Tax: the best form of defence

The Coalition has today adopted a shock-and-awe tactic to kick-start its election campaign: promised income tax cuts to cost $34 billion over three years, accompanied by aspirational talk of an Australia in which 98 per cent pay a marginal tax rate of 35 per cent or less. I won’t presume to discuss the promise’s target market at this point, but it should be noted that tax cuts at the past two budgets produced largely disappointing returns in the opinion polls (although the more recent round can be credited with a slight narrowing in Labor’s lead in August and September). Nonetheless, the announcement will fill the news bulletins with images of Peter Costello in his element, whereas Kevin Rudd will be forced to discuss those tax scales he couldn’t name a few weeks ago.

Centre-left economist John Quiggin makes the following observation on the troubled history of election tax cut promises:

I can recall (perhaps with error) at least two instances of such cuts being promised and then taken back. One was Paul Keating’s L-A-W tax cuts in 1993, which (as implied) were actually legislated in an attempt to increase their credibility. The other was the “Fistful of Dollars” tax cut of 1977 (so named for the ads which showed precisely that) promised by the Fraser-Lynch team going into the election and then (if my fading memory serves) taken back by Lynch’s newly-appointed replacement. Now what was his name again?

Author: William Bowe

William Bowe is a Perth-based election analyst and occasional teacher of political science. His blog, The Poll Bludger, has existed in one form or another since 2004, and is one of the most heavily trafficked websites on Australian politics.

409 comments on “Tax: the best form of defence”

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  1. “how this may result in the total loss of democracy in the USA.” More stupid left-wing tosh. There’s nothing wrong with the US that a good eight-year Democrat presidency can’t fix. The Chomsky-Pilger-Fisk-etc intellectual left appear to have been driven literally insane by their hatred of Bush.

  2. I said it all along. The Liberal party has a huge warchest and they will attempt to buy the Australian people and 34 Billion is a pretty big splash of cash for the first day. Of course the richest sector of taxpayers get the most benefit as is Liberal party policy always. It depends on wether the greed gene still lives healthy and strong in the Aussie genome.

    Peter Hendy as usual is doing his masters bidding and denying that the tax cuts will risk a rise in inflation. I hope its true. One more interest rate rise and my trainee techo has to choose between owning a home and feeding his family. Quite frankly so do I.

    I got the impression from Tracy Grimshaw that Rudds interview was recorded before the rodents and played back after the rodent got it wrong. Can anyone clarify this. The rodent seems like a very grumpy old man for someone who is doing what he enjoys most. as he said yesterday. Not a good look on day one but I think people should calm down. The election is far from won by Labor yet. There’s 6 weeks to go yet and anything can happen.

  3. “There’s nothing wrong with the US that a good eight-year Democrat presidency can’t fix.”

    That should be Hilary’s slogan.

  4. I agree with Nath. If they picked up every little inaccuracy like this there would be no room left in the papers.

    They did it with Rudd over trivia and tried to make it into a critical mistake – a real set up. The ignored the Govt ministers who made the same or worse mistakes.

    Let the trivia go.

  5. Costello in JWH’s biography:

    “I have to foot the bill and that worries me… and then I start thinking about not just footing the bill today but if we keep building on all these things, footing the bill in five, and ten, and fifteen years and you know I do worry about the sustainability of all these things.”

    Suddenly he’s not so worried, and what the heck, it’s only the punter’s money he’s chucking at them to buy their votes with.

    So Howard just buys the electorate but Pete’s now part of a team that has a dream…yeah, right!

  6. Interestingly, Hendy said that the Australian economy can “always” withstand tax cuts – so I guess he won’t be concerned about a Labor government after all.

  7. The yanks will never descend into fascism – (apart form the fact that there’s too many libertarians with a lot of guns in Montana) they have the type of institutional checks and balances that allow the place to bog itself down in mediocre leadership for a decade or more, teeter on the brink of dubious constitutional authoritarianism at the margins, before a new administration takes the broom to the appointments and cleans the place out, letting them get their act back together.

  8. Anyone here know anything about this?

    The sitting member in one of the country’s most marginal seats says he had almost 100 election posters stolen on the first night of the campaign.

    Liberal MP Kym Richardson holds the southern Adelaide electorate of Kingston by 0.1 per cent.

    He began putting posters up yesterday afternoon with the help of volunteers.

    Mr Richardson says overnight about 100 went missing along a 12-kilometre stretch of Main South Road, as well as on Beach Road in Christies Beach.

  9. I reckon Latham’s handshake was the hammer that drove the nails into his political coffin. Small things can drive the uncommitted and wavering voter into the belly of the beast. To court trivia is therefore like playing with fire.

