A simpler tax system should spark joy. Sadly, the one in this budget doesn’t



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What’s not to like about a flatter tax system? Well, for starters, the one laid out in this budget won’t actually simplify our lives.
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Steven Hamilton, George Washington University

There weren’t any new tax ideas in the 2019 Budget, which perhaps is to be expected from a six year old government preparing for an election the betting markets suggest it will lose.

Instead what we got were extensions of a few actually-pretty-big tax ideas introduced in last year’s budget: the planned elimination of the 37% tax bracket, the Low and Middle Income Tax Offset, and the immediate expensing of investments for businesses.

Given the looming election it’s worth examining each of these three ideas, which I will do over the next few days.

First, eliminating one of the tax rates. At the moment the income tax schedule has five rates:



Australian Tax Office

By 2024 they are to be “flattened and simplified” to just four.

An entire rate would vanish, and on that part of their income between A$45,000 and $200,000, most people would face a flat rate of 30%, down from the 32.5% proposed in last year’s budget:



Commonwealth budget papers

It’s an idea with a long lineage.

In 2010 the Henry Tax Review told the Rudd Labor government that personal income tax had become “inordinately complex”.

It proposed a simpler, three-rate, system, but, importantly, said most of the complexity wasn’t due to the number of rates but was due instead to the “large suite of complex deduction rules, numerous tax offsets and a variety of exempt forms of income”.



Henry Tax Review

It’s worthwhile considering why simplicity matters.

Setting aside political considerations, simplicity only matters to the extent that it lowers the cost to the economy of the government raising revenue. For every dollar it raises, the tax system imposes compliance costs on taxpayers and others like employers and banks who are required to keep records and report information to the Tax Office, which also bears costs.

The only simplicity we should care about is one that makes the tax system easier to comply with and easier to administer.

The kind of simplicity that matters

The problem with removing a tax bracket is that by itself it does nothing to achieve that objective. It makes the tax system look tidier – the graph is easier to draw, but that’s it. It doesn’t simplify lives and doesn’t bring joy, except to clean freaks who can satisfy their inner Kondo.

The thing to understand is that the tax system is sometimes complicated for a good reason. That might be a desire to tightly target a tax measure so that only those of a certain income or those with children receive it, for example. Not targeting the tax measure would make the system simpler, but it might also make it less fair and more expensive.

If we accept that some income redistribution is desirable, then in an ideal world we would have a smoothly increasing marginal tax rate from middle to high incomes. There would be an infinite number of tax brackets, as in Germany, where income tax rates rise continuously with income.

It would be easy enough to navigate. An online tool would do the trick.



If we must have discrete tax brackets, then the goal ought to be to approximate this ideal system as closely as possible. It would mean having more rather than fewer rates. Having fewer rates forces some people to pay more than they should and others less.

Some have suggested that eliminating tax brackets would reduce the opportunity for taxpayers to manipulate their income so that it bunches around thresholds.

A graph prepared for the Abbott government’s tax white paper shows that bunching does indeed happen, but it is confined to only a narrow sliver of the income distribution and thus very few taxpayers. It’s probably not worth worrying about.



Re:think. 2015 Treasury tax discussion paper

The kind of simplicity that would help

An idea recently endorsed by the Inspector-General of Taxation
and originally proposed by the Henry Review is a standard deduction.

It would entitle every taxpayer to claim a standard amount of deductions without needing receipts. Those with deductions in excess of the standard deduction would still be free to claim those. It’s a system that already exists in the United States and other countries.

Deductions aren’t necessarily a bad thing. There are good reasons why some should be allowed (for example, deductions on the debt interest used to fund investment).

But in practice they take up a lot of our time to document and can be difficult for the Tax Office to interpret (is that car really for work purposes or for personal driving?), something the Tax Commissioner has complained about.

My own research suggests deductions are one of the main means of tax avoidance, responsible for 12 times as much avoidance as understatement of income.

The former Labor government was on board with Henry’s proposal. Unveiling the findings of Ken Henry’s review in 2010, treasurer Wayne Swan promised to “remove the hassle of shoeboxes full of receipts”.

From 2012 onwards everyone would get a standard deduction of $500 in lieu of claiming work-related expenses. It would climb to $1000 from 2013.




Read more:
What will the Coalition be remembered for on tax? Tinkering, blunders and lost opportunities


Budgetary constraints meant he never got around to introducing the legislation.

In 2017 Treasurer Scott Morrison asked a parliamentary inquiry to look into the possibility of doing it. It found it would be expensive. A standard deduction of $500 would cost an extra $2.3 billion, a standard deduction of $1000, $4.6 billion.

These costs, while considerable, are nothing like the cost of the flatter tax system the Coalition is proposing.

And they would enable most taxpayers to avoid submitting a tax return at all. Deductions are the primary reason for tax adjustments. Without them, taxpayers could set and forget. Most taxpayers, and the Tax Office, could concern themselves with other things, such as going after multinational corporations.

Now wouldn’t that spark joy?The Conversation

Steven Hamilton, Assistant professor, George Washington University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Post-budget poll wrap: Coalition gets a bounce in Newspoll, but not in Ipsos or Essential


Adrian Beaumont, University of Melbourne

Six weeks before an expected May 18 election, this week’s Newspoll, conducted April 4-7 from a sample of 1,800, gave Labor a 52-48 lead. That’s a two-point gain for the Coalition since the last Newspoll, conducted four weeks ago, owing to the NSW election and the budget. This Newspoll has the narrowest Labor lead since Scott Morrison replaced Malcolm Turnbull.

An Ipsos poll for Nine newspapers, conducted April 3-6 from a sample of 1,200, gave Labor a 53-47 lead, a two-point gain for Labor since mid-February. While Ipsos was better for Labor, the February Ipsos was the infamous 51-49 after the Medevac bill passed.




Read more:
Poll wrap: Labor’s lead narrows to just 51-49 in Ipsos, but is it an outlier?


