Little courage in populist tax rises

Simon Cowan

02 September 2017 | Canberra Times
A9X9B5 Tax Rate button on calculator

A9X9B5 Tax Rate button on calculator

The Liberal government wants you to imagine how high taxes will be if Labor is elected at the next election. A couple weeks ago, Treasurer Scott Morrison was spruiking independent modelling that showed Labor would increase taxes by $167 billion over the next 10 years. Last week, Finance Minister Mathias Cormann was talking about $150 billion plus additional tax burden.

It is no longer surprising that these messages got little or no traction. None of the senior figures in either the Abbott or Turnbull governments have handled economic messaging well. They have been unable or unwilling to do the hard work necessary to hammer home the problems to an electorate made complacent by 26 years of uninterrupted growth.

The messages have changed too often, and been repeated too infrequently, for people to believe they are real. There is a genuine possibility it is now too late for this government — after four years and four budgets, they have made little progress on cutting taxation or eliminating the deficit.

In many respects it is more important for the Liberals to figure out why these messages are failing than to continue to pretend the current tactics are working when they’re not. At least then they could develop an alternative approach that, if it doesn’t work for this government, might give them something to work with in opposition.

It goes beyond the salesperson, even though there have been clear mistakes made by Hockey, Morrison and others. For example, the Parliamentary Budget Office disclaiming Morrison’s figures almost immediately was an embarrassing (and predictable) blunder.

Events have also often conspired to overtake the economic message. Recent tensions between North Korea and the US, exacerbated by the unpredictability of President Trump, would swamp economic concerns anyway.

However, some of these events have their genesis within the government. Leadership tensions have never been allowed to settle, giving any spending cut ‘losers’ from a rallying point for opposition. Same-sex marriage too has been continually forced to the front of political debate by its proponents, to the point where the momentum has overtaken the party leadership.

Moreover, the same kind of self-inflicted bad luck that haunted the Gillard minority government seems to be plaguing the Turnbull bare majority. These citizenship issues could have arisen at any time in the last decade, when they would have had little impact on the validity of the government, but they are here now, at the time when they could be a massive problem for the Prime Minister.

But there are two things specifically undermining the Liberal government’s case for economic reform.

First, they simply have not been consistent in their policy prescriptions. It is hard for the government to convince the electorate that increasing taxation is a problem when the Coalition themselves have been increasing tax rates and forecasting increasing revenue in every budget.

They introduced a temporary deficit levy. They raised fees and charges on foreign investors in property. Taxation on superannuation was also increased, and the complexity of the super regime grew substantially.

Indeed, Morrison had to stop pitching his message on Shorten’s tax hike because two days later the government introduced legislation to push up the Medicare levy. The electorate aren’t fools: either tax rises are a problem or they are a solution. They can’t be both.

And there isn’t enough space to talk about all the new and expanded spending initiatives in the last four budgets. When the Coalition is raising income tax through the Medicare levy to pay for Gonski and the NDIS, they can hardly complain about other parties’ tax and spend tendencies.

But what is perhaps of greater concern is that across the western world the economic inclinations of voters seem to be shifting. At the last election, Labor ran on a platform of bigger deficits, higher taxes and more unfunded spending — something Rudd, Hawke and Keating all eschewed. The Democrats in the US and Corbyn’s UK Labour all proposed huge new spending while only mouthing vague platitudes on how it would be paid for.

On the right too, hard-line conservatives and populists are zeroing in on limiting immigration as the key to reducing government spending. Pride in your ability to support yourself no matter what has been replaced with expectation of getting ‘your tax dollars back’ and not spending them on ‘free-riders’.

Neither unfairness nor immigrants are causing these budgetary problems. People sense the truth — that the average person receives too much government support for what they pay in tax — but they don’t want to believe it. Unfortunately it takes little courage to front an ill-informed populist mob; but telling the truth is deemed very ‘courageous’ indeed.

Simon Cowan is Research Manager at the Centre for Independent Studies.

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