  10. [There’s nothing wrong with the US that a good eight-year Democrat presidency can’t fix. ]

    Who would you vote for? My guess is Clinton.

    Obama is too left wing to win the general election. If Edwards loses New Hampshire he will run out of money.

    Obama may make a good V.P. candidate for Clinton.

    Or even better, Al Gore. But I can’t imagine he would want to get into politics again without a chance of winning the main prize.

  11. “Beazley was not known for this(fudging) as much.”

    Aye, Cap’n Gerry, but Teh Bomber, aimiable enough chap that he is, was a three time loser in the battles that counted.

    Tin-Tin plays politics like Devil Fish plays poker.

  12. []

    Glen’s WORST nightmare! Labor government, with the Greens in opposition! LOL!

    [they have the type of institutional checks and balances that allow the place to bog itself down in mediocre leadership for a decade or more, teeter on the brink of dubious constitutional authoritarianism at the margins, before a new administration takes the broom to the appointments and cleans the place out, letting them get their act back together.]

    They have the best system. They aren’t limited to the legislature as the place to make up the executive.

    They can actually get business people, academics, and other specialists in the appropriate field to take on the executive jobs.

  13. At the risk of sounding sexist, I would like to hear the opinion of one of the women on the blog re Howard’s and Rudd’s performance on the 7.30 report because women sometimes see subtleties men don’t.

  14. [I am still trying to work out how they elected the dolt Bush.]

    I’m still trying to figure out how lame the democrat’s campaign was to lose to Bush twice. 😐

  15. Possum and others,

    Regarding the tax cut promise, it seems to me to be vulnerable to attack on several grounds. First the obvious risk of causing inflation. Second the fact that they are just promises from Mr Non-Core Promise. Third – the timing and lack of scrutiny.

    Consider timing and scrutiny. We all know that the government has been sitting on a huge surplus for months, thanks to the mining boom. Costello regularly boasts about it. Now they come out on day one of the election campaign with obviously pre-planned tax cuts, based on not previuously released finance updates. But if tax cuts were the plan since budget time, why couldn’t they have been flagged in the budget? Then they would have been scrutinised by Treasury and Parliament. Estimates committees could have asked questions. Once upon a time perhaps even the Senate might have debated them. But this way there is no scrutiny except to the extent of the material Costello releases. And no chance to quiz Treasury before election day.

    That leads to a fourth point – probity. Who prepared the tax cut figures, public servants or private economists for the Liberals? Who paid for the work? Taxpayers? Who gets to check the figures? Where does the caretaker convention start or finish? Was this work done by treasury before the election was called, but now cannot be scrutinised by Parliament? All this from the PM who made such a big deal about his charter of budget honesty etc. Pure hypocrisy. Its amazing how low he will sink when he is desperate, and this is desperate.

    Meanwhile, we can’t afford to sign Kyoto or fund hospitals, yet there is money for $34 billion in tax cuts without pushing up inflation?

  16. nath @ 310

    And what do you call tax cuts on a grand scale, but another cut of pork?

    Suddenly Howard is pretending he’s concerned for working women! Oh, purlease, give me a break! Where were working women on the Cosby/Textor pictogram? Not visible to the naked eye on Howard’s side, that’s for sure.

    If the argument that government should spend revenue for the commonwealth, not for buying votes, then this is all just a cynical bit of pork in my opinion.

  17. EC

    Yes, that is true but I am also wary of the cocktail of too much media exposure, hasty responses to accusations on air and this tendency to “pass the ball”.

    Oh, and whilst he may well win, he hasn’t yet and I wouldn’t be making my staff and shadow cabinet take every second fall lest I come so perilously close, perhaps a seat or two, and miss.

    “What was that you said about my ‘death penalty comment’ in October Kevin” intones Mr McClelland, day one after “the devastation” (of course, a fictional piece)…

  18. I watched the 7.30 report and venture the following remarks.

    Kerry O’Brien knows how to get Howard to spark up. The Grump of Kirribilli was combative: jabbing away, point by point, being assertive, leaning forward in his seat, hunched in a bit, dry-mouthed, trying to get in front. Sometimes he can do this stuff with relish. But tonight he seemed ill-at-ease. He must be wondering how it will all play: whether he will make headway with the voters he’s already lost. His voice was hard – coarse – and his eyes were darting around. The spoken message was meant to be voter-friendly, but the visuals were antagonistic, difficult. A most ill-tempered polly.

    By contrast, Rudd was cool, smiling, not saying much – while pointing to reams of bothersome detail for those who need that sort of thing – and letting everyone know he’s not going to be blurting out his responses or giving away his game.

    Rudd a clear winner, tax cuts or no tax cuts.