Primary votes in Newspoll were 38% Coalition (up two), 37% Labor (down two), 9% Greens (steady) and 6% One Nation (down one). In Ipsos, primary votes were 37% Coalition (down one), 34% Labor (up one), 13% Greens (steady) and 5% One Nation (steady). Rounding probably assisted the Coalition on two party in February, and assisted Labor this time. As usual, the Greens vote in Ipsos is too high, and Labor’s too low.

Respondent allocated preferences in Ipsos were also 53-47 to Labor, and there has been no difference between respondent and previous election methods in Ipsos since Morrison replaced Turnbull. Under Turnbull, respondent preferences were usually better for the Coalition.

In Newspoll, 45% were satisfied with Morrison’s performance (up two), and 43% were dissatisfied (down two), for a net approval of +2, Morrison’s best since October. Bill Shorten’s net approval rose one point to -14, his best since January. Morrison led Shorten by 46-35 as better PM (43-36 four weeks ago).

In Ipsos, Morrison’s approval and disapproval were both down a point, to 48% and 39% respectively. Shorten’s net approval fell three points to -15. Morrison led Shorten by 46-35 as better PM (48-38 in February).

There are three questions Newspoll has asked after every budget since 1988: whether the budget was good or bad for the economy, good or bad for you personally, and whether the opposition would have delivered a better budget.

44% thought the budget good for the economy and just 18% bad; the +26 net score is the best for a budget since 2008. 34% thought they would be better off, and 19% worse off; the net +15 score is the best since 2007. In better news for Labor, by 45-37 voters thought Labor would not have delivered a better budget; this -8 score is the third best for Labor under a Coalition government, just one point less than in 2014 and 2018.




Read more:
Infographic: Budget 2019 at a glance


In Ipsos, by 41-29 voters thought the budget was fair, the +12 net is the best since 2015. 38% thought they would be better off and 24% worse off, the +14 net is the same as in 2018. By 42-25, voters thought Labor had better policies on climate change than the Coalition.

The 2018 budget was also well received, and the Coalition had its best polling of the current term during the period surrounding that budget. Six of the eight Newspolls conducted from late April 2018 to August gave Labor just a 51-49 lead, before the Coalition crashed to a 56-44 deficit after Turnbull’s ousting.

While last week appealed to the Coalition’s perceived strength on overall economic management, wage growth and climate change, which are perceived as weaknesses for the Coalition, are likely to be important during the election campaign. Attacks on Labor’s economic policies, such as their plan to abolish franking credit cash refunds, give the Coalition its best chance to win.

After revelations that One Nation solicited donations from the US National Rifle Association, some would have expected their vote to crash, but it has held up well.

In economic news, on March 21 the ABS announced that 4,600 jobs were added in February, well down from the over 39,000 added in January. While the unemployment rate decreased 0.1% to 4.9%, this was a result of lower workforce participation.

The Westpac March consumer confidence index, taken in the week the weak GDP report was released, fell 4.8 points from February to 98.8. House prices have continued to fall.

Essential: 52-48 to Labor

This week’s Essential poll, conducted April 4-7 from a sample of 1,069, gave Labor a 52-48 lead, unchanged from last fortnight. Primary votes were 38% Coalition (down one), 35% Labor (down one), 11% Greens (up one) and 5% One Nation (down two). Essential has tended to be worse for Labor than Newspoll since Morrison became PM.

By 51-27, voters approved of the budget; the +24 net is higher than the +16 net in 2018 or +8 net in 2017. Over 75% agreed with the infrastructure spending program and tax rebates for workers earning up to $90,000. By 26-20, voters thought the budget was good for them personally, a reversal from last fortnight’s pre-budget poll, when voters thought the budget would be bad for them personally by 34-19.

The Coalition was trusted over Labor to manage the economy overall by 44-29, but Labor was ahead by 45-31 on managing the economy in the interests of working people.

I wrote on my personal website about last fortnight’s Essential poll that gave Labor a 52-48 lead. Questions about views of world leaders had Theresa May’s ratings tanking since these questions were last asked in July 2018.

In pre-budget polling, a YouGov Galaxy poll for the News Ltd tabloids gave Labor a 53-47 lead. State breakdowns of primary votes suggested that the NSW election defeat had an impact on federal Labor’s NSW vote.

NSW election upper house late counting

With 68% of enrolled voters in the NSW upper house check counted, the Coalition has 7.9 quotas, Labor 6.5, the Greens 2.1, One Nation 1.5, the Shooters 1.1, the Christian Democrats 0.5, the Liberal Democrats 0.5, Keep Sydney Open 0.4 and Animal Justice 0.4.

Out of the 21 seats up for election, eight Coalition, six Labor, two Greens, one One Nation and one Shooter are certain to win. By also using the now complete initial count, analyst Kevin Bonham currently thinks two seats will go to Labor and One Nation, and the final seat is in doubt between the Liberal Democrats, Christian Democrats, Keep Sydney Open and Animal Justice.




Read more:
Coalition wins a third term in NSW with few seats changing hands


European leaders’ summit on April 10 to decide on Brexit

On April 12, the UK is currently scheduled to leave the European Union, with or without a deal. With no deal likely by then, an April 10 European leaders’ summit will decide whether to grant the UK a long extension to Brexit.

I wrote about this summit for The Poll Bludger on April 6, and on March 30, I wrote about the 58-vote Commons defeat of Theresa May’s Brexit deal.The Conversation

Adrian Beaumont, Honorary Associate, School of Mathematics and Statistics, University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The ABC didn’t receive a reprieve in the budget. It’s still facing staggering cuts



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According to new research, the ABC stands to lose A$783 million in total funding by 2022, unless steps are taken to reverse budget cuts.
Shutterstock

Alexandra Wake, RMIT University and Michael Ward, University of Sydney

Despite some reprieve in the 2019 federal budget, the ABC is still in dire financial straits. More job losses and a reduction in services remain on the agenda.

The Coalition government has provided another three years of tied funding of A$43.7 million specifically for the national broadcaster’s “enhanced news-gathering” program. This program supports local news (particularly regional and outer-suburban news gathering), national reporting teams and state-based digital news.

