Another war is brewing in the Coalition party room, with senior members of Government declaring Tony Abbott’s proposed Budget debt levy “electoral suicide”. From The Canberra Times:
Senior Liberals have described plans for a possible deficit tax in the budget as “electoral suicide”. Some talked of a party-room revolt and one warned the Prime Minister Tony Abbott would wear the broken promise as “a crown of thorns” if the government decided to go through with it.
The figure, part of Mr Abbott’s ministerial team, spoke on condition of anonymity, arguing the suggestion of a tax was one that could come to “haunt” Mr Abbott’s entire prime ministership.
“I worry that this is Tony’s Gillard moment, when she announced the carbon tax,” said the senior Liberal.
Several other Liberals also expressed dismay at the prospect of a government, elected to restore trust to politics, overturning a “crystal-clear” policy commitment of no new taxes, in its first budget.
Meanwhile, opposition parties are lining up against the levy, suggesting that it has next to no hope of passing the Sentate. From The Guardian:
The Labor leader, Bill Shorten, said his party would “fight a tax increase on ordinary Australians, absolutely”, dubbing the proposed levy “the mother of all broken promises”…
And Christine Milne said the Greens would not support a deficit levy…
Clive Palmer is also highly critical of the move, telling Guardian Australia that it was an example of “politicians failing and the people having to pay”…
DLP senator John Madigan said he was “100% against” the levy. “I won’t support any tax that harms families,” he said.
Unlike paid parental leave, the Coalition did not take this measure to the election, and Abbott has not invested significant political capital, which makes me wonder if the Levy will last.
Abandoning the deficit levy would be no bad thing. Its main failing is that it attempts to correct what is a long-term structural Budget deficit with a short-term cyclical sugar hit.
A temporary levy does absolutely nothing to fix the crumbling structure of Australia’s taxation system, whereby the tax base is shrinking via falling (or soon to fall) company and indirect taxes, as well as the declining workforce participation as the population ages.
Instead, the Government should seek to bolster the Budget by closing the myriad of tax concessions that are bleeding the Budget dry, but serve little social purpose. An obvious solution is to reduce superannuation concessions, which are already almost as large as the Aged Pension, are growing much faster, and overwhelmingly benefit higher income earners. The Government should also look at removing the tax-free status of superannuation earnings for people over 60, as well as implementing tighter means testing of the Aged Pension and related programs, so that benefits only flow to those in genuine need, and limiting negative gearing.
As noted on Monday, the temporary levy will also exacerbate failings already present in Australia’s tax system – that is, too much reliance on personal income taxes, which are relatively inefficient and act to lower the nation’s productivity.
Instead, the Government should proceed with a program of fundamental tax reform in order to shift the tax base away from productive enterprise and towards more efficient consumption, land and resource taxes.
If the Government was genuinely interested in boosting productivity and living standards, as well as seeing Australia through the unwinding of the mining boom and population ageing, it would place genuine tax reform high on its “to do list”, rather than taking temporary actions to plug immediate Budget holes.
