It’s The Economy, Stupid


For a Coalition Treasurer, giving a speech to a group of accountants should be a golden opportunity.

Treasurer Joe Hockey must have thought so when he accepted a chance to speak to the Tax Institute and Chartered Accountants of Australia and New Zealand. The government has been attempting to kickstart a conversation about tax reform for some time now.

True, that effort has been pretty ineffectual, in keeping with the general state of disorganisation afflicting the Abbott government. Hockey has held some tax summits and chaired some COAG meetings. He has put out media releases and given speeches. But he hasn’t announced much. No tax cuts. No GST proposals, save for putting the GST onto online purchases. No agreement of substance on tax issues with the states.

Even so, yesterday must have seemed like a pretty easy crowd. Hockey duly turned up to deliver a speech on the evils of bracket creep, that onerous burden on the hardworking taxpayer.

Bracket creep, he reminded us, punishes industrious Australian taxpayers simply because inflation pushes up their incomes.

“Where, we have to ask,” the Treasurer had to ask, “is the incentive to work harder and to reach higher?”

“Why should the reward for hard work and endeavour be swallowed up by higher taxes?”

Hockey went further: income taxes should be cut. This is the way to restore the incentive for good honest Aussies to “have a go.”

“Reducing taxes will put money back where it belongs — in people’s pockets — and send that simple message I spoke of earlier: have a go!”

It sounded like a stump speech for the coming election campaign. Hockey’s office clearly thought they were onto a good thing: the speech was dropped to media outlets and got a good splash on Monday morning, including on the TV networks.

Who could have any quibble with a Coalition Treasurer announcing his intention to lower income tax?

Plenty of people, it turns out.

The speech was just hours old when a rival group of accountants, CPA Australia, slammed it. “The Treasurer appears to be caught in a cycle of restating the problems rather than rethinking the solutions,” CPA’s Alex Malley told the ABC.

“The issue of income tax, GST, superannuation, company tax, land tax is yet to be discussed … it really is being deferred and deferred and deferred.”

Malley is right. This Treasurer is nowhere near a genuine discussion of tax reform. Meaningful reform would have to include a holistic examination of Australia’s tax and transfer system, and therefore Australia’s remnant welfare state. It would also have to look at pressing economic distortions like negative gearing and superannuation tax concessions.

Former Treasurer Joe Hockey.

That’s not what we’ll get from the Coalition.

Coverage of Hockey’s speech was sceptical, to say the least. Fairfax reported it as “Joe Hockey can’t say how he would fund personal income tax cuts.”

Business journalist Alan Kohler called it “truly awful.”

As New Matilda’s Ian McAuley points out today, Hockey misled on the key issues. Australia does not have a particularly high rate of income tax. Nor are we a high tax country. And the idea that cutting marginal tax rates will provide incentives for people at the top of the income scale to work more is largely discredited.

But there is a bigger credibility issue for the Treasurer than tax. That issue is the budget deficit. No-one made more of the fiscal deficit than Joe Hockey in opposition.

Anyone who can remember longer than a fortnight can recall Hockey banging on about budget emergencies. The doom-laden rhetoric was constant. There was a “budget emergency.” It was “the end of the age of entitlement.” We must all be “lifters, not leaners.” We had to “get to surplus and do it fast.”

This has left Hockey with a bit of a problem. Announcing tax cuts looks rather inconsistent.

Tax cuts will increase the deficit. This is an actuarial fact that is quite independent of Hockey’s incentivising injunctions. So if cutting taxes means increasing the deficit, where does the government stand on the deficit?

Hockey’s innumeracy, or perhaps simply his confusion, was on display when asked on ABC Radio today whether the deficit or income taxes were his priority.

“Well, it’s both,” he replied.

No wonder Greens leader Richard Di Natale called it, pointedly, “voodoo economics.”

Greens leader Senator Richard Di Natale.
Greens leader Senator Richard Di Natale.

As Hockey blundered his way through the tax debate, Australia’s financial markets nose-dived. After the markets opened for Monday, the ASX 200 shed more than $50 billion in volatile trading.

The new burst of global financial instability put a poignant semi-colon on Hockey’s tax thought bubbles. Suddenly the Treasurer’s insouciant promise of lower taxes was placed in a whole new context.

Hockey did his bit for confidence in the moment. He appeared on Channel 9 today to reassure investors. “There is no crisis, it is a correction,” he claimed.

Time will tell. Markets do indeed go up and down.

But it’s also clear that the economic situation in China is serious, and that Australia is already being affected by Chinese events. If things go really bad in China, Hockey’s worst nightmares could come true.

Australia’s economy is growing only slowly. Domestic consumers are only just beginning to awaken from a long slumber. Our big resources exporters are being hammered by plunging commodity prices. Interest rates are already pushing on a string. An economic downturn from here could be very nasty.

How would the Abbott government handle a full-blown economic crisis? What if the property market crashed? What if a big bank got into trouble?

Considering how badly the Coalition has mishandled even small-scale political dramas, the signs aren’t good. Confusion and crisis mismanagement have been hall-marks of this term in government.

Ben Eltham is New Matilda's National Affairs Correspondent.