Those campaign launches

Fist

The campaign launches are a quaint custom, when Dutton has been in campaign mode since Scott Morrison conceded defeat on 22 May 2022. The main proposals to emerge were about housing, clearly directed at younger voters, who are unlikely to support the Coalition but whose votes are as yet uncommitted. The Coalition has also thrown a fistfiul of dollars into tax and excise cuts, reminiscent of John Howard’s desperation in the 2007 election campaign when the Coalition abandoned any idea of fiscal conservatism.[1]

Housing – mainly demand-side and therefore inflationary

Anyone trying to navigate the two old parties’ housing proposals would find it hard. Both parties have tried to gain attention through specific announcements, most recently at the campaign launches, rather than consolidating their proposals in policy documents that could guide hopeful home buyers and policy analysts.

Michelle Cull of Western Sydney University describes both parties’ proposals in a Conversation contribution: Labor and Coalition support for new home buyers welcome but other Australians also struggling with housing affordability.

Somewhat clearer is Laura Tingle’s 8-minite videoclip, taken from the 730 Report, on the campaign promises, with an emphasis on housing. It’s worth watching because she helpfully lays out the two parties’ housing proposals in short dot points. These are reproduced below, with some minor additional points.

Coalition:

Labor:

All but the last of these are already-established programs.

For the most part both parties’ proposals are orthodox, with an emphasis on demand-side measures, but the one that stands out is the Coalition’s proposal to allow mortgage interest as a tax deduction.

Former Treasury Secretary Martin Parkinson calls it “reckless”. Saul Eslake calls it a candidate for “the dumbest policy decision of the 21st century”. And although it is supposedly limited to five years, it is hard to imagine a government resisting pressure to extend it in time. And there would be pressure, based on distributive justice, to extend it to other young people who have recently taken out housing loans.

More basically there is no principle behind the idea and it would break the long-established convention that tax deductions are for expenses incurred in earning income. This would add just another difficulty when some day a government has the courage to tackle tax reform.

Patricia Karvelas pulls together these and other comments in a post – Election campaign housing policy offers from Labor and Coalition carry risk – which includes a short clip from Alan Kohler. The consensus is that both parties have good long-term policies, but they are too demand-side oriented.

On Radio National is a 6-minute interview with Michael Fotheringham of the Australian Housing and Urban Research Institute comparing the parties’ proposals. He is enthusiastic about Labor’s plan to become directly involved, with state governments and developers, in building affordable homes for first-home buyers. It would bring some needed competitive pressure to that end of the market.

Like many others Fotheringham believes that workforce constraints are an impediment to any plan to boost housing supply. Both the main parties have proposals on workforce, centered on increasing the supply of tradespeople, but these take time to yield benefits. Abul Rizvi, in the interview referred to above, describes the reasons why our immigration program is not succeeding in building our supply of people skilled in the building trades. Long gone are the days when we could tap into a stream of German and Dutch building workers fleeing a destroyed Europe.

Balloon
Fully inflated

The general assessment by economists and housing experts of both parties’ policies is that they are too strongly directed to stimulating demand. Because there are problems in increasing supply – workforce, NIMBY, zoning, infrastructure – this demand-side emphasis would be bound to inflate house prices. Economists and other housing experts tend to see Labor’s proposals as a little more supply-side focussed than the Coalition’s, however.

In all, neither economists nor the public have been greatly enthused by the two parties’ offerings, but as ABC reporters Adelaide Miller and Rhiana Whitson point out in their post, criticisms of the policies come from different directions. Economists stress that the parties’ demand side proposals would push up prices and make housing unaffordable, while many in the public want to see more help in buying houses. It’s typical of political problems where what is good for one is bad for all.

There is some comment that the proposals are too directed at first-home buyers, when there are others struggling, and there is nothing offered for renters. But all parts of the housing market are interlinked, and anything that increases supply or reduces costs should be of benefit for all.

The other consistent and growing criticism of the proposals is that there is no hint that concessions for negative gearing and capital gains tax for “investors” will be abolished or modified. In fact the Coalition’s interest deductions are essentially an extension of negative gearing, to a new group of beneficiaries. Labor is still bearing the scars of its election loss in 2019, when the Coalition and the Murdoch media threw everything they had against reasonable proposals to wind back these perks.

The Greens have a suite of measures to improve housing affordability for owners and renters. They don’t have to worry too much about costings or administrative problems, but they do have some worthwhile proposals, such as a return to indexation of capital gains, which is one that may gain support from independents.

Saul Eslake’s final comments on Tingle’s clip is “I think both parties are treating voters like mugs”.

