AFR: Budget 2015 | We Can't Afford Perks Anymore

Like storm clouds, Budget emergencies seem to come and go with the prevailing winds. The north-westerlies typically blowing through Canberra this time of year have carried away the Budget emergency the Coalition declared in 2013, when debt was less than 12 per cent of GDP, replacing it with a breezy view that debt at 50-60 per cent of GDP would be “a pretty good result.” 

Both parties over-spent what turned out to be the temporary proceeds of the mining boom. Australia cannot afford a contest in which political parties seek to protect the privileges of the well off. The Liberals have a track record of ramping up middle-class welfare and creating tax lurks for the privileged. Neither is nobler: poking holes in the income tax base and spending more on those who don’t need it have the same negative effect on the Budget bottom line.

Ultimately the poor will pay. Interest payments on public debt will soon exceed $1 billion a month. The interest bill will be astronomical if debt is allowed to reach the 50-60 per cent of GDP the Prime Minister now considers “a pretty good result.”

Imagine what could be done with $1 billion a month. Every state community services department is chronically under-funded. As a country we accept the abomination of domestic violence and child abuse because we lack the resolve to demand that the rorts of the rich be closed down.

Whenever any rort is targeted for closure, urgers in the media and their lobby groups shriek “class envy” and “class warfare.” Morality is gone; vested interests rule.

Since releasing a tax discussion paper in April that promised to “consider every worthwhile idea,” the Abbott Government has announced that changes to superannuation tax concessions, capital gains tax concessions and negative gearing are not worthwhile ideas, taking them off the table.

The Liberal pretext for maintaining the tax rorts is that closing them down amounts to a tax increase, to which the Liberal Party is philosophically opposed. Yet the Abbott Government didn’t hesitate to reintroduce a 15 per cent superannuation contributions tax for Australia’s 3.6 million lowest-paid workers. It turns out that it’s only tax breaks for the rich that are sacrosanct.

Labor’s philosophy, founded in the Hawke-Keating era, has been to broaden the income tax base to fund reductions in marginal rates. The 1985 reforms introduced the fringe benefits tax and capital gains tax to pay for reductions in marginal rates of income tax. Opposition Leader John Howard opposed both taxes and promised to repeal them.

Labor has traditionally applied the same test of fairness to social security payments. When in 1984 the Hawke Government introduced an assets test on age pensions, Opposition Leader Andrew Peacock called it an “assault on the elderly”, promising its repeal. In 1987, the Hawke Government means-tested the Family Allowance for the first time ever. The savings went towards improving the Budget bottom line and helping fund a new payment for children in poor families.

The Rudd Government tightened means tests on family payments that Howard and Costello had eased – a decision Shadow Treasurer Hockey described as “madness”, driven by “envy” and “jealousy.” The Gillard Government reduced the Howard Government’s Baby Bonus for second and subsequent children which –having declared the end of the age of entitlement – Hockey likened to China’s one-child policy. Then Gillard and Swan scrapped the Howard-Costello Baby Bonus altogether.

Now that the Liberals have finally indicated a willingness to cut back on middle-class welfare by tightening eligibility for the age pension, Labor can reflect on its tradition of directing support to those who need it and away from those who don’t and back in this modest measure. More decisions like this will be needed on both the spending and tax concession sides to achieve long-term fiscal sustainability.

It is said that Australians are good in a crisis but when the crisis is over we go to the beach. If Canberra is unwilling to close down tax rorts for the wealthy and pare back middle-class welfare, the lifeguards will whistle us off the beach to grapple with a fully blown crisis made of our own complacency.

Craig Emerson, Managing Director of Craig Emerson Economics, is Adjunct Professor at Victoria University’s College of Business.