Cameron England: Analysis — The issues with Labor’s policy costings

Labor’s policy costings come with plenty of big numbers but there are a few issues with this.

• Labor costings suggest it will deliver bigger surplus than Coalition

Which fairytale would you prefer to believe?

The one in which the Liberal Government is elected three more times and hence, gets to pass its entire income tax reform plan, or the one in which the Labor Party’s costings, also way out into the future, are correct?

Shadow treasurer Chris Bowen in Canberra on Friday. Picture: AAP Image/Rohan Thomson

Labor’s policy costings come with plenty of big numbers. There are a few issues with this. One is that the last time they promised us a tax windfall, it failed to materialise.

Cast your mind back to mid-2012, when what was colloquially called the “mining super-profits tax” came into effect.

Originally Kevin Rudd’s policy baby, it was meant to cream taxes off the big miners, but was a spectacular failure.

Initially designed to bring in billions, it ended up gathering just tens of millions. And there are two major issues with large, long-term policy forecasts. The first is the assumptions made, if slightly wrong — and they always are — can throw the numbers off wildly.

The second is that people and organisations change their behaviour in response to policy changes.

For example, Labor’s planned tax take from capital gains tax reform could lead to people holding assets longer, hoping for a reversal by a future Liberal government.

And multinationals targeted for tax evasion will not simply throw up their hands and agree to pay more. The unintended consequences from the raft of other planned changes remain to be seen, or calculated. A wide margin of error should be expected.