The Treasurer, Scott Morrison, and his team working on the 2016-2017 Commonwealth budget have tried to reconcile competing interests and expectations within tight economic constraints. With an election about to be called, it is unavoidably a political budget.
Morrison is keen to avoid the perception of unfairness which so damaged the first Hockey budget. The latest budget has put in place some measures to increase superannuation fairness somewhat for low-income people, but the tax benefits still favour high-income people greatly. In addition, few of the steep cuts to services and programs made by the Abbott government have been restored. Indeed, there are increased cuts to health and aged care, in particular, as well as to some Medicare benefits.
Tax cut for high incomes
At a cost of $4 billion, the budget has lifted the 37 cents tax bracket from $80,000 to $87,000, and removed the budget repair levy on people with an income of $180,000 a year or more. Three-quarters of the benefit goes to the top 10 percent of taxpayers, according to the ABC’s economics commentator, Stephen Long.
The full-time average adult wage is just under $81,000, but average weekly earnings are less than $60,000. Less than 30 percent of taxpayers earn above the ‘average’.
Tax cuts for ‘small’ businesses – a con?
As for the budget’s great big ‘enterprise tax plan’, Stephen Long considers it a ‘con’. Company tax is to be cut from 30 percent to 25 percent in ten years. The tax rate on small businesses with earnings under $10 million would drop to 27.5 percent, and this rate would gradually be extended to larger firms than this. Tim Colebatch, in Inside Story, considered this move “breathtaking” and “courageous”, in Sir Humphrey’s famous phrase.
Applying the 25 percent tax rate for 2016-17 would cost taxpayers $11.5 billion, and $15 billion by 2019-20, more than the budget support for universities and TAFEs combined. (Tim Colebatch, The budget’s two big ideas, Inside Story, 4 May 2016). According to the Parliamentary Budget Office, over ten years the program would cost the budget more than $50 billion. Embarrassed by this figure, Mr Turnbull has been reluctant to confirm it.
Will the tax cuts produce growth and jobs? Not for years, according to Stephen Long. Small companies are more likely to retain profits in the business than to risk new investment. The reduced tax rate will encourage investors from overseas, but that will take years to eventuate. According to the Treasury, a 1 percent cut to the company tax rate boosts economic growth by only 0.15 to 0.2 percent. “The gains for jobs and wages are so small they are trivial”, comments Long. Moreover, the profits are likely to go offshore, reducing any benefits to growth, or to go largely to the biggest companies.
Chasing the multinationals
Under the Coalition government, the Australian Tax Office had been forced to cut its workforce from 22,000 to about 18,500, because of reduced funding. In a major about-face, Treasurer Morrison announced that the ATO would now gain an extra 1000 staff, with 390 of them joining a taskforce of 1300 to ensure tax compliance by multinationals. As Mark Zirnsak from the Tax Justice Network said, the government has now realised how widespread is community concern about corporate tax evasion.
The Panama Papers revealed the extraordinary extent of tax avoidance by various Australian and multinational companies, along with prominent wealthy Australians. Here was abundant proof of how many of the rich and powerful were rorting the tax system of billions of dollars. Instead, the tax burden was unfairly falling heavily on ordinary workers and consumers.
Mr Morrison declared an end to class warfare, yet it would seem that the very rich have been waging class warfare for many years, largely unhindered.
Voters are naturally outraged, and demanding major changes, and governments themselves are suffering from this massive hemorrhage of capital streaming into tax havens. Both major parties are working on proposals to tighten this capital flight.
Gone is the panic about repaying our national debt, though it lingers ominously in the background. As for the government mantra of our ‘living beyond our means’, the economics commentator in the Fairfax press, Ross Gittins, says that it is “nonsense”; governments are not households, and can readily raise revenue through taxation (Ross Gittins, What not to believe in the budget, The Age, 2 May 2016, 28)
What Australia should be doing, but is not, is borrowing funds for major infrastructure projects while the cost of money is so low. Economically sound investments would, over time, more than repay the costs, and would power up the economy, creating employment and output.
Royal commission for finance & banks?
Meanwhile, a continuous string of financial scandals involving very serious misconduct and outright fraud in banks and other major financial institutions and businesses is generating considerable support for Labor’s proposal for a royal commission into banking and finance.
There is growing alarm in the community about the cost of housing, which is pricing many young couples out of the housing market, or saddling them with crippling debts. Governments have foolishly allowed the housing bubble to keep ballooning, since home-owners felt increasingly wealthy as a result, even though their house was exactly the same. Only the Coalition spin doctors, the real estate industry, and lending agencies fail to see that this is a very dangerous and socially damaging housing bubble. The budget completely resiled from any attempt to tackle problems arising from negative gearing, as well as from capital gains taxes. Powerful special interests are presumably involved here.
The budget offers little for the unemployed. There has been no increase to unemployment benefits, still under $530 a fortnight for a single adult without children, not enough to pay for board at a backpacker’s and still pay for food, medication, clothing, and a phone card. Many walk the streets by day, and at times have to sleep rough. Increasing numbers of people are relying on charitable agencies for emergency support, and there are increasing numbers of people begging in the streets of major cities. At least work for the dole will be restricted to the long-term unemployed.
Risks with youth jobs & internships
The Youth Jobs PaTH is intended each year to train 30,000 people aged under 25 who have been out of work for more than six months; they would receive six weeks’ pre-employment training, followed by internships of up to 12‑weeks duration, working 15-25 hours a week. They will receive an extra $200 a fortnight on top of their income support, and businesses will receive $1000 up front. The hope is that these young people will find jobs in the business of their internship, or in the ordinary workforce.
But as Marcelle Mogg, CEO of Catholic Social Services Australia, warns, making payments of up to $10,000 to employers “after only six months’ engagement is misguide”, as these young people can then be dismissed and others employed. “Payments of $10,000 to employers effectively create a cut‑price labour force open to exploitation by disreputable employers.”
It is also difficult to see how such ‘internships’ will not displace other workers on award wages.
Yawning gaps: poverty, indigenous issues, climate change
Mogg applauds the additional $100 million for domestic violence initiatives, and some $7 million for counselling for problem gamblers. But she adds that the budget does little for the homeless, or for those in housing stress. And what of the 600,000 children living in poverty? (Marcelle Mogg, Another Coalition budget for the well-off, Eureka Street, 4 May 2016.) Instead, the budget cuts 810 jobs from the Department of Human Services, and a further 344 from the Department of Social Services.
There was little new for Indigenous programs. The budget did not restore previous cuts, and there were further cuts to Indigenous legal services and higher education participation programs.
Perhaps most surprisingly, the budget ignored the looming crises from global warming. At a time when Australia could be a world leader in sustainable energy, developing ways to adjust to climate change with new technologies and knowhow in farming, fishing, housing, healthcare, etc, the Coalition seems caught in robotic denial, despite the Prime Minister’s own personal views.
The cuts to funding for our world-famous CSIRO and research on climate change are emblematic of the blinkered thinking of the Coalition government.