  19. Kina, the first time (in 2000) they didn’t elect him. Remember the dodgy Florida vote tally and declaration? Bush stole it first time (with the assistance of his brother, Jeb) and the Dems were too gutless to push the issue.

    Gore came down with a bad case of the Costellos, but has somewhat made-up for it since.

  20. #241
    Edward StJohn Says:

    “Because the RBA was petrified of appearing to intervene in politics in 2004 (when it was all about interest rates and they felt the ads were very misleading) why would they not wait a month to raise rates. If they raise rates in November – they will wear the blame for ever more for JWH losing. Not something cautious bureacratic types will want.”

    Not sure where you get this lot from EStJ? Wishfull thinking perhaps?? RBA is already on record that they will have no alternative but to adjust rates as and when the economic conditions warrant it. Hawstralea Expects and all that!! And JWH wont find out till early November if they will or will not.

    Thats a serious thing during the campaign the inflation data that will drive that decision will be out a week or so before. So, depending on how that goes, its likely to be a hot topic for speculation in the press for a week or more during the middle of the campaign. Bad for Rattus if this is the case. I think there is some seriously bad planning going on in Rattus Central at the moment.

  21. Nath #310 [ chrispydog, i don’t think Costello was referring to tax cuts, but rather pork. ]

    I agree with chrispydog @ 320 – Costello’s concern in the comment he gave for JWH’s biography was fiscal sustainability, which would seem to be just as applicable to reduced revenue as it is to increased expenditure.

    This story is running itself for the moment – as many have pointed out, there are flaws in the plan, so it seems to me that Labor can sit back and let the media criticise it for a while. Then, they might try to put some pressure on Costello – except, of course, we’ll probably have a dozen other policy announcements by then and nobody will remember the tax plan.

  22. [RBA is already on record that they will have no alternative but to adjust rates as and when the economic conditions warrant it.]

    Exactly. Why else did Glen Stevens flag a possible interest rate rise during November if he didn’t actually think it was a possiblity?

    To me Stevens was saying to Howard “go to the election BEFORE we meet!”

    I don’t think he was being very subtle about it either.

  23. Evan

    I think you are being unfair to Gore. In 2000 he contested the Florida count in Court but 4 judges appointed by republicans voted to stop the furthe counting of votes. How do you win a democratic election by getting the vote count stopped? One of the most shamefull decisions in legal history.

  24. The Rodent’s big ‘shot’ in this campaign is not the never never tax cuts outlined today. It will be race. It is ever so with Howard – the creature is so, so predictable. The groundwork has already been laid, the traps set out, the burley shovelled into the water… In the last five to seven days of the campaign, expect a Crosby Textor crafted hot button ‘them dusky people against us Aussies’ issue to arise. All the usual suspects – Akerman, Milne, Bolt, Albrechtsen, Maris, Shanahanahahahahanan, Houghton and company to be pre-briefed and ready for the charge.

    Something’s already afoot – my wife (Chinese Australian) was spat on today in a shopping centre in Kenmore. That hasn’t happened since Howard came out in support of Hanson in 1996.

  25. My first choice would have been Gore, although he did run a poor campaign against Bush in 2000. (Even so he would have won had it not been for the selfishness of the Greens.) But he ain’t running, so my next choice is Clinton. Obama and Edwards are lightweights. On current indications she’ll win it in a stroll, since the Repubs are nowhere near finding a candidate their base will vote for but who isn’t barking mad. But a lot can happen in 13 months.

  26. Yeh, Socrates, maybe I was a bit hard on him, but jeez, the Republicans stole the bloody election and the Dems, by and large, just rolled-over. The theft of the 2000 Presidential is a mill-stone the US Republicans are going to have to live with for some time to come (I hope).

  27. Can somebody who knows about tax check my figures? From the smh table posted earlier, I’ve estimated that somebody earning 45,000, will have their tax reduced by about 1000 dollars annually.
    Somebody earning 90,000 will have their tax reduced by just under 2000. Somebody earning 135,000 will have their tax reduced by just over 3000. Someone earning 180,000 will have their tax reduced by 6000, and tax will be reduced by 3% on all income above that so someone earning 225,000 will have their tax reduced by about 8300, someone earning 270,000 will have their tax reduced by 10500.

    Earn twice as much and you get a tax cut twice as big, three times as much and its three times as big, but earn four times as much and you get a tax cut six times as big, earn six times as much and you get a tax cut ten times as big, earn ten times as much and it’s almost twenty times as big. And an opportunity cost of 34 billion in infrastructure and public services, not to mention the inflationary pressure.

    So they really are pretty much economically reckless buckets of waste geared mainly toward the upper-crust. But there are probably a good number of middle-income yobbos who will be sucked in by the headlines without paying any attention to the actual numbers.

