As an exercise in media management, Scott Morrison’s 2018 budget was quite the success.
For example, the Sydney Morning Herald’s front page lead story is headlined: Ready, steady, vote – Coalition target middle Australia with radical $140b tax relief plan.
That’s wrong. Oh, the Coalition’s rhetoric is targeting middle Australia but the radical tax reform is not. It’s aimed at the top 25 per cent of taxpayers. And therein lies more than a touch of the Trump
Donald Trump’s unlikely success has come from playing to his base rather than the majority. He could succeed with that in the US thanks to the electoral college system, voluntary voting and other hurdles on a November Tuesday, plus the bizarre nature of that Bible-and-rifle base.
It’s harder in Australia, but the budget makes clear Mr Morrison’s first job was to lock in the Coalition’s base with the promise of juicy tax cuts down the track.
It’s an appeal to the self-interest of those with taxable income that’s a multiple of the median Australian’s. It has the psychological hook of a tax rate for serious income earners of only about a third of the marginal dollar, compared with the “nearly half” we now tend to think.
The median taxable income is running at about $48,000. The radical flattening of our progressive tax system takes off at taxable income of $87,000. As previously explained, the “middle Australia tax cut” is a con.
The SMH’s own graph illustrates where the serious money goes. The 75 per cent with a taxable income of $87,000 and below will get up to $540 off their tax from 2019. It’s the 25 per cent with more than $87,000 that get the real money.
For those with taxable income of $200,000 and more, it’s a tax cut of $2025 in 2022 and $7225 in 2024. And that, of course, is after negative gearing, superannuation, fringe benefits tax and whatever other deductions might be available. Nice for some.
By comparison, Labor is promising to curtail negative gearing and the capital gains tax discount. Yes, an important part of the Coalition’s base has been locked in.
The other important part of that base – better-off retirees – has been corralled for the Coalition by Labor. Already skewing conservative, partially and fully self-funded retirees have been locked in by the hash Labor made of scrapping franking credits cash payments to those not paying tax. Nothing like announcing a policy without first building the case and then back-tracking in different directions to look like amateurs.
It’s telling that the only effort Mr Morrison made to alleviate the worst marginal tax rates – those on various social security payments looking to work more – was for aged pensioners. Base secured – move to next target.
So the budget was Trumpian. The interesting question as we move into election mode (a spring offensive perhaps?) is how much more than the base is needed?
(If Treasury’s forecasts for wages growth and inflation start looking more likely than the Reserve Bank’s in the run up to Christmas, the RBA will have to begin preparing the public for interest rate increases sooner rather than later. Leaving the election until 2019 would increase the risk, something our infamously indebted households might not feel warmly about.)
Speaking on a KPMG-Australian British Chamber of Commerce breakfast panel I hosted, non-executive director Ming Long suggested there must be another shoe to drop, that the election campaign proper will bring further promises.
On the same panel, Infrastructure NSW chairman, Graham Bradley, wondered something similar about infrastructure. Contrary to the government’s rhetoric, federal spending on infrastructure has actually been cut.
The rolling “$75 billion over 10 years” is another con – and that’s while kicking the can down the road of having to write off a large whack of the NBN and perhaps Barnaby Joyce’s pet Inland Rail.
While naturally welcoming infrastructure investment, Bradley was scathing about the quality of the spend as well as regretting its shrinkage. It’s the usual story – politicians charging ahead for political rather than economic reasons.
Some of the government’s announced projects are low on Infrastructure NSW’s priority list. The new $155 million Shoalhaven Bridge Malcolm Turnbull announced last week isn’t on the list at all. It must be purely coincidental that the Prime Minister would get involved in local bridge building and that the encompassing seat of Gilmore is considered marginal.
Standby then for more promises. The tax reductions versus tax increases battle lines are clearly drawn with Labor yet to show where its tax cuts will fall.
The problem with moving early though is how quickly cuts can be forgotten. Who remembers ScoMo has already given us a sort-of tax cut by dropping the Medicare levy increase? And if the 2019 $530/$540 annual cut is passed by Parliament before July 1, will care about $10 a week they are yet to receive?
Donald Trump has it easier.