The end of the year is always about a reset for a struggling government. Last year Malcolm Turnbull suggested the government was “getting barnacles off the boat” in order to set up some smooth sailing for the year ahead. Alas, the Liberal party in the end decided he was actually the biggest barnacle.
This week has again seen the government in barnacle removing mode in the hope that the last bit of news voters hear before they officially tune out for Christmas is the mid-year fiscal and economic outlook (Myefo) to be released on Monday.
While you can understand this strategy, the barnacle removal effort has been rather lacking.
The government’s response to the religious freedom review, for example, was quite pathetic. Rather than deal with the crux of the issue of religious schools being able to discriminate on the basis of gender identity and sexuality it kicked that issue down the road with yet another review. Yep a review of the review; always a sign of a government in charge.
Then there was its proposal for a federal corruption commission – the “Commonwealth Integrity Commission”. So limp was its response that by the end of the press conference announcing it those who had been long demanding such a body had gone from sighs of relief that finally it was being done to groans of despair that it was being done so poorly.
The lack of transparency the proposed body would have is (rather ironically) a transparent attempt by the government to create a body that would seem like it was doing something about corruption but which in reality was being set up merely to make it look like something was being done about corruption.
They weren’t so much removing the barnacles as painting over them in the hope that no one would notice they are still there.
The entire reason for this hapless barnacle removal effort is because the Myefo will bring news of bigger surpluses ahead than had been anticipated in the May budget.
It seems very much in keeping with the ethos of the Liberal party to pretend nothing has changed since John Howard was in power, that they have any belief that pointing to a big surplus will turn around their fortunes in any way.
The surplus mania that has infected Australian politics for far too long – and driven by both sides of politics – oddly refuses to die. There is nothing particularly wrong with a budget surplus, should the needs of the economy warrant it, but the continued suggestion that it somehow makes a government good economic managers is complete tosh.
But it is a belief that unfortunately remains, and is rather oddly abetted by the ALP whose MPs like to talk about how much bigger the government debt is now than in 2013.
Sure in 2012-13 government net debt was $160bn and now it is in the region of $350bn (or a shift from 10.4% of GDP to 18.4%), and yes the Liberal party banged on and on about the size of debt under Labor, but other than pointing out the LNP’s hypocrisy there is little to be gained from rabbiting on about debt.
Less debt would imply smaller deficits over the past five years, and yes there might be some tax cuts that could have been held off, but surely the ALP is not suggesting we should have gone back to a surplus quicker – for such a suggestion is pretty much arguing for more austerity.
Similarly, Labor really should stop comparing the level of tax revenue under them with the Howard and current governments. It says nothing about which party is “the party of low taxes”.
In 2007-08, government tax revenue was worth 23.8% of GDP; the next year, in the first full year of the Rudd government, it was just 21.7%. That wasn’t because the Rudd government suddenly cut taxes, it was because the world economy was nearly flushed down the sewer.
Yes, tax cuts do have an impact on revenue and can make for big holes that necessitate spending cuts should you wish to keep the budget in balance (or surplus). But that this year there will be an increase in tax revenue from last year doesn’t mean tax rates have been increased, it means people and businesses are paying more taxes – either because we’re buying more things, working more or making bigger profits.
In the latest update by the Department of Finance, the budget deficit for this financial year is currently around $9.4bn smaller than the May budget expected it to be at this stage. And around 70% of that is due to there being more revenue than expected.
And especially more company tax revenue than was expected.
The current level of company tax revenue collected so far this financial year is running 14% ahead of what was expected in the May budget. Nearly 60% of the better than expected level of direct and indirect taxes raised this financial year comes from companies. By contrast, the improvement in personal income tax is just 4% above expectations.
This rather fits with the recent GDP figures which showed the annual growth of corporate profits rising from 7.4% to 8.2% while the growth of the amount of wages and salaries fell from 4.8% to 4.3%.
It’s why the surplus boasting may not quite have the same ring to it as it did during the Howard years.
Back then voters may not really have understood what drove the budget surplus (again, massive corporate profits) but their own wages were rising fast and so too were living standards, so it was easy to suggest the budget surplus must mean things are good due to the government.
Now we have a budget surplus coming, while wages growth is pathetic, and real household disposable incomes have been flat for nearly eight years.
The barnacles may have been painted over, and the surplus might seem nice and shiny, but the end of the year budgetary news will do little to improve things for the government unless they can convince voters that achieving a better budget surplus is either connected to, or more important than, lifting household incomes.