When Left and Right ensure the centre cannot hold

Advertising a horse race on the Opera House sails, described by Scott Morrison as Sydney's "biggest billboard". What's next? The Emirates Harbour Bridge? Such a pity the traditional owners of Uluru didn't think of it first: they could have arranged lasers beaming Hard Rock Hotels and Casinos at every evening's sunset. If it's good for the economy it's good for the people, according to the Prime Minister and Premier Berejiklian, supported by the Labor opposition.

For the Right, so completely has the commercial world penetrated society that the economy and society are now, for all intents and purposes, one and the same. Yet for the Left, markets are wicked, competition is evil, the economy is society's enemy.

Those of us who, in the 1980s and early 1990s viewed an open, competitive economy as an enabler of social progress, but not a measure of it, are nowadays considered heartless neo-liberals by Australia's Left, and bleeding hearts by the Right. Bob Hawke and Paul Keating, who anticipated the Asian Century and tore down Australia's protectionist tariff barriers to enable us to compete for the jobs and prosperity it offered, would be pilloried by the Left for exposing the Australian economy to the vagaries of the market if they did it today.

They would be condemned just as vigorously by the Right for closing down tax shelters, as they did in 1985 by introducing the capital gains tax, fringe benefits tax and substantiation rules for motor vehicle usage. The Liberals, with the support of the conservative media, hysterically oppose Labor's policies to curtail negative gearing and capital gains tax concessions, limit the use of family trusts as a tax minimisation device and pull back dividend imputation cash refunds which ensure that, on those dividends, neither company tax nor personal tax is paid.

Gone are the days of Hawke and Keating when the accepted wisdom in tax design was to broaden the base to lower the rates. Liberals are happy to keep big holes in the tax base, because despite self-serving claims that low-income earners rely on them, it is their wealthy supporters who mainly use them.

It is true that while broadening the tax base Labor is not promising to use the proceeds to lower the rates. By strongly supporting Medicare, school funding, the National Disability Insurance Scheme, defence spending and keeping the pensionable age where it is, the Australian public has indicated it is willing to pay a little more in tax to keep these services intact.

But the fiscal imperative now is not to splurge the proceeds of a temporary rebound in commodity prices on permanent tax cuts or on big new spending programs. Rather, it is to build a fiscal arsenal to cushion the blow from the coming global recession.

With the Reserve Bank cash rate at its lowest-ever level, and the federal government continuously running budget deficits or at best wafer-thin surpluses, Australia lacks the ammunition to deal with the shock of an overseas-induced recession.

US bond markets are already factoring in the looming crisis, forcing up bond yields, and the US Federal Reserve will continue hiking official interest rates to attract foreign funds to finance the Trump administration's burgeoning budget deficits. A decade of unprecedented quantitative easing following the great crash of 2009 has led to a massive accumulation of global debt. The coming crisis could be worse than that of 2009 and policymakers will be bereft of tools to deal with it, other than through printing banknotes and distributing them directly to households as helicopter money.

The only responsible Australian fiscal policy in anticipation of the looming crisis is to pay off debt more quickly by delivering bigger budget surpluses earlier – not bigger projected surpluses but bigger actual surpluses.

Labor's shadow treasurer, Chris Bowen, has announced base-broadening tax policies that would enable Labor to achieve bigger surpluses than the Coalition. He has the backing of Opposition Leader Bill Shorten.

In the late 1980s the Hawke-Keating government reduced government spending as a share of the economy to levels well below anything achieved or officially projected by the Coalition government that has been in power since 2013. Today's Australia's Left would condemn such restraint as brutal "austerity".

While Left and Right slog it out, the only prudent course for a responsible federal government is to repair the tax base, bring the budget back to surplus quickly, pay down debt as fast as possible and protect Australia against the coming global recession. If all that fails, we could sell commercial advertising slots on the Opera House to the highest bidder.

Source: https://www.afr.com/opinion/columnists/afr...