In trying to understand Tony Abbott’s approach to policy, it’s best not to try to fit it to some economic framework or ideologically consistent lens of logic. Instead, think of him as a stand-up comedian or maybe a vaudeville performer.
He’s basically just ad-libbing in response to the crowd, trying a variety of stunts in the hope they’ll get some laughter and applause.
His mooted deficit levy seems to make almost no sense based on what he’s said in the past about wrecking-ball horrors of the carbon tax, and the fact that we’ve known some time before the election that the budget was stuck in a long-term structural deficit.
Abbott and Hockey are trying to suggest that they’ve been suddenly surprised; that they’ve suddenly opened the books to find a black hole that had been hidden by Labor cooking the books.
However, Treasury’s pre-election budget statement made the structural deficit clear. Moreover, you had both the current Treasury Secretary Martin Parkinson and former secretary Ken Henry stating publicly on a number of occasions well before the election that tax revenue wasn’t going to keep up with spending, not to mention a range of independent economists from the Grattan Institute to Access Economics’ Chris Richardson, among others.
Before the election, Abbott, in spite of droning on about debt and deficit, could seem only able to talk about how bad taxation was to our lives. The carbon tax in particular was simply disastrous. Meanwhile, he suggested that by virtue of running surpluses under John Howard, the Coalition was capable of working miracles on expenditure that wouldn’t impact on government services like free universal healthcare.
If we simply focus on the numbers rather than Abbott’s words, it’s hard to understand what on earth Tony Abbott is on about, unless we think of him as an entertainer rather than a prime minister.
According to this government’s own budget numbers (on page 22 of the Mid-Year Economic and Fiscal Outlook), its abolition of the economic wrecking ball -- the great big carbon tax -- will leave taxpayers (both individuals and business) with an extra $7.4 billion in their pockets over the forward estimates, or $1.85bn per annum.
Estimates by tax experts cited by The Australian Financial Review speculate that the mooted deficit levy or hike in income tax rates the government is considering would impose an extra $10bn burden on taxpayers over four years, or $2.5 billion a year.
Abbott’s signature policy initiative, the paid parental leave scheme, requires the government to find about $5.5bn a year in revenue. Experts suggest this is still likely to be the cost even after Abbott’s recent backdown to cap maternity leave payments at a maximum of $50,000 for six months instead of $75,000.
Somehow the $1.85bn carbon price is supposed to destroy the economy, although it actually came coupled with considerable compensating income tax cuts. Yet an income tax hike of $2.5bn will be good for the economy because it helps reduce the deficit. And of course, the carbon tax revenue somehow doesn’t help address the deficit, does it?
Meanwhile, a $5.5bn per annum extra hit on the budget in the paid parental leave scheme -- which will primarily act to lure women out of the workforce for 6 months -- is supposed to enhance the country’s economic performance?
You’ve got to give it to Tony Abbott. As a Prime Minister, he is a damn good comedian.
But it all makes sense.
You get rid of a tax that is actually economically efficient because it helps reduce a pollution externality while also helping get the budget in better shape. (Please remember that trade-exposed industry gets 90 per cent of its permits for free, avoiding any kind of serious impact on international competitiveness.) Why? Because people don’t understand it, and it’s easy to scare people about the unknown.
The parental leave scheme is essential for Abbott, as it addresses women’s suspicions that he’d like to take them back to the 1950s.
And Abbott knows that a large proportion of the electorate have a stereotype embedded in their mind that assumes Labor is irresponsible with money. Even Labor’s Lindsay Tanner admitted that was what Labor’s focus group tests revealed.
By imposing a ‘deficit levy’ and talking up a ‘budget crisis’, Abbott figures the electorate will actually blame Labor, rather than blame him for the tax hike.