So who will be the recipient of a $1.86 billion tax cut the government is keeping secret?
Tucked away in the fine print of Thursday’s MYEFO statement was $1855.3 million worth of reduced revenue over four years for “decisions taken but not yet announced”.
You might wonder why the government is keeping such a gift quiet. The answer to such a question normally is “politics”.
In the broader scale of the government’s personal income tax cuts, $1.86 billion over four years is small change – but it could still be wrapped up by the PR machine to look like something sweet for, say, the coalition’s small business “base” in the run up to the May budget.
And there’s plenty of speculation that it could be an election budget to capitalise on Scott Morrison’s personal approval rating and the COVID effect favouring incumbents.
There’s also the danger that the “comeback” euphoria promoted by Treasurer Frydenberg won’t last.
Yes, Thursday’s unemployment rate and employment growth was pleasingly better than expected and the debt and deficit figures aren’t as bad as feared in the October budget, but after the immediate GDP bounce and return-to-work wears off, the vast majority of Australians are facing at least two years of stagnation and probably more.
That’s the effect of real wages shrinking and unemployment and underemployment remaining high.
It promises to be worse than what most people were living with before the COVID pandemic hit, when the Reserve Bank cut interest rates three times in 2019, pushing on their proverbial piece of string, trying unsuccessfully to stimulate the economy.
It is a great achievement that our economy didn’t tank. That’s thanks to Australia’s federation avoiding a much worse health crisis and the federal government anchoring a largely effective safety net along with the RBA’s money deluge.
But it won’t take long for voters to start taking that for granted and reflect more on the outlook for declining living standards.
That might or might not be fair, but it’s political reality. Hence the early election speculation.
Treasurer Frydenberg delivered the MYEFO with the now-usual media management of the key figures being given to newspapers on Wednesday evening and understandable spin about how well Australia was fairing compared with most of the rest of the world.
Nevertheless, Treasury’s numbers say the present surge won’t last for workers. While the headline MYEFO figures were better, the wages outlook is worse than in October’s budget, partly thanks to federal government policy to suppress wages.
In October, Treasury forecast consumer price index inflation of 1.75 per cent this financial year and wage price index growth of 1.25 per cent. Now, it’s guessing 2.25 per cent inflation and still 1.25 per cent wages growth.
For the next financial years, the CPI guess is steady at 1.5 per cent, but the wage price index growth has been lowered from 1.5 per cent to 1.25 per cent. And remember that Treasury and the RBA have a track record of being hopelessly optimistic about wages.
As has been explained on these pages many times (but very rarely, if ever, elsewhere) the impact of income tax means the take-home wages growth is worse again – living standards go backwards.
Then there’s unemployment and underemployment. There is simply no sign on the forecastable horizon of that combination coming down enough to begin to generate the wages growth and healthy inflation the nation needs.
Without it, inequality grows and consumption doesn’t grow enough to spark decent business investment.
Another $1.86 billion worth of fee or tax relief for business won’t camouflage that indefinitely.
The MYEFO fine print lists foregone revenue for those “decisions taken but not yet announced” of $126 million this financial year, rising to $452 million in 2021-22, $642 million in 2022-23 and $636 million in 2023-24.
There are other passing insights generally overlooked in the MYEFO welter. For example, these three titbits of decisions made since the October budget:
- The Office of the Special Investigator looking into the alleged SAS Afghanistan crimes doesn’t come cheaply – $116.6 million
- The support for fossil fuels keeps coming – $52.1 million to accelerate gas exploration in the Northern Territory’s Beetaloo sub-basis, most of it in grants. “This measure builds on the 2020-21 Budget measure titled JobMaker Plan — gasfired recovery,” notes the MYEFO papers. Once upon a time, energy companies paid for exploration themselves as they expected to subsequently make a profit from what they found
- And in shades of the government’s 2015 National Wind Farm Commissioner sinecure: “The Government will provide $0.9 million over two years from 202021 to engage a Special Advisor for Low Emissions Technology. The Special Advisor would engage internationally, conducting high level and strategic international engagement to support Australia’s emission reduction strategy.”
(Hey Josh, I reckon Craig Kelly would be prepared to do it for less. You’d save some money and solve one of Scott Morrison’s problems.)