Joe Hockey's battlers and the Great Northern Mirage

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Joe Hockey scowls as he delivers the 2015 Budget. (Image screenshot youtube.com)

Joe Hockey’s Budget was an obvious attempt to win back Howard’s battlers and set the stage for an Abbott Government re-election. Managing editor David Donovan says it will fail on both counts dismally.

THE AMOUNT RIDING ON IT was obvious, as Treasurer Joe Hockey stood nervously at the despatch box to deliver his second Budget speech this week.

There were no smiles and Hockey’s voice quavered as he snarled his first words — something he does when he is under stress, as he always is these days. Forget about this being the Budget that brings home the bacon; this was the one aimed squarely at saving Joe Hockey’s bacon — and that of his universally detested Government.

The prospect that this Budget does that seems vanishingly unlikely, since it has ‒ once and for all ‒ destroyed utterly, forever, the Government’s tedious and fraudulent narrative about a “debt and deficit” disaster. With Hockey’s first hypothetical surplus now being pushed out to 2020 and “debt and deficit as far as the eye can see”, no amount of awkward and perplexing assertions by him about the debt being “under control” can change the facts — the Government has abandoned "fiscal repair" in the interests of short term political gain.

The inability of former Treasurer Wayne Swan to achieve a surplus was lambasted by Hockey for years, however Swan was able to achieve one thing Hockey seems unlikely to ever be able to do — stimulate growth in the economy. More about that later.

The background to the Budget is an economy where the warning lights are starting to come on — one that looks dangerously like heading into recession. The reasons for this decline are obvious. A sluggish world economy and a slowdown in commodity prices, combined with a decline in Chinese iron ore imports, means mining activity is no longer animating the Australian economy. And with the car industry on its way out, manufacturing has been unable to pick up the slack. This, combined with a hamfisted, unfair, inequitable and unpopular first Budget attempt by Treasurer Joe ‒ almost all of which was excruciatingly knocked back by the Senate ‒ has led to business and consumer confidence being in the doldrums, leading to a corresponding decline in business activity and investment. The Reserve Bank has tried to stimulate economic activity by cutting interest rates – again and again, to record lows – but this has had little or no effect on Australia's languishing economy.

Of course, many of the more contentious issues in the Budget had already been announced — such as a tightening of pension rules and a new $3.5 billion investment in childcare tied to last year’s cuts to Family Tax Benefit Part B being passed. Though stimulating debate, given the state of the cross benches, these changes seem unlikely to be passed. They are hypotheticals.

The Budget, of course, feeds Australia’s growing National Insecurity — Defence, ASIO metadata snooping, slashing foreign aid, stoppin’ dem boats ‒ but its main thrust was an attempt to recapture Howard’s “battlers” — tradies and self-employed contractors struggling to run small businesses. These are people hammered by welfare cuts in the previous Budget.

Hockey has cut corporate tax for small businesses by 1.5% and allowed them to expense assets up to $20,000 immediately, rather than depreciating them over a few years. The latter is a strange move, given they reduced accelerated depreciation for small business entities from $6,500 to $1,000 in the previous Budget. This Government is all over the road.

These tax breaks are presumably aimed at stimulating small business investment and providing a stimulus to the economy. And undoubtedly it will provide a modest sugar hit to the economy, as those small businesses already making a reasonable profit ‒ who can afford to spend money on relatively low cost items of plant and equipment ‒ will go out and buy new filing cabinets, laptops and flat screen TVs.

But for the vast numbers of sole traders, tradies and small businesses struggling to break even ‒ the "battlers" ‒ a tax break is meaningless. If you don’t make a profit, you don’t pay tax.

As the head of the Small Business Council, Peter Strong, was reported as saying about these measures:

"Everybody likes a tax break. Nobody says 'no, thank you', but it's not the big thing," he said.

"None of my people get excited about the tax break. What we want is that focus on spending."

It is a sign of how out of touch the impossibly affluent Joe Hockey is with those struggling to make ends meet that he thinks a 1.5% tax cut ‒ rather than money in pockets now ‒ will thrill blokes driving around in white vans. What they need is more business coming through the door and this Budget does virtually nothing to stimulate consumer demand.

