The Crossroads Are Looming

The upcoming federal election is going to be a pivotal time in Australian politics. The result is likely to affect the direction of Australian Government policy for the next decade. If the Liberal/National Coalition regain power, they will see it as an endorsement of their trickle down philosophy in spite of the blatant example of it not working as demonstrated by the stagnant wage growth in Australia and around the world. If Labor wins then its likely to result in a change of emphasis towards “working” Australians.

The fine tuning of government policy has to start contemplating the type of country that we want to have. For years we have moved toward a society based on fairness and tolerance, a multicultural society that aims to eliminate poverty by the redistribution of wealth. When the Howard Costello duo were running the country, instead of banking the income generated by the mining boom, they decided reduce the tax “burden” on the higher end of town. Subsequent Coalition governments continued this policy. The result (as outlined in the last Coalition Budget) is to provide further tax cuts that will provide tax “relief” for those currently on the third tier of the income tax rates. The cost to the budget bottom line is substantial with independent analysis showing the cost could be as high as $30 billion per year in foregone revenue. (See ) This ignores the tax subsidies provided to Landlords and high end Self Managed Superannuation Funds and the likelyhood of reduced economic growth in the forward period of the budget figures. This will undoubtedly result in continued budget deficits.

The Coalition is claiming success in getting the budget back to surplus despite not actually posting a surplus – they have PROJECTED a surplus next financial year and continued surpluses after that. However, the two areas that are in doubt are the projected growth in GDP and the dubious claim that the rate of government expenditure will only increase by 2.9% as opposed to the 4.3% that it is currently running at.

This means that either the Coalition is deliberately obscuring expenditure cuts or they just have no idea (or credibility). Labor does not get off scot free in this respect either. Ross Gittin’s article outlining the failures of both sides to actually consider the bottom end of town is worthy of a read. The fact that neither side find it politically attractive to increase the Newstart Allowance is to their great shame. Even ignoring the fairness argument, an increase to the Newstart Allowance would provide greater stimulus to the economy than a tax cut to the wealthy. Newstart Allowance recipients are more likely to spend the entirety of their payment than the wealthy are to spend their tax cuts. Politicians, it seems, have lost their sense of conviction repeatedly failing to explain in detail what their policies mean. They treat the voting public like idiots, relying on glib slogans and rehearsed, focus-group driven, one liners.

A great example of this is the proposed reduction to the Corporate Tax Rate for businesses with turnover greater than $50 million per year. The Coalition says that this is required to increase investment and lead to greater employment. This ignores the fact that both employment and investment have increased over the last few years without this tax cut. It also ignores the fact that many of the so called beneficiaries are multinational corporations that pay little or no tax in Australia anyway but they haven’t necessarily increased their workforce or their investments in Australia but neither have they fled our shores with their tails between their legs. The reality is that businesses make investments on the basis of the profits they will earn not on the tax they pay. If they are making decisions on the basis of the tax that they will pay then its a distortion of the market. We all know that according to the theories of Capitalism that governments should refrain from actions that distort the market.

The time has come for Australians to state clearly that they want a multicultural society that protects the old and infirm, encourages innovation, education and hard work, while protecting and helping those needing support to move into employment.