Thus Spake Mungo: The un-arousing political tease over tax

By Mungo MacCallum

There is an old primary school prank in which the perpetrator asks the victim: ‘how do you keep an idiot in suspense?’ When the victim gives up, the perpetrator replies triumphantly, ‘I’ll tell you tomorrow!’

Well, it used to be a prank, but in the last week or so there are signs that Malcolm Turnbull is taking it seriously. This is not to say that our cerebrotonic prime minister is treating his party room, the parliament, the media or the voters as mugs – heaven forbid. But it is clear that his continued delays – procrastinations, even – over tax are starting to try everybody’s patience.

Turnbull reassures the public that the budget will, as always, set out the government’s economic blueprint for the next year. But even if that is taken to mean that the detailed agenda for his tax changes will be revealed – and there is no guarantee that his plans will be finalised, or even necessarily initiated, by that stage – the budget is still a full three months away, three months in which the speculation, the kite-flying and the overwhelming uncertainty can only get more intense.

And as it mounts, the resistance to a serious attack on the country’s fiscal malaise is also growing. In particular, the possibility of increases in either the scope or the rate of the GST is fading before our eyes.

Last week Turnbull laid out his three unalterable conditions for tax reform. Rule One: there can be no overall rise in the tax take. That is a pretty unambitious goal in itself. We are no longer talking abut the need to drive taxes down to free up the economy, to provide incentive to employment, and to contribute to reducing the debt and deficit emergency. And in fact we are actually encouraging the states to fill their own revenue holes, presumably by pushing up their own taxes.

The best the commonwealth is prepared to do is to keep its own figures in balance. So if the GST is ramped up to 15 per cent, to provide a bonus of some $30 billion, the same amount is to be given away in tax decreases. No problem, says Treasurer Scott Morrison; that will provide a shitload of reductions to personal income tax and company tax.

But alas, it is not as simple as that. Rule Two is that the process has to be rigorously fair, which mean that there would be compensation for those hit by the regressive measure of indirect tax – pensioners, low income earners, those on fixed incomes and probably many who have not het been thought of but certainly will be when the bills come in. This will cost about a third of the $30 billion, and maybe more.

But remember Rule One stipulates that the whole $30 billion has to go on tax cuts of one kind or another, and all the compensation will not come in tax cuts – some of the victims pay little or no income tax to begin with. There will have to be top-ups, an expensive and business which will involve more bureaucracy and frustration, and which, inevitably, will leave loopholes and losers.

And then finally, and most importantly, there is Rule Three: there must be a real dividend in growth and jobs. And this is the difficult bit – the bit that has to be measured credibly, and then sold effectively. Treasury has modelled the GST increase at adding a one-off boost to growth to about one third of one per cent – worth having, but hardly a cause for widespread celebration, even among the economists.

It might be better than that; the income and business tax cuts should also have an effect, but that would take time. As Malcolm Turnbull has mused, it is a lot of effort for not all that much; he is clearly unconvinced.

And if he is unconvinced, look at the rest of us. There is a clear popular majority against raising the GST: Newspoll says just 37 per cent favour it, which is better than expected, but still a long way behind the 54 who don’t. The premiers are split, two in favour, two against and two keeping pretty quiet; but even those who would wear a higher GST would do so only if it gave them more funds, particularly for their health budgets. This would of course break Rule One; and it is the reason both Paul Keating and Peter Costello, treasurers who have some experience of the subject, have rejected a GST increase: if you give the government a bucket of money, the bastards will only spend it. Federal Labor, under Bill Shorten, and the Greens are, predictably, implacably negative.

But the real opposition is coming from the coalition party room. There are those who simply oppose taxes as a matter of faith: neo-liberal Tea Party types who think health, education and welfare should be funded, if at all, on the user-pays principle (although just how they would deal with defence is somewhat more problematical.) But the main push is from the so-call bed-wetters, who are simply afraid of losing their seats – and with some justification: they saw what happened in 1993 when John Hewson lost the unloseable election and in 1998 when John Howard scraped through after losing the popular vote. This is what they and their leader really mean when they talk of the trouble and effort; it is not about the policy, although that is tricky enough, it is the politics that it is the killer.

There will still have to be something to show for all the angst: Morrison and others regard the need to bring down at least some of the income tax rates as crucial. But Plan B, with modest cuts to superannuation concessions and some other perks, might provide enough breathing space to secure a small package that can be marketed as serious reform. It’s not much; the GST remains, as Morrison has said, the only really worthwhile solution.

But for the moment it’s all too hard – or perhaps it isn’t quite hard enough. The prolonged political prick tease is not yet over, but the climax is in sight. The foreplay will come to its climax – or not. Our Prime Minister will achieve a triumphant erection, or he will succumb to tax reform droop. On the evidence of last week, a nimble withdrawal – an agile detumescence – is the most likely outcome.