But this funding doesn’t address the broadcaster’s need for more stability in its operational funding.

In July, the ABC will start to feel the full impact of a three-year, A$83.8 million indexation freeze on its funding, which was contained in the 2018 budget. So devastating is the size of that cut – and the ones prior to that – that ABC managers are almost completely focused on money, undermining their capacity to be strategic about the future.

There is no provision in the 2019 budget to restore the funding lost over the past six years and certainly no boost to cater for the dynamic and changing media environment.

Audiences who value what the ABC does now – and what it needs to be doing to support Australian democracy into the future – should take a closer look at the numbers, the way the money has been allocated and the impact of that.




Read more:
ABC inquiry finds board knew of trouble between Milne and Guthrie, but did nothing


Accumulated losses to ABC are staggering

To illustrate the need for more secure operational funding for the ABC, one of the authors of this article, Michael Ward, conducted research on just how much the broadcaster stands to lose in the aggregate over the course of an eight-year period. Ward used a number of public financial sources to build the table below, including ABC portfolio budget statements and ABC answers to Senate Questions on Notice

One of the difficulties in looking at budgets is the way forward estimates work. As the figures in the table show, the past six budgets have included measures to reduce, remove or freeze (indexation) ABC funding, without adding any new funding initiatives.

This has resulted in an accumulated reduction in available funding of A$393 million over a five-year period, starting from May 2014. According to current budget forecasts, this also means the ABC stands to lose A$783 million in funding by 2022, unless steps are taken to remedy the situation.

The Coalition government and others would argue, however, the ABC actually received a reprieve in this year’s budget with committed funding for “enhanced news gathering” because it treats as “new” the renewal of tied fixed-term funding as it expires.

The “enhanced news gathering” and digital delivery funding was first enacted by the former Labor government in 2013. Although “enhanced news gathering” funding has been renewed twice by the Coalition government since then, including in this year’s budget, the amount allocated for the program was slashed in 2016.

So, while it appears that the current budget announcement is good news for the ABC, the reality is, it is simply a continuation of what should be seen as core business.




Read more:
ABC budget cuts will hit media innovation


One way governments of all ilks have tried to control the ABC – and to win voters over – is by providing tied funding to specific programs like this. One of the earliest examples of tied funding was a National Interest Initiative by the Howard government in 2001, and later the Rudd government’s Children’s Channel and Drama Funding Initiative of 2009. These were seen as core to the ABC’s work, and were eventually made part of the ABC’s ongoing budget.

The problem, of course, is that voters do not understand the impact of the cessation of limited-term, tied funding programs.

We argue that tied funding is also contrary to the principles of independent public broadcasting because it effectively forces the broadcaster to prioritise its activities and programs at the current government’s whim. It also inhibits longer-term effective financial planning by the ABC.

Tied funding used by all parties

If elected, the ALP has committed to restore the A$83.8 million indexation freeze for the ABC included in last year’s budget. It has also promised an additional A$15 million for specific projects to restore short wave radio to the Northern Territory and add more local and regional content, emergency broadcasting and a news literacy program aimed at combating misinformation campaigns online.

Labor has also pledged “funding stability for the ABC over the next budget cycle”, though this has not come with a guaranteed boost in funding.

These commitments are important, but the freeze is just the tip of a funding iceberg that the ABC has been dealing with for the past six years. The continuation of a tied funding approach doesn’t address the underlying budget problem. More needs to be done.




Read more:
Cut here: reshaping the ABC



The Journalism Education and Research Association of Australia, a group that represents journalism academics in Australia, drew on Ward’s research at the recent Senate hearing into allegations of political interference of the ABC to call for more secure operational funding for the broadcaster.

JERAA argued that the ABC has been cowed by repeated parliamentary inquiries, funding cuts and efficiency reviews. These have had a severe impact on the broadcaster’s ability to perform its important role for the Australian people, which includes production of excellent public affairs reporting, local programming, international news, children’s programming and services on a range of current and emerging platforms.

Tied funding stops the ABC from meeting the core components of its legislated obligations, particularly digital content delivery, where the cost of success – increased take up of services – carries an extra financial burden, unlike analogue broadcasting.

Unless the ABC has ongoing stability of funding and ideally an increase that allows it to keep innovating, it won’t be able to maintain relevance in this fast-moving, globalised media world, nor will it be able to continue as a watchdog on people in power, particularly governments.The Conversation

Alexandra Wake, Program Manager, Journalism, RMIT University and Michael Ward, PhD candidate, University of Sydney

This article is republished from The Conversation under a Creative Commons license. Read the original article.

What just happened to our tax? Here’s an explanation you’ll understand



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So far, Labor is $95 ahead of the Coalition, for many Australians.
Shutterstock

Peter Martin, Crawford School of Public Policy, Australian National University

With all the announcements on tax over the past few days it’s hard to keep track. So here goes.

A year ago the then treasurer Scott Morrison unveiled a “seven year personal tax plan.

Some of it involved tax cuts way out into the future, in 2022 and 2024, with which we needn’t concern ourselves – there’ll be two, maybe more, elections before then.

The bit that was to start in mid 2018 (and did) wasn’t a tax cut at all, strictly speaking. It was an “offset” with an ungainly name: LMITO – the Low and Middle Income Tax Offset.

A standard tax cut, applying to any rate, would save money to all taxpayers on that rate and rates above it, including those on very high incomes. It couldn’t be directed to just low and middle earners, which is what the Coalition wanted.

What’s on offer isn’t really a tax cut

So the Coalition designed an offset, to be paid as a lump sum after the end of each tax year, after returns had been submitted and only to those taxpayers whose returns showed they weren’t high earners.

The full offset was A$530 per year, paid only to taxpayers who earned between $48,000 and $90,000. Taxpayers who earned more than $90,000 would lose 1.5 cents of it for each dollar they earned above $90,000, meaning no-one who earned more than $125,333 would get any of it.