  28. Howard on the 7.30 Report looked close to losing his temper or of being pissed off AND on ACA at the end he also showed he was pissed.

    This is poor discipline by Howard so early on – let his emotions show through like that. Another emotional flaw was when he asked Downer check out his support then changed his mind. The off his own bat, on the spurr of the moment he decided to go reconciliation without checking with his team.

    He appears getting to be emotionally fragile. A little extra prodding may see him lose it.

  29. Socrates, there is no doubt whatsoever that a lot of the work, particularly the technical work on the Coalition tax cut program would have been done by the public service – that’s the benefit of incumbency.

    Its funny you should mention the “why didnt they do it in the budget”. That’s exactly what my oldies said to be this afternoon.

    I’m suss about the estimates of the increase in the labour supply as a result of these tax cuts (the so called participation rate incentive) – Treasury hasnt been right on those estimates for 6 years or more. These things dont follow the orthodox models that are designed for use with an economy running way below capacity and way below the levels of labour utilisation that we see today.

    Garbage in, garbage out.

    But even with if we take the 60 000 new extra workers that this plan envisages being added at face value – that’s less than the level of unexplained volatility in the participation rate for any 6 month period.

    It’s 32 billion of nonsense on that front.

    I actually feel sorry for the Treasury guys that have to do these numbers and deliver them to the government , knowing full well they aren’t worth a hill of beans.

  30. Chrispydog said:

    “Oh, purlease, give me a break! Where were working women on the Cosby/Textor pictogram? Not visible to the naked eye on Howard’s side, that’s for sure.”

    That’s a classic line!

  31. JWH looks agitated, impatient and testy. In fact his final reactions to Grimshaw & O’Brien were contemptuous and angry.
    Gaynor 279

    How true. He was livid. How dare he be seriously questioned and put on the spot.

    I don’t think its a gaffe to be off .25%
    nath 296

    It is if you have been previously scoring points off the other side for similarly trivial gaffes (ie Rudd’s on the tax scales). If Howard doesn’t want to be hit with this sort of stuff, then he shouldn’t pull it on other people. He has no right to complain about it.

    The yanks will never descend into fascism – (apart from the fact that there’s too many libertarians with a lot of guns in Montana)
    Possum 309

    Wouldn’t be too sure about that. At least one of the founding fathers (can’t remember which one offhand) only reluctantly signed the constitution, saying that the political system it contained would inevitably lead to populist authoritarian rule in the long run.

    And those Montanian militiamen gunslingers are faux libertarians. They would line up behind a right wing, nationalist Christian fascist in a heart beat.

  32. One does hear that the public service is very pissed off at the blatantly political way their services are being employed, although the process started long before this government. This may be reflected in a big swing in the Canberra seats, and of course also in Queanbeyan which is a Canberra suburb but in Eden-Monaro. Gary Humphries might well be worried. Labor and the Greens got 56.7% of the Senate vote in the ACT in 2004, so a 9% swing would put him out.

  33. “A little extra prodding may see him lose it…”

    Kina, I reckon the Prime Minister’s been well and truly prodded already. The polls speak for themselves.

  34. Possum

    Thanks but I guess that is the point. Unless some heroic growth asumptions are correct, these cuts are either inflationary or will push the budget back towards deficit (not unlike Bush’s cuts have done in the US). Indefensible. Every economist in town has been saying that the limits to growth now that we are close to full employment are supply constraints – mainly infrastructure capacity bottlenecks and lack of skilled labour. Mining executives have been quite explicit on this. This package won’t fix either, and eliminates the means to do so later.

  35. JM, Yeah,

    But you could beat them by employing a band to play the “Stars and Stripes” and then have a bunch of Canadian snipers pick them off one at a time when they stood up to salute.

  36. Time for the Public Service to start leaking to ensure the slave traders get the boot.

    1st. Manildra
    2nd. Cash for visas
    3rd. Children overboard
    4th. Iraq
    5th. WorkChoices
    6th. AWB
    7th. Habib

  37. Rudd did not make the connection between the Howard/Costello tax pledge and interest rates. Not even ironically. The pledge should have no impact for the November meeting of the Reserve, as it is a multi-year program, due to commence in the never-never.
    I thought the Coalition would try to buy off the electorate and if that failed, frighten off the electorate, in that order. I did not expect it to be so soon.
    Although if the announcement gives the Coalition poll momentum, serendipitous random acts of violence to play the security card may not be necessary after all.

  38. “Although if the announcement gives the Coalition poll momentum..”

    You reckon that’s a chance? I don’t.

    The budget tax cuts sank like a stone with barely a ripple to nudge the polls.

    This latest announcement will do likewise. Give it a day or two and it will be about as relevant as the the Northern Territory aboriginal intervention and the $10 Billion water plan.

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