The Prime Minister has done it again. He has juggled the figures to create a telling psychological point. This time he and a couple of close Cabinet colleagues decided to throw in the Commonwealth Bank at the last minute to balance the books. In doing so, he has thrown out the window the second part of the One Nation L-A-W tax cuts and thrown out earlier statements that it was essential for the Federal Government to keep a controlling interest in the Commonwealth Bank. In throwing out the One Nation tax cuts and replacing them with a superannuation dollar-for-dollar subsidy, the Government has one again made upper-middle-income earners bear the brunt of the fiscal burden in favour of lower-income Labor heartland voters on whom it will rely to return it to government. In selling the remnant of the Commonwealth Bank, it has juggled the books in a dishonest way. Treasurer Ralph Willis argued last night that it was all above board. The estimates were on the books for all to see. True, but that is not the point.
The dishonesty lies in the way he, Mr Keating and one or two others made the decision at the last minute in an attempt to get the psychological jump on the markets, the public, the Labor Caucus and, indeed, the full Cabinet. It is now a fait accompli. In an election year, unity is vital and back-bench opponents will be silenced by a sense of self-preservation. There was also some book juggling with Telstra, but at $250 million at a lesser scale. That said, there is nothing wrong with assets sales. In particular, there is no reason why the Government should be running a retail-trading bank; it’s role is well-encompassed by the Reserve Bank.
The Budget contains some sound points. The superannuation policy will be a valuable contribution to ending the paucity of Australia’s national savings. However, it will be an unnecessarily laborious process. The ACTU seems to have a veto over significant policy initiatives. The superannuation policy could have been far more easily implemented through the tax system. Instead, it will require tedious implementation through the award system. All that does is unnecessarily augment union power. The two main sales-tax changes are sensible and timely. The 5 per cent increase in the tax on cars restores an earlier cut made to boost the car industry when sales were down during the recession. Sales have picked up and taxing consumption has merit. Similarly, with the 12 per cent sales tax on some building items, mainly those at the completion stage. These should dampen demand in an area where Australians over-invest anyway _ their homes. Useful as these changes are, they are piecemeal.
This is because any tendency to general increases in sales tax or more uniform application of it would attract accusations of a back-door GST. And thus the Government is hamstrung. More significantly it cannot tax services. As the rich tend to use services more, a socially equitable tax is denied Labor because it painted itself into a corner last election. The extra tax on cigarettes is welcome. It could have been higher. In an ideal world increases in tobacco tax will be revenue neutral as the tax deters people _ especially young people _ from buying them. The increase in the Medicare levy is justified. Indeed, it should have been higher. The levy nowhere near covers the real cost of health care in Australia. That said, other reforms are needed to rein in costs.
The increase in company tax is also justified. Any significant discrepancy between the top marginal income-tax rate and the company rate invites tax avoidance. Any raw comparison between the Australian company rate and that of overseas countries as a measure of international competitiveness has difficulties. Australian share-dividend imputation and other factors of the business, cultural and natural environment have to be part of such a comparison. While rightly ending some of the Working Nation measures are no longer needed (if they ever were), the Budget still left some social security arrangements in place that unnecessarily subsidise the middle class who do not need them.
It is a case of targeting welfare for political purposes rather than economic ones _ targeting it to people whose votes are being attracted. Indeed the Government has unnecessarily added to middle-class welfare by providing a baby gift of $816 to families with incomes up to $62,000. Labor has done reasonably well in targeting social security since 1983, but has got sloppy in the past couple of years, especially with child care. It could also address over-servicing in Medicare with an insistence on co-payments. But such things would be electorally unpopular. The Government cannot reasonably be charged with having been unduly optimistic about the economic settings. Its realism has exposed two figures that remain alarming: unemployment will remain around 8 per cent and the current account deficit will be $27 billion. On the employment front, the Government must have learned by now that sustainable jobs come with a sound national economic base, not grandiose schemes that only give jobs to those who administer them. The current account remains Australia’s most serious economic blot. Month after month, year after year, Australia puts too much of its spending on the international credit card.
The interest bill is appalling. This Budget goes a small distance to increasing Australian savings to reverse that trend, but it is too little too late _ the savings do not start in a significant way for several years. This is the last Budget before the election. But is it an election Budget? Yes, but not radically so. But this perhaps is not through any natural fiscal rectitude on the part of the Government. Rather, “”generous” election bribes are out of the question because they would increase the real deficit causing the markets to push up interest rates. This would more than offset any electoral gain obtained by hand-outs.