Federal Election: A Paltry Policy Battleground

Written by:
11 January 2019
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With this year’s federal election now only a few months away, the main themes of the Liberals’ campaign are becoming clear.

The Liberals will spend a lot of time talking about Labor’s policies on two particular issues – border protection and taxes.

It’s says a great deal about the Liberals’ policy development processes (or lack thereof) that after more than five years in power they’re left with basically just those two things to campaign on. The Liberals are terrified to talk about industrial relations, they don’t have an energy policy and on questions of values such as freedom of speech and freedom of religion they can’t agree among themselves on a position.

Meanwhile, the two big social policy initiatives pursued by the Liberals, namely significant increases in funding for education and disability services were instituted by the Labor Party as the “Gonski” reforms and the National Disability Insurance Scheme.

The Liberals are likely to have more political success talking about border protection than taxes. The Coalition has shut 19 immigration detention centres and there are approximately 1300 people in detention. In July 2013 there were 10,000 people in detention.

The differences between Liberal and Labor are less obvious when it comes to taxes.

Over their five years in office the Liberals have increased existing taxes and introduced their own new taxes – which is exactly what Labor plans to do too.

Liberals are frustrated

The sense of frustration among Liberals that they appear to be gaining little electoral advantage from Labor’s proposals to further increase taxes might have something to do with the fact that it was the Liberals who first started down the road to higher taxes when they introduced the so-called “deficit levy”, which increased the top personal income tax rate (including the Medicare Levy) to 49 per cent.

Since then, of course, the Liberals have increased the rate of tax on superannuation savings (in the process breaking an explicit election promise), introduced the bank tax and abolished the GST-free threshold on imported low value goods.

The Liberals have been reduced to trying to convince voters that when they raise taxes it’s necessary and it’s good policy, but when Labor raises taxes it’s unnecessary and is bad policy. It’s certainly true that Labor’s plans to restrict negative gearing, increase capital gains taxes and eliminate cash rebates for dividend imputation credits are of a different nature to the kind of tax increase pursued by the Liberals, and have potentially far-reaching consequences, but it is still the case Labor is merely following down a road a first trod by the Liberals.

Treasurer Josh Frydenberg is correct to point that if a future Labor government reintroduces an increase in the top rate of personal income tax to 49 per cent, Australia’s top marginal rate will be among the highest in the world and it will cut in compared to other countries at a relatively small multiple of average weekly earnings – 2.2 times.

The trouble is, it was the Liberals who raised the top marginal rate of personal income tax to 49 per cent in in 2014 as a temporary “deficit levy”. Before that the last time the highest marginal rate of personal income tax was 49 per cent was in 1988.

As yet neither the Liberals nor Labor have talked about taking the top marginal rate back to 60 per cent, which is what it was when Bob Hawke became prime minister after Malcolm Fraser. Perhaps Australian taxpayers should be thankful for small mercies.

The Liberals’ tax problem is part of a bigger challenge they’ll have in prosecuting their economic case. For example, the government is fond of saying that since it was elected more than 1.2 million jobs have been created. But as was reported on Tuesday, nearly all of the jobs growth in 2018 was in the public sector. Over the year government jobs increased by 300,000 while the number of people employed in the private sector fell by 93,000.

At the next federal election the Labor Party is promising higher taxes and more government – which is not very different from the Liberal’s track record since 2013.

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