Big change in party, little in policy
A standard delusion of election campaigns is that the Coalition portrays itself as standing for lower taxes, higher spending and lower budget deficits.
And Tony Abbott seemed to be cutting taxes big time, abolishing the carbon tax and the mining tax and cutting the company tax rate to 28.5 per cent.
But now we finally have the Coalition's full costings we see how far the reality falls short of the headline.
Its tax cuts will cost about $20 billion over four years (in cash terms), but its offsetting levy on big companies and reversal of Labor tax breaks - mainly on superannuation and small business - will claw back about $14 billion over four years.
And that's before you count the unlegislated Labor tax increases Abbott will put into law - including the increases in the Medicare levy and cigarette duty, and the new tax on bank accounts - worth about $28 million over four years.
Don't sound like lower taxes to me.
But surely the most disillusioning thing for Liberal true believers is the way five years of railing against Labor's utterly wasteful spending, never-ending budget deficits and soaring debt levels was simply cast aside over the course of a five-week campaign.
When, just before the campaign began, Labor was forced to reveal the deficit would be worse before we returned to surplus in another four years' time, the Libs proclaimed this a "budget emergency".
But then, just two days before polling day, they revealed their response to this emergency, which turned out to involve a net reduction in the cash deficit of just $6 billion over four years. On Treasury's projections, cumulative future deficits of a further $55 billion will now be a mere $49 billion and the return to surplus not a day earlier. Yippee.
Let me be clear: I wholeheartedly agree with the Liberals' last minute pull-back from resort to fiscal austerity. But then I was never taken in by their five years of frightening the fiscally illiterate.
What's supposed to be next on the agenda of a new government is a first look at the books, the amazed discovery it's all much worse than their predecessors let on, and the regretful announcement that this fiscal crisis necessitates a huge round of cost-cutting and the breaking of "non-core" promises.
Sorry, this ain't gunna happen, either. Why not? Mainly because Peter Costello's charter of budget honesty and, in particular, his instigation of the econocrats' pre-election economic and fiscal outlook statement was specifically designed to ensure he was the last treasurer able to pull that stunt.
If you've read the PEFO you've already seen the books.
But Abbott is further locked in by his repeated resolutions not to break his promises. He's even promised to let the deficit blow out rather than break a spending promise.
Labor claimed the planned "commission of audit" will be used as the vehicle for big spending cuts, but this was just its retaliatory scare campaign.
All past Coalition audits have been performed by purist economic rationalists who make radical recommendations no government would dream of accepting.
These and other promised inquiries (44 in Abbott's case) are just a device to get party hard-liners off a Coalition leader's back before elections.
There are just three main respects in which Abbott's policies are significantly different to Labor's.
First, the redistribution of the burden of taxation and the benefit of government spending against the Labor (and, for that matter, National Party) heartland and in favour of the Liberal heartland.
Second, the move from a market-based response to climate change to a pretend response. The campaign revealed a cap on "direct action" spending that means Abbott's professed bipartisan commitment to a 5 per cent reduction in emissions by 2020 is a sham.
Third, a marked improvement in business confidence now the socialist hordes have been vanquished.
This is the one delusion that remains from the rubble of an election campaign by the Liberals' most populist and least rationalist leader in a generation.
Fortunately, its delusory nature shouldn't stop it giving the economy a genuine boost as business ends its three-year-long dummy spit.
Today's return to real life will end one more illusion that accompanies every campaign: that it's governments who do most to manage the economy not the unchanging econocrats of the Reserve Bank.
There could be no more powerful reason why the change of government will change surprisingly little.
Frequently Asked Questions about this Article…
The Coalition's headline tax cuts are estimated to cost about $20 billion in cash over four years. Much of that is offset: a levy on big companies and the reversal of some Labor tax breaks (mainly on superannuation and small business) are expected to claw back roughly $14 billion over the same period.
Not necessarily. While the Coalition promises tax cuts, the offsets and other measures mean the net effect is muted. The party also plans to adopt some unlegislated Labor tax increases (such as higher Medicare levies and cigarette duties) and a new tax on bank accounts, so the overall tax picture is more mixed than the headline suggests.
The Coalition proposed cutting the company tax rate to 28.5% and abolishing the carbon tax and mining tax. However, those corporate tax changes are part of a broader package that includes compensating levies on big companies and reversals of some Labor tax concessions for individuals and small businesses.
The Coalition revealed its plans would produce only a modest net reduction in the cash deficit — about $6 billion over four years. Under Treasury projections cited in the article, cumulative future deficits previously projected at $55 billion would be reduced to $49 billion, and the return to surplus would not arrive any earlier than previously forecast.
The article notes the Coalition planned to put several previously unlegislated Labor measures into law, including increases in the Medicare levy, higher cigarette duty and a new tax on bank accounts — the latter estimated at about $28 million over four years in the Coalition's numbers.
The 'commission of audit' is a promised review intended to identify savings. The article suggests past Coalition-style audits have been conducted by fiscal purists who produce radical recommendations that governments typically do not adopt. Labour portrayed the commission as a vehicle for large cuts, but the article argues such inquiries are often used to placate party hard-liners rather than immediately deliver sweeping savings.
According to the article, there are three main differences: (1) a redistribution of tax and spending benefits toward the Liberal heartland and away from Labor's base; (2) a shift from a market-based climate policy (like emissions pricing) to a capped 'direct action' approach, which the article suggests undermines the credibility of the Coalition's 5% emissions reduction goal by 2020; and (3) an expected improvement in business confidence with a Coalition government.
The article suggests a change to Coalition government could boost business confidence as firms end a period of uncertainty, potentially giving the economy a lift. For everyday investors this can mean improved sentiment toward stocks and business investment, but the article also cautions that many headline policy promises may have limited fiscal impact and that underlying budget pressures remain.
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