Finance Federal Budget Budget 2018: Labor must hit back against ‘tax cap’ nonsense
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Budget 2018: Labor must hit back against ‘tax cap’ nonsense

federal budget 2018
The Turnbull government's 'tax cap' could become a major political liability. Photo: Getty
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By writing a hard-and-fast upper limit on tax revenue into this year’s federal budget, Prime Minister Malcolm Turnbull and Treasurer Scott Morrison probably think they’ve set a fiendishly clever trap for Labor.

The announcement on Monday that federal tax revenues would be capped at 23.9 per cent of GDP, with amounts collected over that level to be returned to taxpayers, will now be enshrined in the budget papers’ fiscal strategy – indicating that it has been signed off by cabinet.

But that’s a lot less binding than legislation, so if it were to be rejected by an incoming Labor government it would not even require a vote on the floor of Parliament.

Its main political effects are, therefore, mild.

Shadow Treasurer Chris Bowen reiterated on Monday that he would not be committing Labor to stick to the same fiscal rule, so that gives the Coalition a bit more ammunition for attacking Labor as ‘big taxing, big spending’ in the lead-up to the next election.

It’s not exactly political dynamite, though Monday’s newspaper coverage suggests that News Corp is gearing up to support the ‘tax cap’ story with the same gusto it gave to the Abbott-era ‘debt and deficit’ stories.

The flip-side

It’s doubtful such a campaign could move the voting public the way ‘debt and deficit’ stories did between 2009 and 2013.

For a start, the world’s leading economists just don’t support the proposition that our tax revenues are at all high.

Economists at the Organisation for Economic Cooperation and Development (OECD) have repeatedly pointed out that Australia’s overall tax take – 80 per cent of which is collected at the federal level – is very low.

As reported recently, it places us 28th out of 35 developed nations in the tax-to-GDP stakes.

That fact is not something that can be wished away by the Turnbull government, nor by ideological supporters in the media.

Instead of accusing the opposition of wanting to move from ‘low to high’ taxes, it would really be accusing it of wanting to move from ‘quite low to just low’.

Then there is the way the 23.9 per cent figure was arrived at – essentially on the back of an envelope by the Abbott government’s Commission of Audit.

They simply averaged tax receipts between the year the GST came into force and the global financial crisis, and thought ‘that looks about right’.

That’s troubling, because an average is made up of good years and bad years – and the Turnbull government is now vowing not to take the good with the bad. Just the bad please!

Let the people decide

Then there’s the Australian public’s embarrassing attitude to fiscal policy generally.

A recent survey by the Per Capita think tank found that three-quarters of respondents wanted more money spent on health and education, and 62 per cent opposed the government’s main tax cutting plan – the move to extend company tax cuts to big businesses.

So where is the political gain? Mr Morrison would have to slash income tax rates – which he has said he will not do – or just plough ahead with squeezing public services and legislating the company tax cuts, which would primarily benefit overseas shareholders of our biggest companies, not locals.

For all of these reasons, Labor should not weather the ‘big taxing, big spending’ attacks meekly – each punch should elicit a good counter-punch, focused on one of two targets.

One is the fact that an ageing population and the rollout of the National Disability Insurance Scheme mean the reference period from which the 23.9 per cent figure was derived is just not relevant to Australia as it is now, and even less relevant to how it will be in future.

The other target is one the Coalition painted on itself during the Abbott years.

It was ruthlessly successful in the years between 2009 and 2013, in convincing voters that ‘government debt and deficit’ was one of our nation’s biggest problems.

It is now writing into the budget papers that it wants to remove the No.1 solution to that problem – allowing revenues to swell a bit in good years to start actually paying that debt down.

There’s no telling how the Labor opposition will answer the ‘23.9 per cent’ attacks between now and the election, but one thing is clear – if it doesn’t forcefully call out this arbitrary and ridiculous political ploy for what it is, it won’t be doing its job.

Watch your inbox for The New Daily’s special coverage of the federal budget on Tuesday evening and Wednesday morning.

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