The Liberals Tax Themselves Out Of Office

Written by:
5 April 2019
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If it had spent its 5½ years in government delivering budgets like the one on Tuesday, the Coalition wouldn’t be in the position it’s in. The likelihood is the Coalition will lose next month’s federal election to a Labor opposition that’s promising higher taxes, bigger government, and more regulation.

It’s a lot easier arguing against tax increases when you’re not raising taxes yourself.

The 2019 federal budget contains no program of economic reform. Promising tax cuts that are five years and two elections away isn’t reform – it’s sorcery.

But, and it’s a big but, for the Coalition to at least be talking about tax cuts rather than tax increases is progress compared to where the Coalition has been after some of its other budgets.

In the 2014 budget the Abbott government introduced the deficit levy on high-income earners. The Turnbull government in the 2016 budget introduced retrospective tax increases on superannuation, and the bank levy in the 2017 budget.

As Liberal and National MPs start to find their seats on the opposition benches after the federal election they can contemplate the fact that three of the Coalition’s six budgets have had higher taxes as their centrepiece.

Ever since it was elected in September 2013, on everything from climate change and energy policy to freedom of speech and the nation’s culture, the Coalition has been confused.

And nowhere is this confusion more obvious than in relation to budgetary and fiscal policy. As soon as the Coalition started raising taxes and stopped talking about the size of government and the extent of government debt they forfeited their brand reputation as prudent economic managers, which was their single-most important policy advantage over the Labor Party.

In retrospect, Tony Abbott and Joe Hockey’s ”budget emergency” of 2014 might have been a slight exaggeration, but not by much. Perhaps the mistake they made was calling the ”debt crisis” a few years too soon. Australia has among the fastest-growing national debt in the developed world and the interest payments on federal government debt is now $18 billion a year, which is more than is spent on things like income support for people with a disability. In 2008 the Rudd government legislated for a debt limit of $75 billion. In 2011 that limit was increased to $250 billion and in 2012 to $300 billion. In 2013 the Coalition abolished the debt limit entirely. Gross federal government debt is now approximately $560 billion.

If it goes into opposition the Coalition will have to rethink it’s entire attitude to tax.

For example, far too many Liberal MPs now talk about about tax cuts as ”government spending”.

A ”simpler” and ”flatter” tax system was once a bedrock principle of the Coalition – even if (unfortunately) it’s never committed itself to a single flat rate of personal income tax. What’s happened though in recent years is that not only has the Coalition not done anything to gradually reduce and flatten tax rates, it seems that the Coalition is now positively embracing Australia’s highly progressive income tax system.

In his budget speech on Tuesday evening, Treasurer Josh Frydenberg felt compelled to say that even after the Coalition’s tax cuts take effect in 2024 (which of course are unlikely to ever happen) – ”our tax system will remain highly progressive, with the top 5 per cent of taxpayers paying one-third of all income tax collected”. The pity is that he said it as if it was a good thing.

Frydenberg went on: ”And someone earning $200,000 [will be] paying 10 times as much tax as someone on $45,000.”

These days the Coalition talks a lot about a ”fair” tax system.

A Labor treasurer might think if you earn 4½ times as much as someone else, you pay 10 times as much tax – but a Liberal shouldn’t.

In recent years the Coalition has lost its way – on both policy and philosophy.

Or to be more precise, ever since John Howard and Peter Costello ceased to be in Parliament the Coalition hasn’t known what it has stood for.

And if you don’t know what you stand for, it’s hard to get people to vote for you.

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