(Taxpayers earning more than $125,333 wouldn’t go home completely empty handed – they would benefit from an increase in the point at which the the second highest rate came in, worth a barely consequential $135 a year.)




Read more:
It’s the budget cash splash that reaches back in time


Taxpayers who earned less than $37,000 would get $200 off their tax, climbing to $530 for taxpayers earning $48,000.

It was ungainly – it was better described as a series of annual lump sum payments than a tax cut – and Labor embraced it entirely.

In 2018 Labor trumped it

Except that Labor supercharged it. Under Labor it was to operate in exactly the same way, except that each payment would be 75% bigger: the Coalition’s $200 became Labor’s $350, the Coalition’s $538 became Labor’s $928 and so on.

Labor outbid the Coalition.

And these things stayed, for almost a year, except that it was all a bit academic.

Labor wasn’t in government, and the leglislated offsets weren’t to put the lump sums in pockets until after the end of June 2019.

In 2019 the Coalition trumped Labor

It allowed the Coalition to sneak in before them in Tuesday’s budget and double the maximum lump sum: $538 became $1,080, a promise Bill Shorten matched in his budget reply speech on Thursday night.

But for some reason the Coalition didn’t double everything: $200 only became $255, rather than the $350 Labor had already promised.

On Thursday night Shorten confirmed the $350 promise.

He is able to offer the 3.6 million Australians earning less than $48,000 more than the Coalition – in most cases an extra $95 more: $350 instead of $255.

Now Labor has trumped the Coalition

Shorten says it’ll cost an extra $1 billion over four years, which is a mere fraction of the money Labor believes it will have that the Coalition won’t, because of its crackdowns on negative gearing, capital gains tax concessions and dividend imputation.

As Shorten put it on Thursday night:

Labor will provide a bigger tax cut than the Liberals for 3.6 million Australians all-told, an extra $1 billion for low income earners in this country. Here’s the simple truth – 6.4 million working people will pay the same amount of income tax under Labor as the Liberals. Another 3.6 million will pay less tax under Labor.

In fact they’ll pay just as much tax from payday to payday, but they’ll get back more at the end of the year, in most cases $95 more.

So here’s the scorecard:The Conversation

Annual tax offset by taxable income.
Source: Australian Labor Party

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Grattan on Friday: Bill Shorten’s tactical play foils budget’s tax pitch


Michelle Grattan, University of Canberra

Scott Morrison needed the budget to change the game for the election. But its political impact has seemed tepid rather than transformative.

And Bill Shorten has shown that having the last parliamentary word in budget week can be used to grab the mic from your opponent.

By the time parliament broke on Thursday night, everything was in place for the election, except the announcement of the date, with the three options Morrison had earlier canvassed – May 11, 18 or 25 – hanging out there.




Read more:
The budget super change that helps the wealthy at the expense of the young


In his Thursday budget reply, Shorten delivered a carefully-targeted pitch to voters that invoked hope and promised fairness. He came up with a big Medicare initiative, and he outsmarted the government on its tax cuts, the budget’s centrepiece.

Shorten seeks to use what Labor dubs “the politics of hope” as a response to voters being switched off by all the cynicism. “We choose hope over fear. We choose the future over the past,” he said.

His $2.3 billion promise to slash out-of-pocket costs faced by cancer patients played to a traditional Labor strength – health policy – and should be popular.

The opposition aims to put Medicare at the forefront of its campaigning, as it did in 2016. But there is a notable difference.

Then it ran the negative “Mediscare” offensive. Now the emphasis is positive, with an ambitious pledge to extend Medicare, helping cancer sufferers, vulnerable and numerous, who often face financial burdens.

“One in two of us will be diagnosed with cancer at some stage in our life,” Shorten said, as he outlined “our vision for the most significant investment in Medicare in a generation”.

On tax, Shorten one-upped the Liberals, offering bigger immediate tax cuts to 3.6 million taxpayers who earn under $48,000.

Labor has more than neutralised the budget’s immediate income tax bait by matching the first tranche of tax cuts for most taxpayers, while bettering them at the bottom end.

This was always an obvious tactic available to the opposition, and it was canvassing that response even before seeing the numbers in the budget. Shadow treasurer Chris Bowen and Finance spokesman Jim Chalmers announced Labor’s position as Josh Frydenberg rose to deliver his budget speech.

Labor did not want a fight over the tax rebate the budget promised taxpayers would receive when they put in their returns soon.

And by throwing in just over $1 billion for the low paid, it boosted its “fairness” bag of goods. This complements Labor’s other policies for these people, including its commitment to a “living wage” and the restoration of penalty rates.

Shorten has rejected the further tax cut tranches the government proposes for 2022-23 and 2024-25. The cost of those is about $143 billion of the government’s $158 billion package.

The risk for Labor in dismissing them is smaller than might appear at first glance.

Tax cuts promised for well into the future are likely to be viewed sceptically by the public. Although people want governments to have long term “plans”, they’re also aware nothing lasts in politics. And in the final tranche, the benefits are very skewed to the wealthy.

The budget’s tax cuts haven’t been legislated so Labor doesn’t even have to say it will repeal something set in legal stone (although it is committed to repealing the later stages of the 2018 tax cuts).

Devoid of nasties and containing tax relief while promising a $7.1 billion surplus in 2019-20, the budget might be tracking reasonably in the community.

But given the government’s circumstances, it had to seize and hold people’s attention. Tuesday’s effort didn’t seem to have the required horse power for such a heavy task.

Many voters have stopped listening to the government. A lot of hostility is now locked in, reinforced by the general disillusionment with politics. There is a feeling that people are just looking to move on from “this lot”.

As one Liberal – who praised the budget – put it, “the die is probably cast, in terms of trust and disunity”.

After two terms of chaos and infighting, a benign budget is not going to work a miracle.




Read more:
Shorten uses budget reply speech to reframe the economic debate


Moreover, its content had been so widely foreshadowed that it had not even a small element of surprise.

One has to wonder about the political sense in the government dropping out so much ahead of the night.

