The Coalition government’s latest budget can best be described as one which opts for the fiscal status quo. Australia has been heading over the past ten years in the direction of higher taxes and spending, given what the government faces in Senate, from the special interest groups and the media it took the safe option and gave all these groups what they wanted. It has been widely called a Labor budget, in fact this was put to the Treasurer Scott Morrison following the budget and his response was “if they [Labor] think so, they’ll vote for it’’ and added the he was proud to deliver a budget that was ‘non-ideological’.
This growing trend to appear non-ideological is itself a problem, with centre-right political parties now aimed at sacrificing their ideology in favour of caving in to the leftist movements of Western society. We heard similar rhetoric being used by Theresa May today regarding her plan to impose energy price caps in the United Kingdom so as to do the right thing rather than stay loyal to their ideology. The same principle is visible in the new budget, with the Liberal Party choosing to appeal to leftist emotions instead of the truth just to get more political support. This begs the question: why build bridges with an enemy that is so adamant on taking the world in a regressive path? Why not use an actual conservative budget to show the Australian people how beneficial economic conservatism really is?
The left-wing nature of this budget is explained by many commentators as the result of the unpopularity of the more fiscally conservative Abbott/Hockey budget of 2014. If the government had the goal of preparing a budget which would be more politically sellable this is it, if it was a budget that would ensure the future prosperity of Australia and allow more economic freedom then this one failed. The budget does project a return to surplus by 2020-21 (but we’ve heard this all before) but the way the government plans to do this is through the sort of economic illiteracy we expect from Labor. No real economist believes you can tax your way to prosperity or surplus.
The first problem is higher taxes which rise by total of $12 billion over the forward estimates, there is no change to personal income tax rates which means many Australians will move into high tax rates meaning that the budget shortfall is partly being made up by bracket creep. Higher taxes only results in more debt. This was seen in the United States, with former President Barack Obama’s tactic of raising taxes to lower the debt spectacularly backfired and contributed to its increase. One would expect the Liberal Party to understand this, but one would be wrong.
In fact, one great example provides the real formula for debt reduction as described by Forbes writer Nathan Lewis: lower taxes, lower spending and stabilise currency. The first example, also from the United States, is its successful handling of post-World War II debt by reducing income and corporate taxes, reducing spending and keeping the currency at a stable rate against the gold standard. Did this result in an elimination of the debt? No, it did not. It resulted in something more practical: a substantial reduction of the debt to GDP ratio from 125% to 25% of GDP. Interestingly, this actually allowed the government to continue spending reasonable amounts over the long term while being free of any debt worries, as the skyrocketing GDP gave a substantial buffer zone.
Unfortunately, this level of economic competence is too much to expect from a government that calls itself “Liberal”. Taxes are indeed on their way up. The Medicare levy which is just a separate tax on income is being raised from 2% (the Gillard government already increased it from 1.5% in 2013) to 2.5% in 2019. This affects all taxpayers earning over $20,000 and is supposedly going to fund the NDIS. The average worker will most likely view this increase as unfair given that deficit levy of 2% on high income earners is being abolishing along with just passed company tax cut.
Other taxes hikes include yet another increase in tobacco excise, it makes you wonder how much more expensive the government can make tobacco without energising black-market activity. It also makes clear that sin taxes on tobacco are not driven by the government’s concern for its citizens’ health, it’s simply there as another revenue increasing tactic under the guise of a concerned health measure. The government, aware of the fact that the budget needs to be fair, so has hit the big banks with a new 0.06% levy which will raise $6.2 billion over the forward estimates. Although many do believe the banks should pay their fair share logic dictates they will pass this expense onto consumers.
Further embracing the Australia First movement the government will introduce a $5,000 levy on companies that bring in foreign workers and will also introduce a tax on foreign investors who leave properties vacant. If a government is to raise taxes then it is preferable they do so on foreign citizens, allowing better economic opportunities for local people.
Spending is largely untouched, we already knew that education funding would receive extra funding under the Gonski 2.0 plan announced last week, partly funded by increases to university fees. The NDIS, despite the fact that its eventual costs are projected to be much higher than predicted the government has committed to funding it which is the justification for the increase in the Medicare levy. The freeze on Medicare rebates for GP visits has been lifted. Infrastructure is going to full steam ahead with commitments to fund Sydney’s second airport and a rail line from Brisbane to Melbourne, the latter of which will most likely find it challenging to compete with air routes.
There are some positives in this budget that everyone on the right can agree on, but of course will trigger the left. Random drug testing of welfare recipients will be trialled which is long overdue. Despite the hysteria from the left most taxpayers do not want to see their hard-earned money go towards the degenerate habits of the unemployed who should be focused on obtaining work. To those who say its demeaning that is a good thing, it should be an incentive for people to get off welfare. However, those who fail the tests will not automatically lose welfare rather just have their welfare payments quarantined and be referred to a treatment program so it is not as tough as its opponents portray it as.
The foreign aid budget is being frozen which means that our foreign aid spending will decrease in real terms. This is a sensible decision as our government should be spending Australian taxpayer dollars for the benefit of Australians rather than syphon it off to corrupt foreign governments and the poverty industry.
But overall this budget is a disappointment to those who believe that budget repair needs to happen now before we get to the stage that some European nations are at, that taxes for ordinary Australians should be lower, not just to stimulate economic growth which we desperately need but because it is moral as well and that increases in spending on health and education do not always lead to better outcomes. This budget is an act of political cowardice from a government which has decided it doesn’t really want to stand for much or make any tough and painful decision, the first budget after an election is when you should make the tough decisions which means we can except even poorer budgets in the lead up to the next election.