Could the levy hurt our recovery? say it ain’t so, Joe

THIS levy or tax will ­remain politically dumb because Labor and the Greens will hammer home that a promise has been broken.

AMID all the anxiety created by the debt levy idea, the best budget news has come from Treasurer Joe Hockey, who late in the week uttered the words we needed to hear.

Even so, this levy or tax will ­remain politically dumb because Labor and the Greens will hammer home that a promise has been broken.

Many of Tony Abbott’s pre-election promises have semantics issues, which could mean the government can defend its deficit tax. But the one it will always have problems with is: “What you’ll get under us are tax cuts without new taxes.”

Tax cuts will show up before the next election, if only to counter bracket creep, but a debt levy is a debt tax, and it is new. So it’s a broken promise, but that doesn’t really worry me.

My biggest concern is that Tuesday’s budget could wind up being a fiscal folly. If the budget derails what is a nice economic recovery — and I know it’s happening because I report every night on Sky News on Reporting LIVE with Stan Grant — then May 13 will be a freaking folly.

Let me assure you I have surveyed the who’s who of the country’s economic minds and not one thinks the deficit levy is a good idea — economically, let alone politically speaking — and most but not all think it would be a confidence-buster for the recovery. However, that analysis was based on the original idea that the levy would kick in at $80,000.

Fortunately, good sense has prevailed and it looks like it will start at $150,000. Only 7 per cent of Aussie consumers will be affected, but that’s still 650,000 people, so it’s a kick in the butt the economy doesn’t really need.

Also this pre-budget leak period has done nothing for consumer or business confidence, so the Treasurer’s revelations on Tuesday better undo this negativity.

To be honest, I should reveal the view of Morgans’ chief economist Michael Knox. He argues that as the levy will not be on lower-income Australians, who are relatively bigger spenders, it won’t create a consumption problem.

The wealthy have a higher propensity to save and he thinks they might be annoyed but they won’t give up their holidays, restaurants, cars and private school fees because of this small fiscal folly. (My words, not his, but he inspired this creative thinking.)

But back to Joe’s choice words of the week.

Defending what lies ahead as a work in progress, he said that his first budget would “stimulate growth and boost confidence”.

And that’s all I wanted to hear as one of this economy’s most optimistic economics and business commentators. I will use these words when I assess the budget and make my address to 2200 people in Brisbane for the PwC breakfast.

I have done this gig with John Howard for the past two years and on Labor’s budget efforts we have generally agreed, but if Joe doesn’t deliver on his words, then our economic closeness could endure its first fiscal hiccup.

Peter Switzer hosts Switzer on Sky News Business and is the founder of the Switzer Super Report.

switzersuperreport.com.au