Both Labor and the Coalition’s economic vision lack foresight


The money, it says, will flow back to voters in terms of services.

Opposition Leader Bill Shorten used Monday’s first debate with Prime Minister Scott Morrison to make the case.

“We acknowledge that some people won’t be happy, but what we want to do is stop providing tax loopholes to the top end of town and those already very well off,” he said.

“Instead we prioritise childcare costs, the pensioners, hospitals and schools. Also, what we want to do is start tackling the big issues which are affecting everyday Australians.”

The rhetorical flourishes, such as “loopholes” and “top end of town”, were only there to cloud the true effect of Labor’s plans to raise more tax.

The Coalition has nailed its colours to the low-tax mast, arguing it can use a growing economy – spurred along by falling personal income taxes – to pay for the services Australians need.

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Morrison and Frydenberg are pitching voters a plan that includes tax cuts worth $158 billion between 2024 and 2029 along with a promise to keep overall taxation as a share of GDP below 23.9 per cent.

In the same leaders’ debate, the Prime Minister made clear his particular economic vision.

“[It’s] ensuring that we continue to back lower taxes for all Australians, for small businesses and family businesses. To ensure that we keep the budget in surplus, as we’ve worked hard to bring it back to that surplus, to pay down the debt that we inherited,” he said. “And to ensure that we continue to invest in the essential services, the schools and the hospitals at record levels.”

In this case, Morrison talked about a surplus that may not be confirmed until September next year, while glossing over gross debt, which has more than doubled on his government’s watch to a record $536 billion.

The philosophical divisions of this election have been highlighted by the Coalition and Labor. But they are divisions amplified by rhetoric in which real, far-reaching, economy-defining policy change has – again – been jettisoned.

The 2019 election is channelling elements of a global debate unleashed by the economic catastrophe that was the Great Recession (or, as Australians refer to it, the Global Financial Crisis).

Strains of everything, from the Occupy Wall Street protests to Brexit to Clive Palmer, are tied up in policy elements on offer to Australian voters this year.

Yet both sides are offering budget surpluses even as the Reserve Bank considers an interest rate cut to boost inflation and overall economy activity.

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To woo voters, they seek to focus on the clearest differences on how they will deal with the nearly $2 trillion in taxes that will be collected over the next four years.

Labor is offering a $10 billion, 10-year plan to lift by 20 per cent the wages of 100,000 low-paid childcare workers who deal with screaming toddlers and young children.

It is audacious in the way it would mark the direct intervention by a government in someone’s pay packet.

No one denies childcare workers are poorly paid and that, because of that low pay, there is a large amount of staff turnover.

But simply forcing childcare operators to increase the pay of their staff, who account for about 70 per cent of total costs, would drive up the fees imposed on parents who, in turn, are subsidised by the government to help cover much of those costs.

Increased childcare fees increase subsidises, which increase the cost on the budget bottom line.

This year, the government will spend more than $8 billion on childcare subsidies to families, while, over the next four years, those subsidies will cost taxpayers $35.6 billion.

Labor’s policy is to avoid this fiscal roundabout by setting aside its cash solely for employees. Operators have to guarantee the money will go directly to their staff and not be swallowed by childcare businesses.

Proponents argue that Labor’s policy is an extension of the childcare subsidy, where some goes to parents (households earning less than $175,000) while the remainder goes to the childcare workers.

Opponents, such as Frydenberg, labelled the policy a “socialist experiment”, while Education Minister Dan Tehan went further, saying Labor’s entire childcare plan was a step towards communism.

But the government already has its own version of the childcare worker pay plan – it just goes by a different name and the subsidy goes to the business rather than the employee.

Its PaTH program pays participants an extra $200 a fortnight on top of their Youth Allowance or Newstart payment for taking on an internship. But on top of that direct incentive to a young person, businesses get paid $10,000 (over six months) for each intern they take on under the program. Labor wants to subsidise the worker’s pay, the Coalition is subsidising the business’s bottom line.

And while the Coalition is offering a lower taxing, lower spending agenda (even as its tax take has climbed the fastest of any government since Gough Whitlam’s), the past three years have not been a paragon of laissez faire.

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The Coalition has been pulled apart by trying to deal with high electricity prices.

If a government paying a portion of someone’s wage is communism, then having a government regulator set a limit on what a private company can charge a customer would also be found in the policy handbook of the local politburo.

The minister responsible, Angus Taylor, just this week said the move “acted as a price safety net for those who find pricing and discounts confusing, or who simply don’t have time to negotiate”. In another time, such a paternalistic attitude would be rubbished out of the Liberal Party.

And none of this includes the Coalition’s internal debate over whether to bankroll a coal-fired power station.

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At least it didn’t get to Shorten’s garbled message about eating Big Macs and somehow equating that to dealing with climate change.

One of the nation’s most respected economists, Melbourne University’s John Freebairn, said there appeared to be two distinct but flawed choices facing voters this election.

“Labor is promising to be big taxing and a big spending government that will supply a range of services. The Liberal Party is promising to maintain tax as a share of GDP and that’s the difference,” he said.

Freebairn said that, at one level, the philosophical debate over tax levels and service provision was moving in one direction.

Demographic change, health technology and infrastructure needs all point to government having to spend more rather than less.

“That’s made it a bit easier for Labor to make its case for taking action but the Liberals have been largely silent,” he said.

But neither side has sought to engage on real economic or tax change that could deliver major long-term benefits or make the delivery of government services more efficient.

Freebairn notes the Henry tax reform paper sits unloved on the shelves of policy wonks around the country while Joe Hockey’s “Re:Think” tax white paper didn’t even get out of the starting gate for proper discussion.

Both sides are backing the low- and middle-income tax offset, which Freebairn said was only giving back some “fiscal drag” to workers, while the Coalition was trying to focus voters’ attention on their proposed tax cuts in 2022 and 2024.

“Talking about tax cuts in three years after the next election is just pissing in the wind,” he said. “If we’re facing a decade of low productivity growth, you’ve got the Henry paper sitting there with ideas on how to use the tax system to boost productivity and deliver some real reform and benefits.”

And this is where the argument about a huge gulf between what is being offered by all parties breaks down.

The only “productivity” talked about during this campaign has been around infrastructure projects enabling people to drive faster through our major cities or park their cars near a suburban railway station.

What’s been missing has been productivity-enhancing reform that could deal with issues ranging from the ageing population to perhaps the biggest ones facing most voters: the low rate of wages growth.

As wages growth has slowed, the number of people with two jobs has climbed. Recent figures from the Australian Bureau of Statistics show 7.2 per cent of the workforce has at least two jobs, with the rate growing faster than total employment, with most going on in lower paying areas including health, aged care and education.

A Productivity Commission report commissioned by Morrison as treasurer – which canvassed such politically difficult issues as tax reform, road congestion charges, better state-Commonwealth relations and changes to community pharmacy – also goes unloved, just like the Henry paper.

Neither side has engaged with this body of work. Instead, the argument has descended into who is offering higher or lower taxes and overall spending around health and education.

Voters know one side of politics plans to collect more revenue and spend that on services than the other side.

Bowen and Frydenberg, Morrison and Shorten, will all spend the last few days of the campaign talking about their policy agenda as they attempt to paint vast differences between the Coalition and Labor.

But apart from a billion here or a billion there, the broader question of the economy’s future goes unanswered.

Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.

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