A "grossly ignorant" administration, says Alan Austin

Why has the Abbott Government’s first budget crashed so spectacularly? Can the damage be repaired? Alan Austin looks at the Joe and Tony's failure to generate adequate income.

Read the first part here: Waste of space: Joe Hockey’s budget megafail all Abbott’s fault.

The Abbott Government’s first budget has failed on several levels. The Top 40 chart of wasteful spending decisions was shown in part one. Equally disastrously, multiple billions have been lost in revenue not collected.

Treasurer Joe Hockey has no coherent long term tax program. And he has failed to implement any short term strategy to protect the economy while trying to traverse his preferred propositions through a wary new Senate.

The Coalition's tax white paper due last December has still not appeared. This is causing considerable anxiety in the business community.

The fact that a sound revenue policy was not completed before the last election is clear evidence that Tony Abbott was not the "brilliant opposition leader" the Murdoch media lauds relentlessly. He was arguably the worst in living memory.

Failures on the income side of the ledger include:

1. Closing off $7.6 billion in annual revenue from the carbon tax

With no alternative income stream in sight, the Coalition closed it down for ideological reasons. Of course, the troublesome tax was never Labor’s preferred option for reducing carbon emissions. But it was gaining traction in both emissions reduction and revenue collection. While Abbott can certainly claim he had a mandate to axe the tax, he also promised to reduce the deficits and debt — which require replacement income.

2. Closing off $3.4 billion revenue from the mining tax

The mining tax was estimated to generate $3.4 billion over the four year forward estimates period. The Abbott Government replaced it with no alternative revenue stream. The same criticism applies as above.

3. Closing off $3.6 billion from changes to tax and superannuation rules

These were rules to which the previous Government had committed. Employees aged over 60 can now divert $35,000 of pre-tax income into super funds and pay just 15% tax and then withdraw it immediately tax free. It is not fair, should be stopped and would, if stopped, achieve substantial savings. The Coalition, however, again abandoned those reforms with no replacement revenue.

4. Failing to pursue $1.1 billion shifted by multinational companies to offshore tax havens

Abbott and Hockey have failed to pursue $1.1 billion in revenue – also announced by the previous Government – derived from stopping multinational companies shifting profits to tax havens overseas. Companies such as Glencore have arranged loans between subsidiaries so as to avoid recording taxable income when in reality they are making strong profits.

5. Failing to pursue other tax avoidance schemes

Substantial revenue is foregone through other tax avoidance schemes, described here.

6. Failing to pursue tax evasion

More revenue is lost from tax evasion – sheer illegality. Efforts to curb this are now going backwards. Tax Office staff has been cut by about ten per cent, which ATO second commissioner Neil Olesen insists must shrink revenue collected severely.

7. Failing to forecast resources revenue write-down

The current fall in both commodity prices and incomes – which reduces tax derived from profits and wages – was predicted. Yet no plans were made to offset this with alternative revenue.

8. Failing to anticipate falling revenue from corporate sector

Declining terms of trade and global economic sluggishness have meant less revenue from the corporate sector in general. To date, no means to rectify this glaring revenue shortfall have been announced. Those often mooted include changing unfair negative gearing rules, increasing tobacco, fuel and other excises, broadening capital gains taxes and ending fringe benefits rorts, such as novated vehicle leasing. None have been implemented by this Government and, in fact, soem planned changes in these areas from the previous Government have been axed, throwing the Federal budget further into the red.

Five observations can be made about all these decisions — the eight revenue failures, above, and the 40 spending blow-outs listed on Monday.

First, all of the above were Coalition decisions. Labor supports most defence and security outlays, although the Greens do not. But Labor did not lock in any of these outcomes. Despite the Abbott Government’s bluster, the deterioration in the accounts since September 2013 is entirely its fault.

Second, the deterioration has been dramatic. The Abbott Government inherited the best-performed economy in the world in 2013. Some say the best the world has seen since data collection began. Within nine months, however, ABC Fact Check confirmed deficits for the forward estimate period had doubled over Labor’s level. Now, after 17 months, net government debt has increased over Labor’s by 34.6%. It’s on track to have doubled by this time next year.

Other indicators suffering Hockey’s droop since September 2013 are the GDP growth rate, the jobless rate, business confidence, retail sales, industrial production and the value of the Aussie dollar.

Third, this is precisely the opposite of what was promised. Before the election, Abbott’s assurances were clear:

“We will secure prosperity by getting the Budget back under control, cutting waste and reducing debt ...”

More specifically, at the 2013 Federal Coalition campaign launch:

“By the end of a Coalition government’s first term, the budget will be on-track to a believable surplus.”

Fourth, it will take a treasurer and finance minister with a high level of competence, courage and authority to restore the situation. Joe Hockey and Mathias Cormann have not demonstrated they have these qualities. No-one else in the Coalition appears any better credentialed. Indeed, ministerial competence appears lacking in every cabinet portfolio, with the possible exception of health, under new minister Sussan Ley.

For example, as shown in part one of this series, ministerial use of VIP jets instead of commercial flights cost taxpayers about $900,000 in just two months in late 2013 [item 20].

Quizzed regarding a Perth flight, Education Minister Christopher Pyne said:

"It's probably cheaper than bringing them all individually on Qantas or Virgin."

ABC Fact Check revealed, however, that

‘... comparable commercial fares would have cost a maximum of $56,260, whereas the cost of sending the VIP jet to Perth would have been a minimum of $140,483 before other costs are added.’

That is not an error of five or ten per cent — that is an error of 150 per cent. Imagine if a company executive was that grossly ignorant of a significant input cost to his enterprise. In terms of this Government, the rot starts from the head.

Fifth, as the experiences of Spain, Ireland, Hong Kong, Venezuela and other countries show, damage done to an economy in a short time can take decades to repair.

Double dissolution anyone?

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