Wren's Week: A closer look at tax cuts

In this week's column, John Wren discusses the ramifications of Liberal tax cuts on the Australian economy.

Wren’s Week

4/7/19

PARLIAMENT IS BACK. Finally. And it’s all about tax cuts. As we have learned over the last six years, the Liberals’ primary focus is not on the wellbeing of the nation and its people. Their raison d’etre is about furthering the financial agenda of themselves and their cronies. Secondary to that is attacking and wedging Labor.

During the election campaign, when Prime Minister Scott Morrison thought he was going to lose, he promised sweeping tax cuts, initially for low and middle-income people and later (in five years) for higher-income earners. The third stage for the high-income people was roundly seen as grossly irresponsible as it degrades Australia’s progressive tax system still further and it’s so far away that we have no way of knowing what the state of the books will be like when they do come to fruition. He didn’t really care, though, as he didn’t think he’d ever have to actually implement them. And then he won.

The tax cuts were also a perfect wedge on Labor so the Liberals’ primary directives of looking after their mates and screwing over Labor were both met. Why did it wedge Labor, you ask? During the campaign, Labor did not want to be seen as withholding tax cuts from battlers so they backed the first and second stages of the cuts, but were very vociferous in their objections for the final stage.

The Senate voted down my motion to increase Newstart today while on the brink of approving $158billion in tax cuts, most of which will go to the wealthy. pic.twitter.com/Yiz4NH0hwr
— Rachel Siewert (@SenatorSiewert) July 4, 2019

The Liberals deliberately did not split the Bill, so it put pressure on Labor to either vote against the tax cuts for battlers as well or vote for the lot. How Labor voted in the lower house was irrelevant either way, as they didn’t have the numbers to stop the Bill regardless. Had they voted against it and lost, they would have had to face three years of Murdoch screeching at Labor for “wanting to block tax cuts for battlers”.

So, Labor took the lesser of two evils and voted for the cuts while reserving their right to amend the Bill in the senate (that is, split the third wave out of it). Voting for the Bill gave the Greens the opportunity to grandstand and call Labor sell-outs. Why the media is not now ganging up on the Greens’ Adam Bandt for wanting to block tax cuts for battlers, I’ll never know.

The Bill was in the hands of the crossbenchers in the senate. They all rolled over as expected. Newly recycled Senator Jacqui Lambie did some public horse-trading with Finance Minister Mathias Cormann to get her vote over the line. She’ll get shafted. She came out saying negotiations with Cormann were done in “good faith”. As I recall, the last person to negotiate in good faith with Cormann was Malcolm Turnbull. Didn’t that work out well for Turnbull?

But what’s the endgame? The endgame is a rise in the GST from 10% to 15%. The tax cuts will lead to a predictable drop in tax revenue. This is in a year when the Government has forecast a surplus (again, a promise made when they thought they were going to lose the election and wouldn’t have to deliver it). This will make the surplus even less achievable. In order to deliver it, the Government will have to make cuts to services such as healthcare, education, aged care, NDIS and other welfare provisions. They will argue that if we want to keep them unchanged, then another revenue stream must be found.

After the government’s $158 billion of tax cuts, expect to see a LOT more of this.

Thanks a lot @JacquiLambie for voting for this. I know you’re not the only cross bencher voting today, but you were the one we thought would stand up for all Australians. https://t.co/ddZtpO3a8a
— 💧🇦🇺Bethany Williams (@BethanyinCBR) July 3, 2019

That stream will be an increase of the GST. Increasing the GST will, of course, make our decreasingly progressive tax system even less progressive as a rise in the GST will hit the less wealthy far harder than the those who can afford the increase. Again, we see the Liberals favouring their wealthy mates over ordinary Australians.

While all this was going on, of course, the economy continues to tank. The recession has been solely created by the fiscal incompetence of the Liberal Party. Over the last six years, through policy and direct action, the Liberals have been seeking to restrict wages growth and even reduce wages — for example, the penalty rates cuts which statistically have not created a single new job.

At the same time, they have been borrowing money hand over fist to give to their cronies — Dutton’s Paladin and Angus Taylor’s Watergate scandals are prime examples. As a result, we are running up record debt with nothing to show for it while our wages stagnate and prices rise; power prices in particular, again through Government policy inaction. People have simply run out of disposable income to spend. We are seeing it in retail, restaurants and new car sales. When people don’t spend, it exacerbates the recession. This was what was behind Rudd and Swann’s “helicopter money” handouts during the GFC. They had to keep spending going — and it worked.

The RBA came out this week and reduced interest rates again to emergency levels of 1%. They’ve got very little left to cut, so now it’s up to the Government to pump prime the economy with infrastructure spending and other measures. This was partly behind the drive to get the tax cuts through. Whether it has any real effect, only time will tell.

Australia is in trouble. Recall former Liberal, then Shadow Treasurer, Joe Hockey’s comments from 2013 when the RBA cut interest rates under Labor to 2.5% (much higher than today’s rates):

They're not cutting interest rates because the economy is doing well. Interest rates are being cut to 50-year lows because the economy is struggling.

If your argument is that the lower the interest rates the better the economy, go and ask the British or the Americans or the Europeans that have interest rates at zero how their economies are going because I tell you what, we are now beyond emergency levels.

If anyone thinks that the Reserve Bank acted today because the economy is doing really well and Labor's doing a terrific job running the economy, they'd be deluding themselves.

What goes around comes around.

So, now Morrison has got the one sole policy he took to the election under his belt, what will he turn to next? Well there are all sorts of mutterings, but like dogs returning to their vomit, we can expect a focus on restricting union power, reversing the Medevac Bill, drug-testing welfare recipients (a failure everywhere else it's been done) and, of course, the Religious Freedom Bill that even their own Ruddock enquiry said they don’t need.

On the last point, Morrison said during the week, that “employers should respect their employees’ private religious beliefs and practices”. I guess that means religious schools will no longer be able to sack teachers who don’t practice what they preach at home. I’m sure that’s what the happy-clappy slogan bogan meant, isn’t it?

My article in the new @SpectatorOz on why @ScottMorrisonMP’s Bill for Religious Freedom will be futile if it doesn’t give quiet Aussies back their free speech & free conscience. https://t.co/yVOTADa5JI #FreeSpeech #izzyfolau
— David van Gend (@DavidvanGend) July 5, 2019

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