This wasn’t even a case of getting bad news behind it. The government was pre-releasing the good stuff, including funding for regional projects.

Local factors are important in elections, and that’s where the budget’s infrastructure promises come in.

These initiatives, many directed to marginal Coalition seats, might help shore up some electorates. But whether that is enough to counter any strong anti-government swing in the pipeline is another matter. And besides, Labor, flush with money, has plenty of its own local promises.

All this is not to overlook that Shorten faces increasing challenges in the next few weeks as he confronts a desperate government that won’t follow the Malcolm Turnbull path of eschewing a heavily negative campaign.

The Coalition’s overarching scare homes in on Labor as the big taxers. Reacting to Shorten’s budget reply, Finance Minister Mathias Cormann’s mantra was Labor’s $200 billion in extra tax.

Then there are the specific scares (in Coalition terminology) around Labor’s “retirement tax” and, with this week’s release of the climate policy, its “carbon tax”, as well as the crackdown on negative gearing.

Often scares work, and indeed the polls might tighten, as they usually do at the business end of the cycle.

But sometimes tried and trusted methods fail. John Howard knew handouts worked – until in 2007 they didn’t. It all depends on the mood of the electorate.

At the moment that mood seems as dark as Scott Morrison’s “back in the black” budget week portrait. That, incidentally, turned out to be a rip off of a campaign some years ago by then New Zealand Prime Minister John Key. Just as the 2019 tax splash reprised the Coalition’s 2007 pre-election promised one, which Labor mostly matched.




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The Conversation


Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Coalition narrows gap to trail 48-52% in post-budget Newspoll


Michelle Grattan, University of Canberra

The government has narrowed the gap in the post-budget Newspoll, now trailing 48-52% in two-party terms, compared with the 46-54% margin a month ago.

As Scott Morrison readies to call the election, with speculation he will announce next weekend for May 18, he has also increased his lead over Bill Shorten as better prime minister in Newspoll, published in Monday’s Australian. Morrison’s rating has risen by 3 points to 46% and Shorten’s has declined by a point to 35%, with the gap now 11 points.

The Coalition’s primary vote is up 2 points to 38% in the poll, while Labor is down 2 points to 37%.

Meanwhile in an Ipsos poll in Nine newspapers, Labor leads 53-47% in two-party terms, an improvement for the opposition from the last poll in February when the gap was 51-49% in the ALP’s favour.

Morrison leads Shorten 46-35% as preferred prime minister in the Ipsos poll, which was taken after the budget and largely after Shorten’s reply.

Both polls showed the budget, which contained tax cuts and forecast a surplus for next financial year, has been received favourably by voters.

Newspoll found people ranked it the best budget in a decade and the most likely to give cost of living relief and improve their personal circumstances since the Howard government’s last budget in 2007.

In the Ipsos poll, 38% thought they would be better off as a result of the budget compared with 24% who believed they would be worse off. The budget also scored positively on the measure of fairness, Ipsos found: 41% thought it fair, compared to 29% who believed it was unfair.

While the election is considered most likely to be on May 18, after the government let the option of May 11 pass, May 25 is still an option.

The government says May 11 would have maximised the complication of the public holidays (Easter, Anzac Day). But more importantly, delaying the start of the formal campaign gives the Coalition extra time to run its taxpayer-funded advertising, as well as to tie up loose ends before the caretaker period and bed down its arrangements.

Morrison could have called the election at the weekend for May 18 but that would have cut off the government’s access to publicly-funded advertising.

But the downside is that it has to endure the unpredictability of Senate estimates hearings this week.

The ALP will have its campaign headquarters at Parramatta up and running on Monday. Shorten will be in Brisbane on Monday and spend much of the week talking about health in the wake of his promise last week of $2.3 billion to slash out-of-pocket costs for cancer sufferers.

Shorten said the government was buying time “to pump up their own tyres” with advertising. “If they’ve got some spare money in Treasury, they should be spending on services for kids with cancer”.

Labor frontbencher Anthony Albanese said the only reason Morrison had not called the election already was so the government could continue its rollout of taxpayer-funded advertising.

“They are spending around about $680,000 a day on advertising,” he said on Sky.

He said Morrison should either immediately call the election or commit to stopping all taxpayer-funded advertising now “because this is an outrageous abuse during what we all know is the caretaker period in reality”.

Treasurer Josh Frydenberg would not give a figure for the spending this week but told the ABC “money is being spent in accordance with approved processes and that’s all transparent […] all of that information will be available”.

Morrison said Shorten’s impatience about the election not being called was “born of arrogance”.

“The election will be called in April and the election will be held in May. We’re not doing this with any haste and we’re not doing it with any delay. There have always been three dates, the 11th, the 18th and 25th.”

The Ipsos poll showed Labor with a strong margin on climate change. Asked whether Labor or the Coalition had the best policy on climate change 42% said Labor, and 25% said the Coalition. But about a third did not know.

Labor released its climate policy early last week, including an ambitious target of electric cars forming 50% of all new car sales by 2030. The government has been raising scares and deriding the electric car policy. Morrison said on Sunday: “Bill Shorten wants to end the weekend, when it comes to his policy on electric vehicles, where you’ve got Australians who love being out there in their four wheel drives. He wants to say ‘see ya later’ to the SUV when it comes to the choices of Australians”.




Read more:
Shorten’s climate policy would hit more big polluters harder and set electric car target


Nine has reported Liberal sources saying internal Liberal Party polling is “diabolically bad” for Tony Abbott in Warringah, with Abbott facing a 12% swing. The challenge to Abbott is coming from independent Zali Steggall.The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

MYEFO reveals billions more in revenue, $9 billion in fresh election tax cuts


Peter Martin, The Conversation

Higher-than-expected company tax revenue and lower-than-expected spending have boosted the budget’s bottom line by A$15 billion over next four years, allowing it to forecast cumulative surpluses of A$30.4 billion, double what the budget predicted in May.

Modestly improved surpluses

The midyear budget update cuts the projected deficit for 2018-19 from a May estimate of A$14.5 billion to A$5.2 billion.

