Last week, I mentioned three areas in which egregious mistakes are being made; namely the promotion of GP bulk billing and the funding of Urgent Care Clinics; legislation of penalty rates, and; “free” TAFE courses.
It’s worth adding some other items to this dismal list. Arguably one of the worst proposals by Labor is to forgive 20 per cent of the higher education loans that are currently outstanding. Let’s be clear here: this is a policy copied from the Biden administration although in that instance the implementation was stalled by the US Supreme Court.
Apart from enticing those who are advantaged from the debt write-off to vote Labor, this policy is without merit. It doesn’t influence behaviour because the education has already been undertaken. It increases government net debt by an estimated $16bn.
It is also one in the eye for those former students who have paid off their debt. In the future, graduates may be inclined to pay off as little as possible in the hope that the debt forgiveness trick will be repeated. The government’s stated rationale that “it recognises that many Australians are doing it tough and will take pressure off the costs that Australians have to budget for” will equally apply in the future.
Take another example of poor, potentially dangerous policy – the option for virtually all first-home buyers to buy a home with only a 5 per cent deposit. The government – aka taxpayers – will effectively guarantee the other 15 per cent and relieve the purchaser of the requirement to take out lender’s mortgage insurance.
On the face of it, this looks like nationalised prime lending, an arrangement that led to the global financial crisis. At that time, too many home purchasers in the US had far too little collateral in their homes and ended up being unable to service their mortgages, particularly when the honeymoon rates ended. The providers of the loans operated on the basis of fancy financial techniques that ultimately unravelled.
Of course, in this case, it will be taxpayers who must cover any losses rather than private financial institutions. But given the size of the potential book, issues about financial stability arise. These issues will be of concern to both the Australian Prudential Regulation Authority and the Reserve Bank.
The Prime Minister has claimed that there are no issues related to default, citing the very small number that have occurred thus far with the smaller-scale 5 per cent deposit schemes. But the point is that the default rates are highly cyclical, and when the market turns down there is worrying clustering of mortgagee non-payment.
There is the further concern that this scheme is simply adding to housing demand at a time when it is widely recognised that supply of homes is inadequate. It is entirely possible that the additional financial capacity that only having to stump up a 5 per cent deposit entails will be reflected in higher home prices as buyers compete to secure scarce properties.
The exemption for electric vehicles and plug-in hybrid vehicles from Fringe Benefit Tax is another example of woeful policy. Designed to encourage the purchase of EVs and PIHVs – the latter is being phased out – this intervention is highly regressive, favouring those on higher incomes over others. It has also proven to be extremely expensive even though the net effect on the overall growth in the demand for EVs has been very sluggish.
The initial cost of the scheme was put at $56m; it is now estimated that the cost to the taxpayer is 10 times higher. The implied cost of abatement is between $1000 and $20,000 per tonne compared with a $75-per-tonne cap on the price of carbon imposed by the government’s own Safeguard Mechanism.
The PIHV option has proven to be particularly popular even though there is evidence that many drivers hardly bother to plug in their vehicles. Fuel costs are also often met by employers who benefit from having cars on novated leases.
In a no-yes-no switch, the Coalition has now decided to abandon this scheme should it win government. But don’t think I’m simply picking on Labor here: the Coalition has proposed several extremely ill-considered policies.
Take the reinstatement of the low- and middle-income tax offset for one year. Apart from the LMITO complicating the tax schedule and creating undesirable incentives, the more straightforward approach would have been to support the government’s modest income tax reductions or propose alternative ones. Indexation of the personal income tax scales would be welcome, but vague support when budgetary conditions permit does not constitute convincing policy.
Permitting tax deductibility of mortgage payments for purchases of new homes by first-home buyers is another example of inferior policy. Clearly, this arrangement would favour those on higher incomes for whom the deductibility is worth a great deal. Moreover, the proposal to phase out the scope to deduct mortgage payments after five years on the face of it looks politically implausible, as mortgage holders would face a huge jump in their monthly outgoings.
It is interesting to note here that when this scheme was introduced in the Netherlands, the pressures have been to broaden its coverage and to extend its duration. By contrast, in the US, the tax deductibility of mortgages has been restricted for nearly a decade in recognition of the disadvantages of the arrangement there. The golden rule of tax reform – to widen the base and reduce the rate – in part drove this change.
The Coalition has also thrown its support behind the government’s absurdly inefficient scheme to promote GP bulk billing in which it is predicted that close to $8bn will be spent to induce just over $800m in additional bulk-billed consultations. One might expect the Coalition to stand up for the proposition that only those on lower incomes and those with special needs should be able to see a GP free of charge. Co-payments are an important device to ensure people value the services GPs provide.
To sum up, it has been a bipartisan slide into appalling policy where the main guiding principle has been to entice voters to give the proposing party their first preference. Arguably, the cost-of-living pressures have made this worse as the competing parties strive to offer compensation to voters hit by higher costs. The fact that government spending has contributed significantly to the cost-of-living pressures is something that is simply ignored.
Had the Coalition spent less during the pandemic, and had Labor simply maintained the century’s average ratio of government spending to GDP during its term in office, then the rate of inflation would likely have peaked at a lower rate and returned to the annual target band of 2-3 per cent more quickly. We might then have been spared all this expensive, interfering policy muddle we are currently dealing with.
Now that the talk is over business wants real action
The campaign’s been between a government which doesn’t deserve to be re-elected and an unelectable opposition, and if the polls are right a Labor/Greens coalition is a very real possibility.
No counting votes before the night for Albanese and Dutton
Better campaigning means nothing if you don’t win the vote and the Prime Minister faces the danger of being seen to have ‘lost’ if he loses Labor’s majority in the House.
The quality of policy has sunk to new depths during this election campaign, notwithstanding the current global economic challenges. Both the government and opposition are responsible for this situation as the two parties seemingly battle for the wooden spoon in terms of policy prowess.