Other promises – the Coalition’s fistful of dollars

Jacinta Price got it wrong when she said a Dutton government would make Australia great again. The next day at the Coalition campaign launch, Dutton re-asserted the party’s campaign slogan: “Get Australia back on track”.

As the campaign progresses we are getting a clearer idea where that track leads, because it’s the track followed by the three former Coalition prime ministers who attended the launch – John Howard, Tony Abbott and Scott Morrison.

In the days when the Soviet leaders appeared in front of the Lenin Mausoleum for the Revolution Anniversary parades, western watchers would scan the line-up to see who wasn’t here. The missing person last Sunday was Malcolm Turnbull, the last Liberal prime minister who tried to steer the party away from the Trumpian populist right.

“Make Australia mediocre again” would have been a better call by Senator Price, because it captures the spirit of Howard, Abbott, Morrison and now Dutton. Don’t worry about structural reform, ignore climate change, cut public spending because no good comes from the public sector, use the Commonwealth Treasury as a trove to be raided to hand out favours to the Party’s mates, and above all keep Labor out of office.

Last week the Coalition announced, or re-announced, a set of “policies”, but that’s too meaningful a word, because public policy is usually guided by an idea of the public purpose, unified in a set of values and principles. The only narrative holding together the Coalition’s proposals on regional development, climate, taxation, and housing, is the desire to oust Labor from office.

The Regional Australia Future Fund – a National Party boondoggle

This is an off-budget fund, replacing the Housing Australia Future Fund, the National Reconstruction Fund and Rewiring Australia. Unlike those funds, established to invest in assets, proceeds from the RAFF would go mainly to recurrent expenses, according to the National Party’s announcement. At least the National Party’s announcement is more specific than the Liberal Party’s announcement, which also mentions its proposed Future Generations Fund but with no detail.

From these announcements it is not clear whether the earnings from these two funds would be used to pay down debt, or to spend on recurrent or capital purposes. The ABC’s Lucy Barbour’s interpretation is that the RAFF would provide a dividend each year “to pay for infrastructure and services that local councils cannot afford”, while what is left over would be used “to help pay down debt and finance infrastructure”, and that both funds would be topped up with budget windfalls resulting from higher commodity prices (rather optimistic at a time when Trump is trying to trash the Chinese economy). Barbour notes that the National Party expects that the RAFF would be allocated $1 billion seed funding.

It’s a fair guess that the Liberal and National parties have different views. In any event Saul Eslake calls these proposals a “gimmick” that wouldn’t improve the government’s fiscal position.

Some spokespeople for non-metropolitan organizations have welcomed the proposed RAFF, while some others have been sceptical.

Abolishing the government’s existing funds would have consequences, in terms of investments that would not be made – investments in housing and our energy transformation which would be paid for from the funds the Coalition wants to abolish. These funds have paid out little money so far, partly because there have been unholy alliances between the Greens and the Coalition to delay the passage of their enabling legislation.

If the Coalition’s new funds are used simply to re-shuffle public liabilities and assets on the balance sheet, that’s inconsequential. But the National Party has already made it clear than it wants to have its fingers in the till, and in view of their electoral strength in Coalition governments, their will would prevail.

This is all back on track to boondoggles, bypassing state governments, bypassing bodies like Infrastructure Australia, requiring large Commonwealth bureaucracies, all in contempt of the principles that should assign responsibilities in a federal system.

Tax – a fistful of dollars

Commenting in The Conversation on the two main parties’ tax proposals, Isaac Gross of Monash University writes: Voters have a clear choice. Labor’s long term and equitable tax reform or the Coalition’s big but one-off tax cuts.

The Coalition’s main proposal is for a one-year restoration of the Low and Middle Income Tax Offset (LMITO) in a more generous form – which they weirdly call “targeted cost of living relief” . It would give $1 200 to every taxpayer with incomes between $48 000 and $104 000 – about 45 percent of taxpayers – in one hit in the second half of 2026. That’s a pretty broad target.

Labor’s tax proposals, by contrast, are ongoing. The already-legislated cut to the marginal tax rates for incomes between $18 200 and $45 000 will benefit those same middle-to-high- income taxpayers ­– around $270 in 2026-27 and $540 in subsequent years. In addition Labor is offering workers a $1 000 instant tax deduction from 2026-27. This would be worth up to $320 a year for workers on the 30 percent tax bracket, and up to $390 for those on the 37 percent bracket.

For anyone who isn’t sucked in by the promise of a once-off $1 200 benefit (in 15 months’ time), Labor’s offer is better. But the more important aspect of the comparison is that Labor’s plans incorporate two elements of tax reform, while the Coalition’s is at best seen as a fiscal stimulus and at worst as a fistful of dollars electoral bribe.

