mid-year fiscal and economic outlook, or MYEFO, projecting a dozen consecutive years of deficit by early next decade.

Education Minister Simon Birmingham did not rule out matching Labor's funding promise but said the government would consult the states before handing over more money.

"Labor continued to make the same kinds of mistakes in relation to education policy that they've made in the past – a belief that just spending more automatically improves educational outcomes and student outcomes," he said.

"We know for a fact that that is not the case. Since 1987-1988, we've seen across Australia real growth in total government spending on education in the order of more than 100 per cent. And yet, in that time our results in international rankings on literacy and numeracy have gone back in both real and relative terms."

End nasty split
Labor hopes the funding promise will end a nasty split developing between federal MPs and South Australian Labor Premier Jay Weatherill and NSW Opposition Leader Luke Foley, who support a GST increase to help fill the school and hospital funding gap.

On Wednesday, shadow treasurer Chris Bowen assured Mr Weatherill and Mr Foley that when they saw Labor's policy they would be assured that the areas could be funded without resorting to a GST increase.

The push by Mr Shorten is an early play to deal himself and Labor back into the game, after the change from Mr Abbott to Malcolm Turnbull put the opposition behind in the polls.

In a Twitter message heralding the policy launch, Mr Shorten said it would be the largest boost for school funding in two generations.

The policy includes a goal of a 95 per cent completion rate for year 12 by 2020 and by 2025 returning Australia to the world's top five nations in terms of reading, maths and science.

There will also be an extra $320 million over three years from 2017 to support children with disabilities.