Ideas@TheCentre – The Centre for Independent Studies

Ideas@TheCentre

Ideas@TheCentre brings you ammunition for conversations around the table.  3 short articles from CIS researchers emailed every Friday on the issues of the week.

What the bank levy says about the budget

Robert Carling

12 May 2017 | Ideas@TheCentre

banks big fiveThe new levy on selected liabilities — mainly borrowings and non-guaranteed deposits — of selected banks (the big four and Macquarie) is an unexpected tax grab of at least $1.5 billion a year.  The levy encapsulates the twin themes of the budget: hunger for more revenue and a craven appeal to populism.

The government’s minimal effort to justify the levy is out of proportion to its significance.  We are told simply that it “represents a fair additional contribution from our major banks and will assist with budget repair.” Fairness, as usual, is what the government says it is.

This is a serious new tax that has not gone through the public exposure and consultation processes that such a proposal would normally warrant. It has never been proposed by any review of the Australian tax and banking systems.  It has come out of the blue.

It is an illustration of populism in that it panders to the public’s dislike of banks. As an example of the hunger for revenue, the levy joins other new taxes as opportunistic appeals to populist sentiment: one on foreigner-owned residential properties deemed by the government to be ‘vacant’ for more than six months of the year; and on employers bringing in workers from overseas.

On a much larger scale, the new taxes join increases in existing taxes, such as a proposed 25% increase in the Medicare levy in 2019 yielding an extra $4 billion a year.

These new and increased taxes will add more than $7 billion to tax revenue by 2020-21 on top of automatic growth in revenue from economic growth and inflation. All up, and if the underlying assumptions of the budget are to be believed, tax revenue will grow by 31% in the next four years and as a share of GDP come close to the record levels seen in the resources boom fuelled budgets of 2003–2008.

Revenue — not greater expenditure discipline — is the government’s chosen pathway to a balanced budget, and it is not shy about appealing to populist sentiment to get its way.

Inflated expectations

Michael Potter

12 May 2017 | Ideas@TheCentre

MP housing house affordability rentThe Budget measures relating to housing are a case study in how to fail in meeting expectations. The government unwisely generated, then inflated, expectations that there would be major solutions to housing affordability in the Budget.

But we haven’t got those solutions. Instead we have a hodge-podge of measures that help and hinder the problem simultaneously. On the help side, the main funding agreement for the states will be reformed to cajole them into reforming planning laws and increasing housing supply. About time too.

The new Housing Finance and Investment Corporation (HFIC) for social housing could be worthwhile as long as it doesn’t have government backing.

There are also changes to super to facilitate saving for deposits by home owners, and downsizing by retirees, but these will make the super system even more complex.

However, the ‘hinder’ side of the ledger is long. There are several increased taxes on housing investors, particularly foreign investors. Tax deductions for travel to investor housing will be denied, as will depreciation deductions for plant and equipment installed by previous owners of housing. Foreign investors will pay more capital gains tax (CGT) and an extra levy on properties left vacant, while there will be added restrictions on housing purchases by foreigners.

And the big tax on big banks, worth $6.2 billion over four years, will flow through to higher mortgage rates, harming housing affordability and investment.

These measures send a totally mixed message when other measures purport to promote housing investment, including through reduced CGT on investment in affordable housing and the previously mentioned HFIC.

There is also $1 billion for a National Housing Infrastructure Facility, but this is unnecessary as the states should undertake housing-related infrastructure investment themselves — and lose funding if they don’t.

Overall, if the housing measures in the budget demonstrate anything, it is how mismanaging expectations can generate policies that are more bad than good.

Indigenous business policy a good step

Charles Jacobs

12 May 2017 | Ideas@TheCentre

aboriginal indigenous businessThe ongoing restructuring of the much-maligned Indigenous Business Australia (IBA) is a step in the right direction for Indigenous Business.

Whilst scant mention was made of Indigenous Australians in the Treasurer’s speech, it has been confirmed that $146.9 million over four years will be re-directed from IBA to the Department of Prime Minister and Cabinet to “assist and enhance Aboriginal and Torres Strait Islander self-management and economic self-sufficiency.”

Funds will primarily be directed towards enhancing business capacity through workshops, business planning, training and bankability as part of ongoing efforts to ‘supercharge’ the Indigenous economic development via the new Indigenous Business Sector Strategy.

This is a positive sign that the Commonwealth is making a conscious effort to resolve some of the teething issues linked to the much-heralded Indigenous Procurement Policy (IPP).

The tendering of IPP contracts to already established Indigenous businesses has been well publicised and this renewed focus on developing the overall capacity of the sector is a commendable development.

Meanwhile, $55.7 million over five years will be provided to improve Indigenous employment outcomes.

Encouragingly, this will predominantly focus on the upskilling of the Indigenous workforce, with $33.2 million dedicated to pre-employment training and mentoring programs that will ultimately lead to greater long-term empowerment.