The surplus forecast for 2019-20 climbs from A$2.2 billion to A$4.1 billion. By 2021-22 the surplus is forecast to be A$19 billion, up from A$16.6 billion.



The surplus won’t reach the government’s long-term target of 1% of gross domestic product until 2025-26. And in projections out to 2028-29 it is not forecast to climb much above this target as the budget hits the Coalition’s self-imposed tax “speed limit” of 23.9% of GDP.



$9 billion in unannounced tax cuts

The budget boost would have been much bigger were it not for more than A$9 billion in “decisions taken but not announced”. Almost all of these are revenue decisions, presumably extra election tax cuts, worth A$2.5 billion to A$3.7 billion per year.

The budget papers say these are decisions taken since the May budget, and are either not for publication or haven’t yet been made public.




Read more:
More mirage than good management, MYEFO fails to hit its own targets


Treasurer Josh Frydenberg confirmed the government had taken decisions to do with tax, but said it would announce them at a time of its choosing rather than in the budget update.

It reserved the right to take other tax and spending decisions in the lead-up to the election. Some would be revealed in the 2019-20 budget, to be delivered in April rather than in May to allow an election in May.

Downgraded wage growth

Although the Treasury has revised up its estimates for revenue and revised down its estimates of unemployment, expecting the rate to fall to 5% by June 2019 and stay there, it has shaved 0.25 percentage points off its estimates for wage growth.

It now expects wages to grow by 2.5% in the year to June 2019 (down from 2.75%) and 3% in 2019-20 (down from 3.25%). In future years, it expects wage growth of 3.5%.



Addressing the downgrade, Mr Frydenberg said weaker-than-expected wage growth appeared to be part of a worldwide phenomenon, “not unique to us”.

Wage growth for the year to September was 2.3%, the highest since 2015. The statement said anecdotal evidence from Treasury’s business liaison program pointed to “skills shortages and wage pressures in some sectors of the economy, consistent with a tightening labour market”.

Weaker consumer spending, economic growth

Growth in consumer spending has also been revised down, from 2.75% in 2018-19 to 2.5%. It is expected to climb back to 3% in 2019-20.

The statement revises down the government’s forecast of economic growth in 2018-19 from 3% to 2.75%, in part because of the Queensland drought, but predicts growth of 3% in 2019-20, 2020-21 and 2021-22, a touch higher than the Treasury’s estimate of long-term sustainable growth.

The Treasury is expecting economic growth to weaken in China and the United States, slipping from 6.5% in China to 6% in 2019 and 2020, and from 2.75% in the US to 2.25 and then 2%.

But debt has peaked and is headed down

The update shows that net debt has already peaked as a proportion of GDP and will fall faster than previously expected, in line with higher surpluses, sliding from 18.2% of GDP to 1.5% over the decade to 2028-29.



Government receipts are expected to climb from 24.9% of GDP to 25.5% by 2021-22. Payments are expected to fall from 24.9% of GDP to 24.6%.

Mr Frydenberg said the Coalition had kept average real spending growth at 1.9% per year, well below Labor’s 4% over six years which included the global financial crisis.



Finance Minister Mathias Cormann said recurrent spending had fallen below recurrent revenue for the first time in more than a decade.

Recurrent spending excludes spending on long-term investments in things such as road and rail infrastructure.

He said all new spending since the May budget had been offset by spending cuts elsewhere.

No firm commitment on fiscal discipline

Asked whether he felt bound by a commitment in the budget papers to bank rather than spend improvements to the budget’s bottom line due to changes in the economy, Cormann said it was “a matter of balancing priorities”.

The imperative to cut tax to keep it below the government’s self-imposed speed limit might conflict with the commitment to devote extra tax takings to improving the bottom line.




Read more:
Monday’s MYEFO will look good, but it will set the budget up for awful trouble down the track


The Conversation


Peter Martin, Editor, Business and Economy, The Conversation

This article is republished from The Conversation under a Creative Commons license. Read the original article.

More mirage than good management, MYEFO fails to hit its own targets


Danielle Wood, Grattan Institute and Kate Griffiths, Grattan Institute

The Morrison government wants next year’s election to be about economic management.

So understandably, it’s using the improved bottom line in the Mid Year Economic and Fiscal Outlook (MYEFO) to talk up its economic credentials.

But the numbers in MYEFO show it has failed to hit many of its own targets.

Target 1: Surpluses on average over the cycle

The government’s overarching fiscal objective is to deliver budget surpluses: not just in one year but on average over the economic cycle.

MYEFO indicates the government is expecting a $5.2 billion deficit in 2018-19 (0.3% of GDP).

It will be the 11th consecutive deficit for the Commonwealth budget.

Deficits have averaged $33.2 billion (2.1% of GDP) over those 11 years.

Yes, a $4.1 billion surplus is forecast for next year, with surpluses projected to reach $19 billion (0.9% of GDP) by 2021-22.

But so big have the recent deficits been, that even if everything goes well and the fiscal position continues to improve, the budget would need to be in surplus for decades to produce a surplus on average over each year, far longer than what most economists consider a typical economic cycle.




Read more:
MYEFO reveals billions more in revenue, $9 billion in fresh election tax cuts


A related fiscal target is that budget surpluses will build to at least 1% of GDP as soon as possible.

Despite revenue windfalls from income and company taxes (discussed below), the government is still forecasting it won’t reach that 1% of GDP surplus target until 2025-26.

Policy decisions in this year’s budget and MYEFO – including income and company tax cuts, additional funding for independent and Catholic schools, and changes to the GST formula to placate Western Australia – have weakened the bottom line in 2021-22 by $10.5 billion.

Hardly the actions of a government in a hurry to deliver a sizeable surplus.

Verdict: Fail.



Target 2: Reduce the payments-to-GDP ratio

The government’s policy is also to maintain strong fiscal discipline by controlling expenditure, with a falling payments-to-GDP ratio its measure of success.

