Another Hockey Stumble Reveals Budget Hits Poor The Hardest

Not for the first time, the facts are proving somewhat problematic for the Abbott government.

All governments spin. But the Abbott government has an unusual dislike for uncomfortable truths and disconcerting realities.

We could be talking about climate change (yes, it is real), or asylum seekers (no, they are not “illegals”), or the budget emergency (no emergency so far).

All are good examples of the Abbott government’s fundamental preference for making public policy through the lens of conservative ideology, to the exclusion of the real-world realities.

And so it is with this week’s controversy: whether Joe Hockey covered up Treasury analysis that showed his budget was fundamentally skewed against low-income earners.

You would think the Abbott government would have no trouble accepting this simple fact.

Even a cursory glance at the budget measures announced in May revealed the overall bias of the Abbott government against low- and middle-income earners, in favour of high-income earners and big corporations.

That much was clear on budget night, as I wrote at the time.

Rather than genuinely address the budget deficit, Hockey instead redistributed government spending away from the poor, the sick and the needy, and towards the wealthy and the corporate sector.

This “reverse Robin Hood” bias to Hockey’s fiscal policies is remarkably consistent. It ranges from cuts to family tax benefits (which mainly hurt poorer families) to cuts to federal funding to legal aid (which attacks the ability of the poor to access legal representation).

The $7 co-payments to see the doctor, the wholesale deregulation of university fees, cuts to pension indexation, superannuation tax hikes for low-income earners… the list goes on and on.

So it was no surprise that the government decided to omit a key table, published in the Budget Papers since 2005, that outlines Treasury analysis of the impact of the budget on various income groups in the electorate.

The table, called “detailed family outcomes”, was actually pioneered by Peter Costello, back when the Coalition was showering families in tax concessions, and wanted to show it. It was missing this year.

When various media organisations, including Fairfax and the ABC, asked for that data, the government declined to provide it.

Now, thanks to a Freedom of Information request by Fairfax Media, we know that the Treasury did prepare such an analysis, and that it showed that low-income groups would suffer the most.

Much more detailed modeling has been done; as Fairfax’s Peter Martin writes today, there are two documents running to more than 70 pages that discuss the budget impacts in detail. They are still being withheld from the media on the grounds that they were prepared for the cabinet.

Which means, as Martin notes, that Joe Hockey knew just how hard the budget would hit low-income families.

“The cabinet knew,” Martin writes. “It knew which household types and income groups would be made better off or worse off as a result of the budget and kept this to itself.”

With typical bluster, Hockey has been trying to bat away such suggestions. Yesterday he attacked the Fairfax reports, claiming they were “deliberately misleading”.

“That story is wrong,” he told the Nine Networks’ Today Show, “because it fails to take into account a range of things like the fact that higher income households pay half their income in tax, low income households pay virtually no tax.”

“It does not represent the true state of affairs.”

Not to put too fine a point on it, this is rubbish.

As Labor’s Chris Bowen immediately shot back, the data wasn’t cooked up by Fairfax. “They’re not the figures of Fairfax,” he told journalists yesterday, “They’re not the figures of the Labor Party. They’re the figures of the Australian Treasury. Figures which he was trying to hide.”

Any way you look at it, Hockey’s line about high-income earners paying more tax doesn’t add up. The Treasury modeling is not just about how much tax people pay, but rather the net impact of the budget on various sections of the income scale.

In any case, to argue, as Hockey did, that high income families pay more of their income in tax than low-income families is simply to point to the fact that Australia has a progressive taxation system.

An executive on a salary of $500,000 a year pays the top tax rate of 45 per cent, while a low-income worker on minimum wage pays 19 per cent. It’s been like this pretty much since income tax was introduced in this country. Indeed, top tax rates used to be much higher.

As respected academic Peter Whiteford points out today, complaining about the rich paying more tax and the poor receiving more benefits is really a veiled attack on the entire design of Australia’s tax and welfare system.

“The main reason why social security is more important for low-income groups in Australia,” Whiteford writes in Inside Story, “is that we have the most targeted social security system in the OECD.”

You can run this argument both ways, after all. The rich might pay more tax, but they receive all sorts of tax breaks not available to the poor.

As we’ve remarked many times before, Australia’s tax system is loaded with tax concessions such as negative gearing, superannuation concessions and capital gains tax discounts that flow disproportionately to the wealthy. 

You can’t access negative gearing unless you’re rich enough to own an investment property. You won’t get much benefit from the capital gains tax discount unless you make a capital gain. The value of superannuation tax breaks flows overwhelmingly to the top 10 per cent.

Hockey’s struggles this week highlight a bigger problem for the Abbott government in selling the budget: it can’t seem to decide what it thinks. There are two or three different messages being pushed all at once.

At the same time that Hockey is trying to defend his budget as in the long-term best interests of the country, he is also telling us that we either lifters or leaners, solid citizens or spendthrift welfare cheats. The disconnect flows through into policy: at the same time the poor are being slugged to go to the doctor, the big end of town is enjoying the abolition of the mining and carbon taxes.

The two messages are fundamentally at odds: on the one hand, we’ve all got to pull together to fix the budget; on the other hand, we’re a nation divided between the worthy rich and the undeserving poor.

Perhaps because Hockey seems to genuinely believe in his own moral rhetoric, he seems blind to the fact that ordinary Australians aren’t buying it.

But embarrassing reports like this week’s Treasury data show that he knew the budget would hurt the poor all along.