The real Budget will come in May next year. Today’s Budget (or mini-Budget as they are usually called when they come outside the usual annual cycle) is likely to be a bit of tweaking after a change of Government.
The main reset will be to ditch a lot of Coalition spending promises – if you like, rorts, mainly National Party requests as the price for not opposing the net-zero carbon promise. It is a straight-forward task with little or no electoral cost because the rorts were one of the main reasons the electorate voted the Government out.
But Labor is still unnecessarily haunted by its losses in 2013 and 2019 and the role a broken promise on carbon tax played in the former and a promise to end a raft of tax concessions in the other.
The myth is that meddling with tax invites political peril. The myth includes the way John Howard lost the popular vote and almost lost government in 1998 after promising the GST.
It is a wrong reading of history. A better reading is that tax was just a factor in those elections. Another equally important factor was how the electorate saw the leaders. Howard, who kept his “core” promises implying there were “non-core” promises that need not be kept, was seen as mean and tricky. But he later recovered.
Julia Gillard was seen as the person who toppled a popular Prime Minister in his first term and did not get a fair chance to recover. And Bill Shorten, for whatever reason, was just disliked by the electorate.
Howard’s recovery and Bob Hawke’s success are better lessons. If the electorate sees a leader doing the big policy items and they like the change of direction, they will be forgiving.
So far, Labor is looking at the big picture but it seems as if a sizeable group are still far too obsessed with what they think will be a backlash for breaking its luke-warm election promise to go ahead with the Stage 3 tax cuts which heavily favour those on higher incomes.
But the reasoning is wrong. Surely, if voters were so in favour of the Stage 3 tax cuts, they would have returned Morrison, the architect of and true believer in those cuts. That they did not suggests a backlash is unlikely.
The more compelling questions are; why did the Morrison Government lose? And what if the tax cuts are not scrapped?
When you look at why the Government lost (and the election was more about the Coalition losing than Labor winning) the telling point is that changes of government occur not because of electors choosing between competing lists of promises, but a desire for a whole change of direction.
The Coalition had long lists of promises from large tax cuts for high-income earners through to numerous small-scale promises for sports grounds, park benches, dams, roads to nowhere, National Party wish lists and so on.
The electorate was not listening. Its attention was on what had been done – or, more importantly, not done – in the past, not what was promised for the future.
The electorate wanted a shift from low tax, austerity, small government, deregulation, privatisation, do-nothing government, and government spending and revenue geared to favourites and donors. They wanted a government that takes a broad view on deficiencies and what is not working and sees its job as working to fix them – even if that means spending more public money. That was the mood on 21 May.
So, the next question is what happens if the tax cuts are not scrapped? They would then have to be funded by new debt; delay in paying down existing debt; or less spending on fixing things that the Coalition left in a mess: aged care, child care, hospitals, schools, housing, unemployment benefits, and so on.
If those things do not improve, the electoral backlash will be worse than abandoning tax cuts.
Among developed countries Australia is a low-tax country. Our tax take is around 24 per cent of GDP. Many other developed countries go as high as 35 per cent, and their education, health and income-support systems are much better, providing greater security for more people and saving them the costs of private health and education because the public system is so good.
Perhaps by the time of next May’s Budget that message will have sunk in.
Treasurer Jim Chalmers gets it. He rightly points out that the Coalition’s promise not to take more than 23.9 per cent of GDP in tax was a figure “plucked from the air”.
The new Government has to reject the old political mantra: “You broke a promise last time so how can we rely on your promises this time”. The electorate is no longer interested in promises about the future and won’t vote according to those lists. Rather they will vote on past performance or lack of it, as the 2022 election showed.
And to improve government performance you need more revenue which means a fairer, more efficient tax system.
The list is pretty obvious. Resources, carbon emissions, and consumption should be taxed more. The concessions should be revised on superannuation, negative gearing, capital gains, dividend imputation and fossil fuels. Property taxes should move to annual land taxes to replace stamp duty and transport tax should move from fuel and registration to road use (when, where and how far you travel). Payroll tax should be axed, replaced by higher taxes elsewhere.
These changes will not be easy. They will take time to be explained because the reasons for changes are complex and politicians can no longer credibly say, “Trust us and we will fix it.”
That is why today’s Budget will most likely be a “mini” one and next May’s will be the real thing. But in the long term, without the revenue, government performance will falter and the backlash will be predictably severe.
This article first appeared in The Canberra Times and other Australian media on 25 October 2022.
Crispin Hull BA, LLB (Hons) | Property Convenor | ANU School of Legal Practice Lawyer of the Supreme Court of the ACT, on the Register of Practitioners kept by the High Court of Australia