Budget deficit says now the wrong time to wage a class war

There was a time when governments would admit that the only money they had to spend was snaffled from taxpayers’ pockets. Federal officials would calculate the amount of revenue raised per head of population and record it in the Commonwealth Year Book, starting in 1901-02 with a modest £1, 11 shillings and 8 pence.

By the mid-1960s when this quaint practice ended, the commonwealth was taking a fraction less than £156 a year from the average citizen, the equivalent of $4300 in today’s money. This year’s per capita tax take will be ­almost four times larger at $16,500.

Even so, it will fall about $37 billion short of what the commonwealth will spend, for while the Coalition government has managed to slow the phenomenal expansion of government that began with Kevin Rudd, it has not been able to reverse it altogether.

The relationship between the citizen who creates wealth and the government that takes it is in danger of being forgotten, obscured by the deceptive language of modern politics. When Chris Bowen boasts of saving $100bn from the budget, for example, he is deliberately reversing the facts.

“Savings” in the lexicon of modern Labor includes raising taxes and declining to pass on tax cuts, even those it once supported. They are savings in the sense that when the government spends our money, it is saving us the bother of having to spend it ourselves. They are savings because they save the political class from making necessary decisions.

Like George Orwell’s Winston Smith adjusting figures from the Ministry of Plenty, this no longer seems like forgery but “merely the substitution of one piece of nonsense for another”.

Bill Shorten took the fiscal parody further on Thursday when he boasted of the $49bn “budget improvement” Labor would make by not reducing company tax. But since Labor will use this money to outbid the Coalition on education and health, there will be no improvement to the fiscal bottom line. Could this be the same Bill Shorten who less than a year ago called for a bipartisan company tax reduction to 25 per cent? Could his Treasury spokesman be the same Chris Bowen who wrote the book Hearts and Minds arguing “it’s a Labor thing to have the ambition of reducing company tax, because it promotes investment, creates jobs and drives growth”?

It is a measure of Labor’s surrender to populism that it now rejects Treasury’s considered advice that reducing company tax will boost the economy by 1 per cent. Former Reserve Bank board member Warwick McKibbin told The Australian yesterday the cuts benefit would be around $160bn over 10 years, a return more than three times the reduction in revenue.

Yet Labor has other plans, saying that it will “invest in schools … invest in hospitals … invest in families”. The use of the word “invest” is intentionally misleading. Spending more on government services produces no asset and delivers a diminishing return on human capital.

It becomes an annual drain on resources that must be replenished with higher taxes or increased borrowing.

Credit where credit is due. It takes a particular skill to cloak this ill-conceived economic policy in the language of respectability and then convince three-quarters of the Canberra press gallery that you’re not spouting nonsense. An experienced Fairfax commentator speaking on Sky News insisted there was little substantial difference between Shorten and Malcolm Turnbull on economic policy. The chap clearly hasn’t been paying attention.

Not since the 1977 election — the last fought by Gough Whitlam — have the two sides been so philosophically divided. On one side is a socialist party with an ­obstinate faith in central planning focused almost entirely on the division of the spoils. It believes, as Whitlam did, that “the things that governments provide are those which determine most whether the community enjoys a true measure of equality”.

On the other side is a Liberal Party that remains faithful — by and large — to the spirit of its founder, Robert Menzies, who believed no act of parliament could make the country more prosperous.

“Governments, contrary to a well-known political superstition, have no money of their own,” Menzies once wrote. “In the field of public finance, they spend what men and women have earned and have paid to them in either taxes or loans.”

A troubling development in Labor’s rhetoric is an outright hostility to the corporate world and a desire to punish it. In his maiden speech to parliament in 2008, Shorten made a point of acknowledging that “Australia needs business. It is the principal ‘doing’ arm of our society. It creates wealth and jobs.”

Today he chides “big business … large companies … multinationals” as scapegoats with rhetoric not far removed from Bernie Sanders or, for that matter, Venezuelan President Nicolas Maduro. Shorten’s demand for a royal commission into banks comes straight from the corporate-bashing handbook.

Shorten’s portrayal of the Prime Minister as someone who sides with big business against battlers is a predictable — if unimaginative — attack on the wealthy Turnbull. But it represents a sharp break with a consensus that has prevailed since the late 1970s when Whitlam’s successor Bill Hayden persuaded his party that the fortunes of business and the workers were irrevocably linked, paving the way for the reforms of the Hawke and Keating governments.

The forecasts in the budget only serve to reinforce the feeling that this is a dangerous time to be fighting a class-war election. The structural budget deficit won’t fix itself yet the ability of the next government to make inroads into spending will be curtailed by moral posturing over fairness.

In the increasingly rare sane interludes in the debate, there is consensus that the priority for the economy is productivity and growth. Business and battlers alike will benefit from lower taxes and a growing economy.

Yet Labor seeks to deny that in its quest for cheap political gain, leaving the party — and maybe the country — hostage to economic ­irrationalism.

Nick Cater is executive director of the Menzies Research Centre.