Whether it has met the target depends on the starting year. Governments payments are forecast to reach 24.9% of GDP in 2018-19, up from 23.9% in 2012-13 before the Coalition took office.

The government prefers the starting point of its first year in office 2013-14 where payments were 25.5% of GDP.

Either way, payments in 2018-19 remain above the 30-year historical average of 24.7% of GDP.




Read more:
Morrison’s return to surplus built on the back of higher tax – Parliamentary Budget Office


While the government projects that spending will fall slightly further to 24.6% of GDP by 2021-22, this relies on spending growth across the government’s major programs falling substantially compared to the previous four years – without major policy changes to help facilitate the fall.

Verdict: Debateable pass.



Target 3: Tax-to-GDP ratio below 23.9% of GDP

In last year’s budget, the government introduced a new target of capping tax collections at 23.9% of GDP.

Why 23.9%? That was the average level of tax during the final two terms of the Howard/Costello government.

While the Coalition is understandably keen to follow the lead of one of its most electorally successful governments, that was also a period where tax collections were historically high.

Tax collections are projected to reach 23.8% of GDP in 2022, on the back of stronger than forecast personal income tax and company tax receipts.

Verdict: Pass.


MYEFO Chart.


Target 4: New spending measures more than offset by reductions in spending elsewhere

Since becoming prime minister, Scott Morrison has sent mixed signals about whether his government will adhere to the longstanding budget rule that all new spending proposals be matched with budget savings.

At the MYEFO press conference, Finance Minister Matthias Cormann said it was a “matter of balancing competition priorities”.

Here’s the straight answer – the net effect of policy changes announced in MYEFO are an additional $12.2 billion in spending over four years.

In other words, the government has not offset new spending with cuts to other spending programs. The Turnbull government similarly failed to offset its new spending in 2017-18 (although it succeeded in prior years).




Read more:
Monday’s MYEFO will look good, but it will set the budget up for awful trouble down the track


There have been some reductions in spending because of improvements in the economy. The government claims these reductions offset its recent spending announcements. But genuine offsets come from policy changes, not economic good luck.

Verdict: Fail.

Target 5: Shifts due to changes in the economy banked as an improvement in budget bottom line

This objective is key to the government’s fiscal conservative credentials.

If it has some economic good luck, it commits to use the proceeds for budget repair rather than new spending or tax cuts.

This rule has been irrelevant for most of the past decade, because almost every budget had revenue collections falling short of forecast.

But the Morrison government is in the middle of a mini revenue boom – revenue collections were higher than forecast in both the 2018-19 budget and MYEFO.

Company tax collections are higher largely due to strong commodity prices. Income tax collections are up and government spending is down because of improvements in the economy.




Read more:
Labor would deliver bigger surpluses than the Coalition: Bowen


So has the government used this chance to show off its fiscal prudence?

Not exactly. It will spend around $11.8 billion of this windfall, give away another $19.3 billion in tax cuts and bank just over half of it ($35.2 billion) to the bottom line.

And in the shadow of an election, we can almost certainly expect further spending. The $9 billion in decisions taken but not announced – potentially a pre-election warchest – suggests that more tax cuts could also be on the way.

Verdict: Fail.

Our final verdict

The challenge in assessing budget management is separating good luck from good management. Governments will always seek to take credit for economic upswings that boost the bottom line.

Fiscal targets are there to keep them on the straight and narrow.

An objective assessment of the government’s performance against its own key targets suggests its good news budget is more mirage than magnificent management.The Conversation

Danielle Wood, Program Director, Budget Policy and Institutional Reform, Grattan Institute and Kate Griffiths, Senior Associate, Grattan Institute

This article is republished from The Conversation under a Creative Commons license. Read the original article.

MYEFO rips A$130 million per year from research funding despite budget surplus



File 20181217 185264 1kkui2j.jpg?ixlib=rb 1.1
The shockwaves of this cut will be felt for years to come at Australian universities.
http://www.shutterstock.com

Margaret Gardner, Monash University

Yesterday morning, the mid-year budget update unveiled research funding cuts of A$328.5 million over the next four years. This budget raid on research was more than double the size expected by the university research community.

This new freeze on growth in research funding and PhD scholarships follows last year’s freeze on funding for student places.




Read more:
Universities get an unsustainable policy for Christmas


The effect will be felt immediately by the nation’s researchers and their research projects in positions lost and projects slowed, limited or not started. But the damage done will be felt for much longer – in inventions, ideas and opportunities missed.

Why has it been done?

As yet, there has been no adequate public explanation from government, save for two paragraphs in Education Minister Dan Tehan’s media release yesterday:

The decision to pause indexation of research block grant programs for 12 months, along with adjusting growth for RSP (the Research Support Program), will allow the government to prioritise education spending, including on regional higher education.

And this further par:

We have invested over A$350 million since the 2018-19 Budget to support students in regional and remote Australia.

In truth, most of Australia’s regional universities will lose millions of dollars more under the 2017 funding freeze than will be redistributed to them via this latest research cut. And under this new research freeze, they, too, will lose scholarships for PhD students – our next generation of brilliant research talent.

Research funding also goes towards keeping the lights on in libraries and labs so researchers can complete their work.
from http://www.shutterstock.com

Nationwide, the government will fund up to 500 fewer of these scholarships for PhD candidates next year due to the research funding freeze. That’s 500 fewer people who will dedicate their talent to the creation of new knowledge in the national interest.

The education minister has tried to repair the damage inflicted by the 2017 decision of his predecessor – Simon Birmingham – only to compound the damage with this second freeze. That’s throwing bad policy after bad.

Regional universities were among those hardest hit by the 2017 MYEFO decision to cut funding for student places. And that decision continues to cut deeper each year – it will be felt more in 2019 than 2018, and more in 2020 than 2019.

How this will affect Australian research

The harm this will inflict is manifold.

First, it will cut the research funding program. This scheme enables universities to pay the salaries of researchers and technicians whose work enables ground-breaking discoveries. It also funds keeping the lights on in labs and libraries.