The first aspect of Labor’s tax reform is a reduction in the marginal tax rate in the first tax band from 16 to 14 percent. This is a small but permanent step in making the income tax system more progressive.

The other is the restriction of the $1 000 write-off to people who have labour income, rather than investment or business income. This contrasts with the Coalition’s (temporary) re-introduction of the LMITO which in its time has been claimed by people with modest incomes from multi-million dollar share portfolios, and by property “investors” who suppress their reported incomes through negative gearing. In a small way Labor, unlike the Coalition, is offering a lower tax rate for those whose earnings come from their own effort rather than rentier income, and is reducing people’s compliance costs. That’s reform.

As presented Labor’s reforms are ongoing, while the Coalition’s handouts are once off. That’s why they probably come close to balancing in fiscal terms. But it is hard to imagine a Coalition government resisting pressure to restore the LMITO as an ongoing program.

This is not to let Labor off the hook. Australia needs thorough tax reform. Most commentators on these, and other announcements made in the campaign launches, note that both of the old established parties are avoiding any mention of root-and-branch tax reform, which many economists are calling for. For example Helen Hodgson of Curtin University writes in The Conversation about the need for tax reform to address widening wealth inequality, drawing attention to the $150 billion annual cost of revenue lost to concessions for superannuation, capital gains and negative gearing. Independent Allegra Spender has developed a Green Paper on Tax Reform, raising issues neither of the old parties wants to talk about.

Fuel excise cuts – for real men who drive Ford Raptors

Garage
Waiting for Dutton to grap a hose

The Coalition’s proposed 25 cent cut in fuel excisewas covered in the post-budget roundup of March 29 – “good news if you own a Ford Raptor, bad news if you’re an economist”. For each fully internal-combustion car you run it would probably save you about $200 a year, not the $750 to $1 500 claimed by Angus Taylor.

More recently there has been similar analysis by John Hawkins and Yogi Vidyattama of the University of Canberra, writing in The Conversation – We calculated how much Dutton’s excise cut would save you on fuel – and few will save as much as promised, and by Nick Toscano and Mike Foley writing in the Sydney Morning Herald – Dutton promises you’ll save $14 a week on fuel. The real number is less than half that.

The proposal hasn’t found many friends.

One way of considering this proposal is as a fiscal sugar hit – a typical pre-election bribe.

The other way is to see it in association with the Coalition’s proposal to dump Australia’s fuel efficiency standards, another proposal with few friends. As Anna Mortimore writes in The Conversation, the Coalition’s plan to dump fuel efficiency penalties would make Australia a global outlier.

This is an appeal to the Coalition base: you don’t see too many oversized utes bearing a “vote Green” of “vote Labor” sticker. Clips of the campaign show Dutton as the Ute Man, in the driver’s seat of a massive twin-cab vehicle, windows down, as he and his passengers look down laughing scornfully at other road users – the losers driving EVs, hybrids, and small cars with high fuel efficiency.

These huge vehicles have little to do with tradies’ needs: rather they are anti-woke identity markers. They have twin cabs, automatic transmission, sedan-type internal luxuries, and are kept immaculately clean and spotless. That doesn’t describe a tradie’s work vehicle. For a well-researched explanation of how Australians came to be buying and driving these dangerous gas-guzzling pavement-destroying monsters, Annabel Crabb has a post: Ute Man is the Coalition's favourite political figurine but he's a fraught mascot.

Both of the Coalition’s proposals – excise cuts and abolition of mandatory fuel efficiency standards – are designed to make electric vehicles relatively less attractive. Electric vehicles – batteries on wheels – will play an increasingly important role in providing dispatchable energy, allowing energy users to enjoy the benefits of low-cost renewable sources. That does not fit with the Coalition’s “base load” models, on which their gas and nuclear ideas are fashioned.

Then there are the ways the excise cut would have an effect on road funding. Although it’s many years since fuel excise has been specifically earmarked for road construction, there is still a degree of “soft hypothecation”: state governments point to the Commonwealth’s fuel excise revenue in their bids for road funding. One consequence of the Coalition’s policies would almost certainly be a cut in road funding, and another would be the strong possibility that it becomes a permanent cut, because it would be politically hard to close it after just one year.

1. Political use of the term “fistful of dollars” dates to the 1977 election, in which the Coalition offered substantial tax cuts, which were never delivered. The Treasurer at the time, John Howard, took it all back in his first budget. It was again used in reference to Prime Minister John Howard’s desperate bid in the 2007 electionwhen he offered $34 billion in tax cuts. The term has its origin in the 1964 spaghetti western Per un pugno di dollar – “A fistful of dollars” – starring Clint Eastwood, based in turn on the 1961 Japanese movie Yojimbo. ↩