You can say one thing about Joe Hockey’s early days as Treasurer: he has looked the part.
Hockey has brought a truculent confidence to the role. Perhaps it’s his upbringing in a small business family, or his extensive connections with the Sydney business community. Or perhaps it’s just another aspect of the general belief of Liberal politicians that they are the natural party of government.
It’s a marked contrast to his predecessor Wayne Swan, whose nervous and hesitant performance as the nation’s top economic policymaker slowly undermined Labor’s authority with voters.
That chutzpah has been on show this week, as Hockey has tried to explain why his early decisions as Treasurer are directly at odds with his strident deficit rhetoric in opposition.
So far as Treasurer, Hockey has added close to $9 billion to the budget deficit with a series of fiscal decisions that would mystify anyone who listened to the endless doom-saying about government debt over the last three years.
If the nation really has a “budget emergency”, for instance, why would the government be giving the Reserve Bank a cool $8.8 billion to top up its slush fund? The Reserve Bank’s job is to keep prices stable and to maximise employment. Exactly why it needs a big war chest to finance its transactions is anyone’s guess. The grant could be described as an accounting adjustment, to allow the Reserve Bank to purchase more government bonds. Wayne Swan has said that in his briefings with the RBA, the grant wasn’t needed. So why is it needed now? Hockey has made no effort to explain.
This week’s announcement on superannuation taxation is even more bewildering, at least if you think that the main priority for the nation’s finances is to get the budget back in the black. Hockey has decided to abandon tax hikes on super for the nation’s wealthiest, a move which will cost hundreds of millions more.
The Government is also planning to dump a tax hike on self-education expenses, which disproportionately helped rich professionals, and to abandon Labor’s tax break to low-income earners. The super tax break was about evening up the lopsided nature of superannuation tax, in which the nation’s poorest actually pay a higher rate of tax on their super than millionaires. Labor had planned to fund the tax break from proceeds of their disastrous Minerals Resource Rent Tax. The Coalition will repeal the MRRT, so the super tax break for low-income earners goes too.
Hockey is a reverse Robin Hood, taking from the poor and giving to the rich — the very rich, in some cases, including people earning more than $2 million a year.
I don’t know about you, but I don’t think Gail Kelly and David Thodey need a tax cut on their burgeoning superannuation accounts, however successfully they’ve lived up to their aspirations.
Australia’s wealthy receive amazingly generous treatment of their superannuation. As we’ve pointed out at NM before, super in Australia is essentially a flat tax. Everyone is taxed at 15 per cent, whether they’re earning millions a year as a CEO, or just scraping by as a contract cleaner.
For the very rich, super is a tax bonanza: instead of paying the top rate of 45 per cent on their earnings, income paid into super is taxed at one third that rate. For the poor, it’s grossly unfair. Low-income earners below the tax-free threshold of $18,200 pay no income tax. But they still pay 15 per cent on their retirement earnings.
As a result, Australia is foregoing tens of billions of dollars in income tax revenue. For instance, the cost of giving that 30 per cent discount to high-income earners runs into many billions each year. For just the top 1 per cent of earners, this tax break is worth $2.1 billion a year, according to figures from the Treasury.
For the time being, the Coalition seems quite happy with this sort of largesse. Decisions have consequences, however, and come budget time, Hockey might come to regret letting billions go in mining and super taxes. That depends on whether he really cares about the deficit, or just likes to use it as a cynical political slogan.
Speaking of slogans, Hockey is storing up some trouble for himself by repeatedly claiming that electricity bills will fall after the carbon tax is repealed. He was it again last night on the ABC, telling Leigh Sales on 7.30 that “prices will come down.” That’s a foolish promise that Hockey can’t keep, and that likely won’t happen. Given the vast structural power that Australia’s unreformed electricity grid gives retailers, transmitters and generators, it’s almost certain that electricity prices will continue to rise.
All of which underlines some looming problems for Hockey and the Government. In opposition, the Coalition repeatedly made claims it couldn’t back up, and that were not based on economic reality. Whyalla was not wiped off the map. Australia did not have a budget emergency. The stimulus really did work.
At the moment, a young Government is not being held to account over these kind of bold untruths. When the tables turn, Hockey and his team might find that the media and voters suddenly remember. If and when Labor reorganises and starts to land some punches, shadow treasurer Chris Bowen will have plenty of ammunition.
While the Coalition begins this term with a reservoir of public confidence in its economic management, the truth is that any Treasurer has only a limited influence on the health of the economy. The Reserve Bank, the global economy and sheer dumb luck are just as important – perhaps more important – than the economic policies of the government. Just now, Hockey benefits from low interest rates and improving public confidence in the economy. But there are plenty of wild cards that could yet intervene: an interest rate spike, a housing bubble, another Euro currency crisis or a US debt ceiling default.
Time will tell whether voters will warm to Hockey’s bravura. In the longer term, bluster and rhetoric can come back to haunt politicians. When the economic skies darken and the pressure comes on, we might see the new Treasurer’s mettle tested.
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