Read more:
Educational researchers, show us your evidence but don’t expect us to fund it


These overheads of research are not funded by competitive grants. For every A$100,000 an Australian university secures in competitive research grants, it must find an extra A$85,000 to be able to deliver that research. Where will universities find these funds?

Second, it will cut the research training program. This funds scholarships for PhD students to enable them to complete their higher degrees – a necessary first step on the way to a career in research. This is a cut into their brilliant careers, and Australia’s future research capacity.

Third, it damages Australia’s standing as a global research leader. Why would a great researcher come to or stay in Australia, when the government has sent a message that, in a time of budget surplus, it’s prepared to cut into research?

Research funding is critical to Australia’s status as a global research leader.
from http://www.shutterstock.com

Fourth, it will further undermine Australia’s position in research and development investment relative to our economic competitors. China now invests 2.1% of its GDP in research and development – while Australia’s total investment from all sectors in research and development (government, business and research institutions) is now just 1.88% of GDP. China’s economy is ten times bigger than Australia’s, but they’re investing 30 times more than we are.

Our government only spends A$10 billion on research and development each year. Only last Friday, it was revealed Australia’s government spending on research and development was already forecast to fall this year to its lowest level in four decades as a percentage of GDP – to 0.5%. This new research funding cut only worsens this situation.

With the budget in surplus, it makes no sense

University leaders knew research funding was at risk, and so jobs for researchers, technicians and researchers were at risk. But beyond these jobs are the projects they support and the Australians from all walks of life whose lives have or will be transformed by Australian research.




Read more:
Margaret Gardner: freezing university funding is out of step with the views of most Australians


Universities Australia has stories of survivors of stroke, cervical cancer and family violence speaking about how crucial university research has been in the lives of people like them at #UniResearchChangesLives.

With a government budget surplus in sight, it makes no sense to cut the research capacity that will create jobs, income and new industries for Australia.The Conversation

Margaret Gardner, President and Vice Chancellor, Monash University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Liberal Julia Banks defects to crossbench as Scott Morrison confirms election in May


Michelle Grattan, University of Canberra

The government has been delivered a fresh major blow with the defection of Victorian backbencher Julia Banks to the crossbench, delivering a swingeing attack on the right of the Liberal party.

In an emotional speech, Banks told parliament she had had time to reflect on “the brutal blow against the leadership, led by members of the reactionary right wing.”

While she pledged to give the government confidence and supply, her defection has highlighted again the deep divisions within the government, and reopened wounds over the August leadership coup that ousted Malcolm Turnbull and saw then-deputy leader and foreign minister Julie Bishop go to the backbench.

It will give even more muscle to the newly-empowered crossbench. It has also increased the chances of Labor mustering the numbers to refer Home Affairs Minister Peter Dutton to the High Court to determine whether he is sitting in parliament in breach of section 44 of the Constitution.

Banks, who spoke at midday, did not inform the party room beforehand, government sources said.

As she was delivering her speech to the House of Representatives, Scott Morrison was holding a news conference at which he announced the budget will be on April 2, and confirmed the election will be in May, the latest the government can run.

In a further sign of disunity, Bishop has undermined the government on the crucial area of energy policy, saying it should do a deal with Labor on a National Energy Guarantee.

The defection of Banks, who at the time of the leadership coup called out bullying within the Liberal party, comes a day after the Coalition formally went into minority government in the House, with the swearing in of independent Kerryn Phelps.




Read more:
View from The Hill: Day One of minority government sees battle over national integrity commission


With the loss of Banks the government has 73 on the floor of the House. This excludes the Speaker, Tony Smith, who has a casting vote. A simple majority is 75, but 76 votes are needed to suspend standing orders. Labor has 69. There will now be seven crossbenchers.

Ever since the coup, it has been thought Banks might jump ship to the crossbench.

Banks, who won the marginal Melbourne seat of Chisholm for the Liberals from Labor in 2016, did not rule out running as an independent at the election, saying she would look at her options in the new year.

Praising Turnbull and Bishop as “visionary inspiring leaders of sensible centrist liberal values with integrity and intellect”, she told the House: “The gift of time in reflection has provided some clarity regarding the brutal blow against the leadership. Led by members of the reactionary right wing, the coup was aided by many MPs trading their vote for a leadership change in exchange for the individual promotion, preselection endorsements or silence.

“Their actions were undeniably for themselves, for their position in the party, their power, their personal ambition, not for the Australian people who we represent, not for what people voted for in the 2016 election, not for stability, and disregarding that teamwork and unity delivers success,” she said.

“The aftermath of those dark days in August then acutely laid bare the major parties’ obstructionist and competitive actions and internal games, or political point-scoring, rather than for timely, practical, sensible decisions on matters which Australians care about.”

Banks said equal representation of men and women in parliament was “an urgent imperative, which will create a culture change.” She called the Liberals’ rejection of quotas “blinkered”.

She said an independent whistleblower system to enable the reporting of misconduct was clearly needed. “Often, when good women call out or are subjected to bad behaviour, the reprisals, backlash and commentary portrays them as the bad ones.”

Banks said her “sensible centrist values, belief in economic responsibility and focus on always putting the people first and acting in the nation’s interest have not changed.

“The Liberal Party has changed. Largely due to the actions of the reactionary and regressive right wing who talk about and to themselves rather than listening to the people.”

Banks said the three female independents, Phelps, Cathy McGowan and Rebekha Sharkie, “are at the core of what I stand for”.

Her attack comes a day after Senate president Scott Ryan also lashed out at the right, saying Liberal voters who had deserted the party in the Victorian election had sent the party a message. “They don’t want views rammed down their throat, and they don’t want to ram their views down other people’s throat.”




Read more:
Senate president Scott Ryan launches grenade against the right


Bishop has told the Australian Financial Review: “The government needs to consider energy policy through the prism of securing bipartisan agreement with Labor, to establish a long-term, stable regulatory framework that will support private-sector investment in generating capacity.”

Only the NEG could achieve “elusive” bipartisanship, she said.The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.