The first Newspoll for this year showing Labor leading by 53 per cent to 47 per cent suggests things may have tightened a smidgin over the summer (probably because the government shut up for a while) but it is too early to tell whether there has been a genuine closing of the gap or it’s a one off.
We’ll know in a few more weeks but do not be surprised if there is a tightening because there often is when people switch on as the election nears.
PM takes big swings at Labor
Scott Morrison and his team, who must call a May election in just over two months, have begun the year throwing haymakers at Labor over the economy in an all-or-nothing bid to distil the contest down to the Coalition’s core policy strength and even up the polls before pulling the trigger.
Morrison opened with a reprise of Peter Costello’s ultimately unsuccessful warnings in 2007 about voting for Labor when economic storm clouds were on the horizon. In that case, it was the GFC coming over the hill. In this instance, it is a potential global slowdown helped along by the trade war between China and the US which is exacerbating China’s slowing growth.
One would have thought the warning would have more resonance this time if the government led by example and was not about to ladle out $9.2 billion in tax cuts and/or cash payments in the April 2 budget.
The Parliament has already legislated the Coalition’s three-stage income tax cuts worth $144 billion over 10 years.
Primarily, the decision to hand out more dough is driven by the need to win the election. As justification, the Coalition will cite its own arbitrary rule that tax revenue must not exceed 23.9 per cent of GDP.
The mid-year budget update released before Christmas, which squirrelled away the $9.2 billion under the line item Decisions Taken But Not Yet Announced, forecast the tax-to-GDP cap would not be reached until 2025-26.
This is four years later than the 2021-22 forecast in the budget last May. The $9.2 billion extra tax cuts have not been announced but have been factored in and are a key reason why the date for reaching the tax-to-GDP cap has been pushed back.
Nonetheless, the fiscal rule is an arbitrary one and it could be argued that $9.2 billion extra revenue may be better used to buffer the budget against the supposed downturn coming our way by having bigger surpluses and lower debt.
Tougher tests for Opposition
Certainly Labor cares not for such a tax cap. While it is promising income tax cuts for low and middle-income earners that will be almost double those that the Coalition has thus far legislated, it is also promising tax increases worth more than $200 billion over 10 years. Chris Bowen has long argued that the extra revenue would enable Labor to fund its promises as well as have bigger surpluses and lower deficits.
Many of these tax plans have stood the test of time but, over the next few months, will face their toughest test yet.
Labor announced its proposed curbs on negative gearing and capital gains tax deductions well before the last election. Despite fear campaigns by the Coalition, Labor reduced its opponent to a near minority government. In the immediate aftermath, Peter Reith suggested the Coalition should take a few similar policy risks itself given Labor was far from punished for sticking its neck out.
The atmosphere has changed since with the cooling of the housing market but as current investors realise they will be exempt from any changes to negative gearing and CGT, the politics appear to be manageable. Especially as houses are still a lot more expensive than they were a few years back.
The real risk is the plan to scrap cash refunds for excess franking credits.
The policy was announced in March last year and survived its initial tests – the byelections in Batman, Longman and Braddon. But as one Labor source cautioned, Morrison is much better at a fear campaign than Turnbull. And it should be remembered, the policy had to be changed just weeks after it was announced to exempt 300,000 pensioners. Going after seniors, even if they don’t all vote for you, is fraught.
Last of the reckless spending policies
The decision by John Howard and Peter Costello to allow the cash refunds in the first place was extraordinarily reckless and is pretty much the last in a legacy of their big-spending policies that left the budget riven with structural deficits.
When introduced, the refunds cost the budget $550 million a year. It is now 10 times that at close to $6 billion, and rising to $8 billion. The ultimate decider of whether a policy is a good one is to ask whether you would introduce it today. The answer would be most definitely not.
But having said that, people have invested in good faith and in accordance with the law. Taking money from folk is the riskiest thing your can do in politics. Unlike negative gearing and CGT, current investors are not exempted from the proposed change.
This is because Labor needs the money up front. Exempting current investors would see the lurk phase out over a couple of decades and not be worth any real money in the medium term.
Bowen erred this week when he told those affected to take their vote elsewhere if unhappy.
Even if the bulk of them are conservative voters, it is better for Labor to understand their concerns but explain the reasons for the policy. It won’t win their votes but straight talk and not trying to please everybody would engender respect.
Dismissing them leaves the Opposition open to accusations of arrogance, which is dangerous when many others are just starting to switch on and are yet to make up their minds.