May 5, 2014

Abbott and Hockey push the envelope of weasel words

How to raise $10B or more in four years:

Don't introduce an extravagant maternity leave payment - $5B

Lift marginal personal income tax rates for those earning more than $100K - $10B

Tax the big four banks a tiny little levy of 0.2% on assets above $100B - $11B

Tax super earnings equally - $12B

End income splitting for 750,000 (yes, that's how many there are) discretionary trusts - $12B

End capital gains tax discount - $20B

End negative gearing - $16B

Could it become known as the "Abbott moment", when a prime minister cursed his political fate and consigned his government to one term?

"Crazy", "electoral suicide", a "Gillard moment" were some of the comments from Coalition MPs, the latter remark a reference to Julia Gillard's commitment to a carbon tax, which haunted her to Labor's eventual defeat.

"Everyone is shell-shocked. They don't understand it," one Coalition MP said on Tuesday, after the Prime Minister confirmed a "temporary debt levy" for as long as four years was a live option for the Coalition.
"They are asking ‘why is he doing this?'."

The answer says much about the undeliverable platform the Coalition brought to the election and the true nature of the "budget emergency" the current government inherited from its predecessor.

But the "debt levy" raising $10 billion over four years is a different proposition entirely. It is not the work of the commission. It was cooked up in cabinet and commission chairman Tony Shepherd has let it be known he thinks it a foolish idea.

He also promised repeatedly not to increase taxes. "You can’t tax your way to prosperity" was a mantra. So was "Tax cuts, without new taxes".

Speaking to 3AW's Neil Mitchell on Tuesday, Abbott redefined that commitment. A tax is only a tax if it is introduced in perpetuity.

"If there was a permanent increase in taxation, that would certainly be inconsistent with the sort of things that were said before the election," he said.

Hockey intimated the government should be given a break because it was all Labor's fault for ruining the budget, a new riff on "non-core policies".

"Please, this idea, somehow, that everything we had ever said is going to be held against ... us because the previous government basically misled the Australian people about the state of the budget, is kind of ridiculous," he said.

In the campaign, the Coalition promised no new tax rises, while quarantining health and education spending from cuts, pensions from changes and increasing defence spending.

But the main reason for the decline in government's finances has been on the revenue side of the ledger. Revenue is down from 26 per cent to 23 per cent of gross domestic product in the past decade, while spending has remained at a relatively stable 25 per cent.

"If you are going to break a promise on taxation, you may as well do it properly."

Daley says removing the capital gains tax discount, abolishing negative gearing and cracking down on superannuation taxation benefits were some measures that would have raised the same revenue or more at the expense of the wealthy.

The superannuation system is an expensive mess and failing in its objective of stopping people relying on the aged pension, which 80 per cent of retirees still access.

Perversely, the superannuation tax concessions – worth as much as $35 billion a year – will cost the government more than it outlays on the aged pension in a few years.

There was plenty of criticism that the commission of audit's recommendations hit the poor while leaving the well-off largely insulated from change.

Its major reforms – on welfare, unemployment, health policies and foreign aid – all disproportionately affected those on below-average incomes, at home and abroad.

The commission – dominated by members of the Business Council of Australia and former Coalition staffers and politicians – also oddly called for a lower minimum wage, which has nothing to do with budget policy.
But concerns about the inequity in the commission's 86 recommendations highlights another fact that is often lost in the debate about the budget.

Australia's social welfare programs are already tightly means-tested, meaning there is little scope to penalise the rich by slashing government spending programs.

The commission's terms of reference were to look at government expenditure, not revenue or tax. Separate reviews on taxation and superannuation are coming and will be delivered before the next election.

Government sources also point out that the debt levy will only hit 14 per cent of taxpayers, so may not have the negative political impact some are predicting.

As Abbott learnt to his advantage as opposition leader, trust is hard to earn, easy to lose – and even harder to regain.
And 14 per cent of the 'wealthy' can't possibly turn an election result, can they. 

And apparently the poor, the sick and the pensioners don't vote.

New tax on rich could seal Tony Abbott's fate

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