Bowen’s magic pudding proved a political mirage

Electronic diaries are useful, particularly for those people whose schedules can change for various reasons. Labor’s former Treasury spokesman, Chris Bowen, had expected to be at the G20 finance ministers’ meeting in Fukuoka, Japan, this past weekend. Instead, he had free time on his hands.

On the eve of the election last month, Bowen had tweeted that Labor’s leadership team — Bill Shorten, Tanya Plibersek, Penny Wong, Jim Chalmers and himself — was ready, while displaying a serious portrait of the famous five. Weirdly, only Chalmers was seated. Presumably, Bowen didn’t mean he was ready for a free weekend in June.

It’s said that success has many fathers but failure is an orphan. But in the case of Labor’s unexpected electoral defeat, there are quite a few parents to blame, including Bowen.

As for former opposition leader Shorten’s claim that “corporate leviathans”, “a financial behemoth” and “sections of the media” were responsible for the election outcome — nothing to do with him, of course — we can quickly dismiss this in true Aussie style by simply stating that he’s dreamin’.

But let’s think about Bowen’s contribution to Labor’s election defeat. By amassing a dizzying array of additional sources of tax revenue, he was able to predict, in theory at least, that Labor would deliver higher spending and bigger budget surpluses. He honestly thought he had found an economic magic pudding that would secure electoral success.

The basic idea was that he could impose higher taxes on mainly non-Labor voters while handing out more free stuff to Labor’s faithful constituency while reeling in some extra voters. There would be no need for those pesky questions about how Labor could afford to increase spending on health, education, childcare and other pet projects.

What Bowen (and other Labor leaders) failed to appreciate is that the impact of the tax changes that he proposed was not confined to the big end of town. Take the abolition of negative gearing save for new residential real estate. The information on negative gearing is very clear: many investors are on modest incomes and most of them hold only one property. This wasn’t the top end of town, more like aspirational mums and dads.

Then there was Bowen’s fatal plan to eliminate cash refunds for franking credits which, according to some sources, was initially recommended to him by one of the large accounting firms. Mind you, it is never a good idea to take advice from private sector economists with no expertise in policy development and no ear for the politics of a plan.

There was so much misinformation being put out by Labor in relation to this plan, including the fanciful notion that cash refunds were unjustified gifts to people who had paid no tax. That the tax had already been paid by the companies was a point that escaped both Bowen and Shorten.

The real story was about dividend imputation and how double taxation was avoided as a result of its operation. In point of fact, close to $50 billion in franking credits is distributed each year. Some of these credits cannot be used because they accrue to foreign shareholders and companies. But of the $24bn odd eligible for refunds, about $6bn take the form of cash refunds and the rest is used to reduce tax liabilities. In terms of the budget bottom line, there is no difference between a cash refund and a reduced tax liability, another point Bowen and Shorten seemed incapable of understanding.

And here’s the rub: the people who use franking credits to reduce the tax they pay are generally much better off than those who receive cash refunds.

Had Bowen suggested that the system of dividend imputation be reviewed with a view to reducing the cost to the budget, he might have been on firm ground. However, by advising that cash refunds would be eliminated for some shareholders (some pensioners and those with superannuation in taxpaying funds were to be spared) he laid the ground for a fully justified counter campaign pointing out that many retirees on modest incomes were about to lose out.

And for many of those people who would have been hit, Labor’s plan was not just about the dollars, although this was important. It was also an implicit attack on their longstanding aspirations to provide for their own retirement ­according to settled rules.

To underscore Labor’s witlessness on this point, former deputy Labor leader Tanya Plibersek had previously declared that “this ­aspiration term mystifies me”.

But misjudging the mood of the electorate was only part of Labor’s problem.

Many of the policy proposals, including ones that Bowen had initiated, were simply half-baked. Instead of releasing the costings undertaken by the Parliamentary Budget Office, Bowen opted to keep the reports confidential. Details of the assumptions that formed the basis of these costings were never disclosed.

He was tripped up by this strategy several times, including in relation to the proportion of real estate investment, which takes the form of new properties. Bowen cited a very low figure — 7 per cent — quoting the Australian Bureau of Statistics as the source even though the ABS does not collect these figures. He was forced into witness protection for several days during the campaign.

Then there was the idea, out of blue, to top up the pay of childcare workers — some childcare workers, at least — by 20 per cent, courtesy of the taxpayer.

There were serious question marks about this proposal, including the cost, the disruption to ­accepted wage-fixing principles ­involving the Fair Work Commission and whether other workers also would have their pay topped up. None of these issues was ever satisfactorily dealt with during the campaign.

Voters were never really given a full explanation of the benefits of the additional free stuff that Labor was offering. More money for schools — what would that yield? More money for hospitals and free cancer care — how would that work? Free dental care for pensioners — was that even possible?

As Bowen, now the opposition health spokesman, gets his head around the health portfolio and is pitched against an experienced and competent minister, he can look back on his time as Treasury spokesman and repent at leisure.

Had he been more modest — restricting negative gearing to one or two properties, putting a cap on cash refunds for franking credits or cutting the capital gains tax discount by 10 percentage points rather than 25 are three examples — the election result might have been different. But his advice to voters that if they didn’t like Labor’s policies, they were “entitled to vote against us” was at least honest. Sadly for Labor, many voters took up his suggestion.