Originally published in The Australian Financial Review on June 25, 2018

By Richard Denniss, Chief Economist at The Australia Institute

[Read in the Australian Financial Review here]

The budget emergency is over. Even though Commonwealth debt has risen from $317 billion to $561 billion. Since Tony Abbott was elected, declaring a fiscal emergency, the Coalition has now flicked the switch to optimism and proposing $200 billion worth of income and company tax cuts.

Imagine how generous the Prime Minister could have been if the Senate hadn’t blocked all those cuts to health, education and welfare – cuts we were once told were “essential for budget repair”.

Timing is everything.

Incoming conservative governments always like to slash spending on those with the least so that outgoing conservative governments can give tax cuts to those with the most.

The fact that this government stuck with the tax cuts despite failing to implement the spending cuts makes clear that redistribution matters far more to it than budget repair.

Speaking of timing, Malcolm Turnbull’s decision to pursue the populist income tax cuts last week and delay debating the unpopular company tax cuts until this week speaks volumes about his priorities. Having succeeded in passing $144 billion worth of income tax cuts the Prime Minister made it all but impossible to convince the Senate to spend another $80 billion on company tax cuts this week.

Leaving aside the enormity of the hole in the budget that the “fiscally conservative” Coalition is trying to punch, the upcoming byelections mean that the entire Parliament has its eye on what voters want.

And as the polls make clear, an overwhelming proportion of voters don’t think that the biggest businesses need a tax cut.

Pauline Hanson’s One Nation desperately needs a good result in the Queensland seat of Longman if she is to put her party’s chaos behind her.

And while Ms Hanson never seems far from another backflip, it’s clear that her base is about as enthusiastic about giving the big banks $9 billion worth of tax cuts as they are of the Coalition’s plans to bring in another 3 million immigrants this decade.

The Centre Alliance’s Rebekha Sharkie is fighting to retain the seat she won under the Nick Xenophon Team brand.

While the voters in the Adelaide seat of Mayo differ in many ways from those of Longman, Reachtel polling commissioned by the Australia Institute makes clear that a majority of voters in both electorates share a hostility to cutting the company tax rate. Just one quarter (25 per cent) of voters in Mayo and a third (33 per cent) of those in Longman support cutting the company tax rate for big business. Both electorates overwhelming want government to prioritise spending on services, infrastructure and reducing debt, before tax reductions.

Then there is the Prime Minister. After 18 months of poor polling, Turnbull is also fighting for his political life. If he has any chance of snatching a byelection victory from Labor it is in the Tasmanian seat of Braddon.

Braddon is a rural electorate with lower than average income, higher than average unemployment and virtually no big businesses that could even benefit from a big cut in company tax.

Turnbull knows that members of the Business Council of Australia (BCA) are as uninterested in Braddon as the voters of Braddon are in the BCA, which explains his parliamentary tactics this fortnight. By prioritising the income tax cuts last week he has almost certainly sacrificed the company tax cut, a decision that will help him with the electorate, but will enrage the BCA. Who said the Prime Minister is no good at politics because he can’t make hard decisions?

No doubt, the BCA will be hoping that after the byelections the government will return to the unpopular task of handing public money to the big banks. But surely there could be no more cynical manipulation of our democracy than for One Nation or Centre Alliance to campaign against a tax cut in the lead-up to the byelections and then support them afterwards. The last party to betray voters like that was the Democrats, who didn’t just give up the claim that they could “keep the bastards honest”, they gave up all of their Senate seats as well.

After 27 years of continuous economic growth, Australia’s public finances are nowhere near as healthy as our GDP figures for the simple reason that populist governments are far better at making the case for tax cuts than they are at telling the public to lower their expectations of public services.

Between now and the next election the Liberal Nationals Coalition will presumably keep pushing for the BCA’s tax and essential public services cuts and Labor will keep pushing to close tax loopholes to fund better services. And to think people once said you couldn’t tell the difference between the two parties. These days the voters definitely can.

Richard Denniss is chief economist at The Australia Institute @RDNS_TAI.

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