Modest tax cut and wage increase despite surplus

John Howard did not let a surplus deter him from budget discipline in 2003.

Senior minister Amanda Vanstone in 2003. She admitted people would be “lucky” to buy a sandwich and a milkshake with the tax cut unveiled in the budget.

John Howard did not let a surplus deter him from budget discipline in 2003, backing a modest $12-a-week rise in the minimum wage and delivering a tax cut worth just $4 a week to the average worker.

Senior minister Amanda Vanstone admitted people would be “lucky” to buy a sandwich and a milkshake with the tax cut unveiled in the 2003 budget, inviting ridicule from the Labor opposition.

Cabinet documents released by the National Archives of Australia show the Howard government endorsing the minimum wage increase to $443.40 a week, which was broadly in line with the then inflation rate of 2.7 per cent. But the government was stridently ­opposed to the $24.60-a-week rise being pushed by the ACTU.

In his submission to cabinet, workplace relations minister Tony Abbott said the government would urge the industrial umpire to show restraint.

“Increases in all award rates of the magnitude consistently proposed by the ACTU would damage the national economy and result in weaker employment growth and higher unemployment, particularly for low skilled people,” Mr Abbott wrote.

He backed watering down worker entitlements, including proposed changes to employment laws that would require the old Australian Industrial Relations Commission to consider “employment as the primary consideration” when deciding on pay rises for workers.

This would effectively limit the ability of the body to raise wages.

“It is proposed the AIRC also be required to consider the ­employment prospects of the unemployed and the capacity of employers to meet increased labour costs,” Mr Abbott wrote in the cabinet submission, adding the wages arbiter needed to “dampen labour costs” given the $18-a -week increase delivered in 2002.  “An increase of $12 a week … would retain the real value of the federal minimum wage while maintaining the incentive for higher paid and better skilled employees to obtain wage increases,” he said.

Workplace Relations Minister Tony Abbott in 2003. Picture: Brett Hartwig

“The contingency position (of the commonwealth) is that any adjustment to award wages above $12 a week … must be accompanied by a trade off of a quantifiable entitlement.”

Mr Abbott said in the submission the government should propose trading off the “undesirable” 17.5 per cent annual leave loading.

“We will not be arguing ­directly for the removal of annual leave loading. To do so might be seen as tacit support for the AIRC awarding a higher increase,” he said.

Unemployment was 6.1 per cent, while inflation and economic growth were both 2.7 per cent.

The budget handed down in May 2003 predicted a $2.2bn surplus in the financial year, prompting the government to deliver an average weekly tax cut of $4.

The final surplus was revealed in September to be a much larger $7.5bn, allowing the Howard government to deliver further tax ­relief in the 2004 budget.

Also in 2003, cabinet agreed to simplify taxes for small businesses, including increasing the monthly superannuation guarantee exem­ption threshold and allowing ­annual rather than quarterly payment and reporting of GST.

A cost-saving measure endorsed by senior ministers was a compromise to the Coalition’s preferred policy to close the ­Public Sector Superannuation Scheme, which in 2003 had unfunded liabilities of $9bn. The proposal to close the scheme down did not have Senate support. In an effort to break the stalemate, cabinet agreed to reform the system so it was less generous but still a better deal than for private-sector workers with super payments of 15 per cent. It was projected to save $300m a year by 2007-8.