Labor’s tax-and-spend plan outlines what not to do

Coalition must show restraint and provide plausible budget.

While the fiscal dilemma of deep and entrenched deficit is all too familiar, the political setting for tonight’s federal budget is highly unusual. Coming as it does during a period of unofficial electioneering and just a week before the formalised and elongated campaign begins, it amounts to a real-time election manifesto. Given Malcolm Turnbull assumed the leadership only eight months ago, this document probably will be more important for establishing the characteristics of his prime ministership than stressing any continuity with the Coalition’s previous two budgets. Yet perhaps the most unusual circumstance is that rather than waiting to critique the budget, the opposition already has outlined in some detail what its prescription would be: to increase taxes by $100 billion across a decade to fund ongoing high levels of spending. This is a gamble by Labor and a political opportunity for the government. “It will not be a typical budget,” Scott Morrison said yesterday. “This is not a typical time.”

The most important challenge for the Treasurer, surely, must be to face up to the reality of mounting government debt, a structural deficit and the need for the federal government to turn its back on almost a decade of denial and delay to provide a plausible path to surplus and sustainability. Despite Wayne Swan famously announcing “four surpluses” in 2012, Labor abrogated its responsibilities in favour of wild spending and improbable revenue forecasts. In 2014 Tony Abbott and Joe Hockey tried to do too much, too soon, and with too many broken promises, before retreating to a budget last year that lacked ambition. With the dramatic double-dissolution timetable bearing down on him, Mr Morrison can be forgiven for being wary of unpopular measures, but he must not abandon meaningful reform because, in large part, voters are likely to be looking for political leadership capable of making the necessary difficult decisions at a time of great global uncertainty.

Labor’s policy prescription — sadly for the nation — provides the ideal counterpoint for the government. In aspiring to fund unsustainable levels of government spending by adding or increasing a range of additional taxation measures it presages an ever-expanding public sector relying on an overburdened private sector. The opposite path is the one the nation needs; a retreat from government expansion and intervention in favour of the liberation of investment, incentive, productivity and growth. Mr Morrison and Mr Turnbull can’t be expected to right the ship overnight but they should be able to outline a course that sets the nation on the correct bearing.

Their rejection of Labor’s policy to eliminate negative gearing and increase capital gains tax for real estate investments is the right choice. Labor is trying to fix an unidentified problem which can only undermine one of the stronger sectors in our economy. Paradoxically, while Labor dismisses talk of falling house prices as a scare campaign, it readily concedes that its policies will have a dampening effect on the real estate market. It is far better to encourage investment than to hinder it; to address housing affordability it would be more sensible to pressure state governments to free up planning restrictions and reduce stamp duties.

We expect to see at least one tax increase from the Coalition; an extra impost on super contributions for high-income earners. This is unfortunate and shortsighted — these are the taxpayers most likely to avoid reliance on an age pension — but at least it appears this revenue will be recycled into tax cuts for middle-income earners. The revenue-neutral imperative for tax measures is admirable, with the mooted plan to channel funds recovered by closing corporate tax loopholes into company tax reductions sounding particularly adroit. Lowering tax on income and profits is the surest way to stimulate the growth required. While government spending is too high at almost 26 per cent of gross domestic product, Mr Morrison is committed to reducing it to below 25 per cent — an unadventurous target but a start. Neither the political climate nor the fragile economic environment is ideal for savage cost-cutting, so sustained discipline is probably the wisest approach. Yet Mr Turnbull and Mr Morrison need to demonstrate they are up to this task.

The fantasies propagated by Bill Shorten and Labor — that the National Disability Insurance Scheme and Gonski education model are “fully funded” — do nothing to flatter the intelligence of voters. The silence on all this from the ALP’s elder statesmen such as Paul Keating and Bob Hawke is deafening. Yet to hit back at this tax-and-spend approach, as well as Labor’s rank resort to class warfare, the Coalition must outline a budget that is strong on restraint and plausibility, while perhaps flaunting a little pre-election flair. Too many budgets have ducked the hard yards of underpinning real economic growth and simply made unrealistic forecasts that are never met. Are we naive to expect any different?