19 March 2016
by Paul Bongiorno
The Wreck of the Desperates
Treasurer Scott Morrison stalling on tax talk
Friends of Scott Morrison call him “ScoMo”. It’s a nickname he enjoys. On Monday, though, the opposition decided to dub the treasurer of the six-month-old Turnbull government “SloMo”. It was an effective taunt, aimed at his failure so far to produce a tax plan. By the end of the week, he was looking not just like a man in slow motion but a man crashing a train in slow motion. Among the debris was practically everything he’s argued for since taking the job.
At a business forum in Melbourne Morrison appeared to recalibrate his mindset on income tax relief. Sure, it’s still an aspiration; but it can only be delivered by spending restraint. That’s code for swingeing cuts if anything meaningful is going to be delivered. In the third year of a term, with an election looming, that’s not a smart idea. But wait: he has found another way to get there. “The best way to drive income tax cuts ultimately is off growth, so our focus is very much on – let’s drive the growth,” he said. And the best way to drive growth is to encourage business investment and deliver business tax cuts.
Why would a treasurer invest so much time and capital softening up the electorate for big tax changes only to ditch them, not once but three times?
It is not hard to see the hand of the new head of the prime minister’s department, Martin Parkinson, in all of this. He was the architect of the politically unsaleable 2014 budget, and is a champion of the treasury line on cutting company taxes as a boost to jobs and growth. Former Labor treasurer Wayne Swan admits he bought this argument when he tried to cut the company tax rate by 2 per cent. A measure then torpedoed by the Liberals.
Swan now says even the Business Council of Australia’s modelling noted that the full benefits of the company tax cut would take 20 years to flow through. But, more to the point, the push to cut the company rate ignores two huge realities. Multinational corporations aren’t paying much if any Australian tax at all. It leaves the budget an estimated $11 billion short. And most Australian corporates are already paying less than 25 cents in the dollar. As Swan says now: “The case for a cut is absurd.”
Morrison clearly prefers treasury’s arguments. So where does that leave ScoMo’s “aspiration” and oft-stated “passion” for income tax relief? It puts it on the long finger, the very long finger: “It has to be done, as I said at the end, budget after budget after budget, and I think if there’s an expectation that every single one of those boxes are able to be ticked in one budget, I think that’s unrealistic.”
The real problem here is the government’s hopeless management of expectations. Why would a treasurer invest so much time and capital softening up the electorate for big tax changes only to ditch them, not once but three times?
Right up until the GST increase was put in the freezer – nobody really believes it is “dead, buried and cremated” – he was on a crusade against bracket creep. That’s the invisible tax fuelled by inflation whose evils he once waxed lyrical about. In fact, even after the shelving of the ambitious 15 per cent GST, he had not given up the idea of relief. The difference then was that it would be only modest rather than significant.
His passion, he used to say, was driven by the linkage between income tax cuts and economic growth. He told Sky Agenda in January that nobody thinks of compensating the 300,000 taxpayers who will be forced into the second-highest tax bracket in the next two years. He went on: “Well, I do, and I’m quite passionate about it, because I think that’s one of the things that is holding the Australian economy back.”
The confusion is a gift for Labor, and it has been seized with aplomb. Shadow treasurer Chris Bowen, whose performance is a big thorn in the government’s side, confronted Morrison in parliament about it. “The treasurer has said the government wanted to deliver, and I quote, ‘large personal income tax cuts, significant personal income tax cuts, big income tax cuts, very big income tax cuts and bigger income tax cuts’. Treasurer, what happened?” The answer hid the fact that he had been rolled. Morrison said: “We made judgements which we believed were in the best interests of economic management.”
If you can believe the behind-the-hand briefings being given to some economic writers, the treasurer would still like to offer even a small personal income tax cut in his budget or tax statement. But there is confusion over that, too. One senior cabinet minister, Mitch Fifield, thinks there will be a tax statement before the budget; the treasurer and prime minister have said it will be in the scheduled May event.
Of course, economic reality is biting. Just like the Abbott–Hockey team, which railed against big-taxing Labor governments only to whack up taxes by $20 billion in their first budget, the Turnbull–Morrison duet is also looking for help on the revenue side. This is sensible, but it takes considerable chutzpah to spend months bagging Labor for raising taxes on tobacco and daring to touch superannuation only to flag that the Coalition is going down the same path.
Malcolm Turnbull had the good grace to fess up that in opposition he suggested raising tobacco excise. He told parliament: “Everybody agrees that it’s a tax that people should avoid by not smoking.” And he said: “It is a revenue-raising measure so I suppose in that sense it will generate revenue for the government.”
Morrison found it hard to be that upfront. After confirming the way the tax incentives for retirement savings are structured will “no doubt be part of the changes”, he couldn’t bring himself to admit this is actually aimed at boosting the bottom line. “It’s not about revenue raising,” he said. “It’s not about higher taxes to fund higher spending. It’s about a better retirement incomes system.”
Another upshot of the tax pasticcio – an elegant Italian word for an inelegant mess – is that his side now owns two of Tony Abbott’s five Labor taxes. There is the “workers’ tax” – his characterisation of a hike on cigarettes. And also the “seniors’ tax” – his description for Labor’s super reforms. Bill Shorten welcomed the government’s change of heart: “It was inevitable they were going to have to take some of Labor’s ideas. Now, they’re good ideas, so I can’t complain when people imitate us. They say that imitation is the sincerest form of flattery.”
It’s not the dream run to an election Malcolm Turnbull and his supporters had banked on. But there is still confidence in the ranks that the Coalition will hold government whenever the election is had. That last point, of course, is the big guessing game consuming Capital Hill. An indication that the mood is very febrile is not only the circus in the senate this week, as Labor filibustered in a vain attempt to derail the Green–Liberal alliance on senate voting reform, but also the jumpiness evident in many preparing to face the people.
Midweek, something akin to panic gripped some as the prime minister called an unscheduled party room meeting at short notice. One Liberal MP wondered if Turnbull was going to blow a whistle on the increasingly untidy game. Another thought it would probably be a good idea if he did. In the end it was to put as fine a gloss as he could on the outcome of a very heated cabinet meeting that gave the Nationals a big win.
New deputy prime minister Barnaby Joyce succeeded where former Liberal small business minister Bruce Billson failed in the long-resisted “effects test”, which will give the consumer watchdog and small business a new weapon against big companies doing things that reduce competition. Its benefits and workability are highly contentious. Turnbull himself argued against it last year when Billson brought it to cabinet. The Nats’ success with it looked like a bit of peace buying in an election year.
At the news conference to announce the policy, Turnbull was asked if the legislation would be brought in before or after the July double dissolution. He didn’t rise to the bait, nor did he kill off the prospect. He said election speculation and budget speculation are traditional parts of our political process and they will be resolved.
But there are signs that bringing on a July 2 election might be getting just too hard. For constitutional reasons, the last date on which an election of both houses of the parliament can be called is May 11, the day after the budget. Not necessarily enough time to get a supply bill through both houses of the parliament, especially as Labor and the Greens and most of the crossbench are not of a mind to bring back the senate a week earlier to accommodate this timetable.
But the manager of government business in the senate, Mitch Fifield, didn’t dismiss the thought that Turnbull might make a run for it anyway. He told the ABC: “Look, I can’t talk to things I don’t know. I can only talk to things that I do know, and what I know is that the budget is on the 10th of May.” In parliament, Scott Morrison was also unequivocal about the May 10 date.
On those numbers, he’s got seven weeks to retrieve something from the wreckage