Similarly, Joe Hockey has included a sop to the Nationals with tax breaks to farmers for building fences and other farm infrastructure — deferred until 2017. This is also great — if you’re earning money. But if you’re in the middle of a drought and can barely feed your family, you are unlikely to be out putting in more sheds, dams and fences and waiting until 2017 to get the money back — providing you make a profit.

Wayne Swan stimulated demand in a time of economic downturn by putting money directly into the hands of consumers and by creating nation building projects ‒ putting in pink batts and building school halls ‒ that directly sent business the way of the battlers. But Hockey can’t do that, because he has pilloried Swan relentlessly over implementing those very measures — as well as for being unable to return a surplus. Poor Joe, wedged by his own hubris; a tragedy wrapped in an irony.

It gets worse. The sort of business demand the tax breaks do stimulate will almost all end up in the hands of big business, like Office Works and Harvey Norman, who will undoubtedly find a way to minimise their tax or funnel the money offshore. Consequently, any short run uplift in the economy will do little to benefit the sickly revenue side of the Budget.

Of course, Joe has produced legislation aimed apparently at minimising tax avoidance by multinationals. The devil is in the detail here. Given the Tax Office’s number one tax risk is the Abbott Government’s preferred public relations firm ‒ Rupert Murdoch’s fly-blown News Corpse ‒ I would be surprised if this legislation amounts to anything more than pretty window dressing.

Speaking of Rupert, one of the pre-announced budget measures was to extend the GST to digital downloads ― the so-called “Netflix tax”. Now, who is the major competitor of Netflix threatened by digital downloads? That’s right, Australia’s monopoly pay TV provider, Foxtel, which is half owned by ‒ of course ‒ Rupert Murdoch’s News Corpse.

I guess we now know what Joe Hockey and Uncle Rupert discussed in New York last month.

Speaking of rich, rapacious rent seekers, it looks like Gina Rinehart's great northern pipe dream has had a win, with $5 billion assigned to concessional loans to state governments and the private sector for developing infrastructure, such as roads, rail, ports and pipes on the northern frontier, in WA, NT and Queensland. Or put another way, with iron ore prices going down the toilet, Gina (with the help of beleaguered Twiggy Forrest) has leant on Joe Hockey to provide her with a massive subsidy to build port facilities, roads and railway lines for her mining operations in the north. That’s on top of the billions she already receives every year from the Government via the diesel fuel rebate and other Coalition donor subsidies. It's a lifestyle choice!

However, if commodity prices continue along the same downward path, even this sop to Coalition family and loved ones seems unlikely to attract much capital. Yes, that's more struggling small business owners failing to be boosted by the Hockey Budget.

This big spending, big taxing Budget was probably hoped to be one that would help set up the Abbott Government for an early double dissolution election, but that now seems unlikely. In fact, with the narrative over “debt and deficit” running away and being lost forever, it would seem more likely that the Government will lose even more credibility in the eyes of the electorate ― similar to when former PM Kevin Rudd abandoned his “greatest moral challenge” ETS.  Joe’s attempts to stimulate the economy through subsidies to small business and big miners are likely to be modest and short-lived, and ultimately seen by the electorate as ineffective.

There is an attempt to portray this as a fair budget, but in truth it mostly puts money in the hands of the well off and the Coalition’s usual big business cronies by growing the deficit to record levels — something it described as at emergency levels under previous Governments.

It does this at the same time as it is perceived as attacking the disadvantaged — such as single and stay at home parents. It may be pitched as a boost to small and micro businesses, but unless the economy turns around, the strugglers won’t see any of the benefits — and so neither will the Government.

Joe Hockey may have saved his job and he may even stop scowling for a while when he speaks ‒ maybe ‒  but his lack of understanding of basic economics and, more importantly, the interests and concerns of his targeted constituents, means he has almost certainly put the Abbott Government past the point of no return, with their chances of re-election vanishing like a train line into the Great Northern Mirage.

Managing editor David Donovan is a qualified accountant, with over 20 years’ experience running big and small businesses. You can follow him on Twitter @davrosz.

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