Fairfax’s Peter Martin has written a neat article today looking at Labor’s and the Coalition’s key Budget measures, and concluded that Labor’s policies are superior over the longer-term:
Labor has made by far the biggest immediate spending commitments in the campaign, adding an extra $16.5 billion to projected deficits over the next four years, before the long-term benefits of its slow-acting tax measures swell the budget to produce a bigger surplus than the Coalition’s.
Or that’s the way it looks. In year one, Labor’s attack on capital gains tax concessions and negative gearing would bring in just $500 million. By 2026-27, it would rake in $7.7 billion per year. The Coalition’s business tax cut also starts small, at first costing $300 million per year and then by 2026-27 $14.2 billion. After year 10, the combined tax measures would see the budget between $10 billion and $20 billion per year better off under Labor.
Treasurer Scott Morrison and finance minister Mathias Cormann had an opportunity on Tuesday to dispute that calculation… That they didn’t suggests Labor’s right. Its policies hurt the budget in the short term (in order support Medicare and schools) but help it in the long-term through a more responsible approach to taxation.
Martin is broadly correct in his assessment. A decade out, the Coalition’s reduction in the company tax rate to 25% from 30% is estimated to cost the Budget $8.2 billion per year – i.e. $11.3 billion less $3.1 billion recouped in higher income tax collections from shareholders that miss out on imputation credits. The cost of the company tax cut to the Budget would also continue to rise over time, commensurate with the growth in company profits.
By contrast, Labor’s reforms to negative gearing and the CGT discount are projected to generate Budget savings that grow over time. A decade out, the latest estimate from the Parliamentary Budget Office (PBO) suggests the Budget would be some $6 billion better-off by 2026-27.
While there is always great uncertainty surrounding long-term Budget projections, the fact is the Coalition’s company tax cut represents a growing burden on the Budget over time, whereas Labor’s negative gearing and the CGT reforms would provide a growing benefit.
Perhaps this is why the overwhelming majority of economists surveyed support Labor’s plan over the Coalition’s.
