Budget Savings

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GUEST OBSERVER
When you are Malcolm Turnbull floundering in the heavy seas of tax reform, it is perhaps unfortunate that the 20th anniversary of the election of the Howard government has come around at this particular moment.
John Howard has reached near demigod status in the Liberal Party, second only to Robert Menzies. His biggest economic reform was the introduction of the GST, which naturally has him seen as the tax guru. At the time the change was fraught, and could easily have taken the government’s life. Looking back, the achievement stands out, the difficulties fade.
In his weekend interviews Howard had two pertinent messages on tax. The first was that the issue of the tax “mix” will eventually have to be revisited.
Turnbull has already retreated from the option of raising the GST to pay for mega tax cuts. But Howard doubted that “it’s snuffed out forever”, saying that for the “medium to longer term” the mix needed to be revisited.
Potentially this can feed into an ALP scare campaign claiming that while the GST might be off the table for now, a re-elected Turnbull government could put it back on.
On negative gearing, Howard was concerned about an escalation of rents and about hitting the nest eggs of people on modest incomes. Coalition backbenchers who are urging Turnbull not to fiddle with negative gearing will seize on Howard’s cautioning – although what the government appears to be considering would probably only affect richer investors.
Turnbull on Sunday said he had had “a long chat with John about negative gearing and other aspects of tax only yesterday. … He’s obviously a great source of advice.”
Turnbull shouldn’t need much advice to know he’ll need to put on the hard hat as the government on Monday goes into another character-building parliamentary week.
As talk swirls about a possible double dissolution for July 2, already skittish Coalition backbenchers are likely to be increasingly anxious about the shape of the tax blueprint.
The inclination, according to some government sources, is now to put out a comprehensive package on tax before the budget.
But other sources are more qualified, saying while something will be released prior to the budget, how much and in what form is not yet clear.
Turnbull told News Corp in a statement: “The government’s approach is to work carefully through all the elements in the tax system … That work will be completed shortly and the results will be announced in the lead-up to the budget."
The expenditure review committee is due to consider the tax package early next week. Rather strangely, considering how much pressure is on, both Treasurer Scott Morrison – who eschewed travel abroad in his first days in the portfolio – and Treasury head John Fraser were overseas in the last few days.
Howard was not the only one out and about in the tax debate at the weekend. Tony Abbott, in an extract of an essay defending his government’s record to be published in the March issue of Quadrant, wrote that he was confident he could have won this year on a program of budget savings and lower tax.
“In September last year, the Abbott government was just beginning the election policy process. The likelihood is that we would have gone to the election seeking a mandate to reduce or eliminate some of the one-off payments that seemed defensible with surpluses of $20bn but not with deficits of $40bn; and further to tighten eligibility for ongoing payments. … With further budget savings in place, I was confident that there could be income tax cuts during the next term of parliament.”
On Wednesday night in Parliament’s Great Hall the Liberal faithful will gather to honour John Howard and his government. Privately, quite a few backbenchers will be making comparisons with his successors. Abbott will be among those on the main table. It will be a night requiring from past and present leaders a certain facility for walking on eggshells. Just like the tax package.
Michelle Grattan is professorial fellow, University of Canberra and author for The Conversation. She can be contacted <a href="https://theconversation.com/profiles/michelle-grattan-20316" target="_blank">here</a>.
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