Grattan on Friday: Abbott set to follow Gillard into a tax trap

Tony Abbott

By Michelle Grattan, University of Canberra

THE Abbott government is like the farmer supposed to be burning a paddock of stubble who ends up with the whole property in flames.

Maybe it will be able to pull things together in the May 13 budget but at the moment it is being stifled by smoke and heat.

A planned hike in income tax directly breaches Tony Abbott’s pledge not to increase taxes. The PM has been forced to cut back his paid parental scheme, but the just released Audit Commission report says it is still too generous. Coalition backbenchers have been having breakouts all over the place.

The audit report has tossed a big can of petrol on the fire.

We’ve all been calling for its release but the government might have been tactically smarter to put it out with the budget. Then what was actually being done would have reduced immediate attention on a wish list that’s certain to alarm and confuse people.

The alternative theory says the budget won’t look so bad by comparison, but that strategy would seem too clever by half – especially when the government says that apart from what it adopts in the budget, it will go on considering the report’s recommendations (no doubt excluding what Treasurer Joe Hockey calls the “courageous” ones).

The commission, headed by former Business Council of Australia president Tony Shepherd, has presented a blueprint flawed in policy and political terms.

That’s not to deny some proposals are sensible (or would be in more moderate form) or that the budget needs drastic repair in the medium term.

But there are shockers. One of the most notable is the assault on Medicare, amounting to an effective dismantling. This is neither required nor justified. It has faults and costs need containing but we have a basically sound health system.

Unsurprisingly, the age pension is targeted; proposed changes include that the family home be in the assets test (which won’t be taken up any time soon).

But the commission’s recommendation of implementing a rise in the pension age to 70 by 2053 (when it is due to be 67 in 2023) is surprisingly and unjustifiably conservative.

In fact, a lot of the radical changes are proposed with long lead times, prompting commentators to observe that the baby boomers escape them. It might have been more sensible to have argued for quicker implementation of more achievable measures.

A degree of user pays is often appropriate for government services, but again the commission goes for the extreme, for example in urging students contribute a very much higher proportion of their tertiary education costs.

Highly controversial is the push to return greater power in key areas (health, education, tax) to the states. The diversity states bring can be useful but the commission’s plans would produce a balkanisation of modern Australia.

The commission’s ideas go beyond ending the “age of entitlement”. It seeks to create a dry-as-dust world that most Australians, and certainly the “battlers”, would not want.

Meanwhile the government seems to be occupying a world of its own.

Take Hockey’s wail when he was asked on Thursday what he said to voters who were told by Abbott before the election that there would be no increase in taxes, when it was now clear the government was planning a rise.

“Please, this idea, somehow, that everything that we had ever said is going to be held against what has moved on us because the previous government basically misled the Australian people about the state of the budget, is kind of ridiculous.”

Well, it is not really ridiculous Joe. For these reasons.

First, remember how you and your colleagues made such a lot of Julia Gillard’s carbon tax broken promise. Gillard could argue things had moved on her too – she found herself in minority government. You didn’t cut her any slack for that.

Second, if there were any chance the tax promise would become undeliverable, best not to make it in the first place.

Third, when you say Labor misled Australians about the state of the budget, this ignores that Treasury/Finance set out the numbers during the election campaign under the Charter of Budget Honesty. Peter Costello’s charter ended the “Oh, look, here’s a black hole” post-election situations of 1983 and 1996. If you think the charter allowed you to be misled, what are you going to do to fix it before the next election?

You can argue about assumptions in those numbers; you can say there has been deterioration since (to which decisions of this government contributed). But there has not been an economic tsunami and you are laying on the “misleading” altogether too thick.

Hockey went on to declare at his news conference: “We are keeping our solemn promises”. If the expected tax rise is in the budget, that will be an untruth.

The government is seeking to justify a tax increase by saying that everyone should share the budget burden and the only way to get the rich to do so is through the tax side.

Maybe. A tax increase could be quite justified, provided it is not just a way of avoiding hard decisions of long term benefit. It’s not the rise but the breach of faith that is at issue.

Everyone knows that when circumstances change fundamentally it is unwise to stick to promises. The Whitlam government decades ago showed the folly of refusing to budge from commitments that had become economically unsustainable.

But with public disillusionment about politics and politicians so high, it is simply not acceptable for leaders to make blanket promises and then conveniently bundle them into the bin in the name of keeping a more general pledge to fix the budget.

If the budget goes the way we expect, it will draw an element of equivalence between Gillard and Abbott, with each early on flouting a key tax pledge.

Did someone say “pants on fire”?

The Conversation

Michelle Grattan does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

This article was originally published on The Conversation.
Read the original article.

[Photo via the PM’s Twitter feed]

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