Saturday, July 9, 2016
Malcolm Turnbull went to the election offering a "national plan for jobs and growth" that was supposed to secure our future.
Trouble is, it now looks unlikely he'll be able to implement the centrepiece of that plan, the phased reduction over 10 years of the rate of company tax, from 30 per cent to 25 per cent.
Unsurprisingly, the proposed cut in company tax did not impress the voters, who think companies are paying too little tax, not too much.
Labor opposed the cut, save for the immediate reduction to 27.5 per cent for genuinely small business.
With the government now facing an even more hostile Senate, it's unlikely Turnbull will get any more than that.
This would be no great loss in the quest for jobs and growth. The government's own modelling suggested the tax cut would do virtually nothing to create jobs, and the boost to growth in Australians' incomes would be tiny and come only after a decade or three.
But what about the other parts of Turnbull's "five-point plan"? It's a muddle of things that will be done, things already done and a point saying what the plan will achieve.
Point one is "an innovation and science program bringing Australian ideas to market". Already done; benefits likely to be modest.
Point two is "a new defence industry plan that will secure an advanced defence manufacturing industry in Australia". Or a highly protectionist and costly way of buying votes in South Australia, of debatable defence value.
Point three is "export trade deals that will generate more than 19,000 export opportunities". This refers to preferential trade deals already made with Japan, Korea and China.
As my colleague Peter Martin has demonstrated, this is one of the big lies of the campaign. Such trade deals usually add more to our imports than our exports (which, of itself, is no bad thing).
Point four is the company tax cut and point five is "a strong new economy with more than 200,000 jobs to be created in 2016-17". This is just Treasury's budget forecast for growth in employment. Few of those extra jobs would have been "created" by anything the government did.
Get it? The "plan for jobs and growth" is a (now-thwarted) plan to cut company tax, plus a lot of packaging. That is, Malcolm Turnbull has no plan.
And, as we've been reminded by noises coming from one of the credit rating agencies, nor does he have a plan to get the government's budget back to surplus anytime soon.
His projection of that happening in 2020-21 relies heavily on a host of forecasts and assumptions.
Many people conflate the need for action to get the budget back to surplus with the need for "reform" to hasten our rate of productivity improvement and economic growth.
The two are related, of course, but they're not the same thing and we should consider them separately.
Remember that whereas productivity improvement is what you could call a "positive" objective, leaving us clearly better off materially, fixing the budget is a "negative" objective – it would just reduce the risk of problems down the track.
Obviously the longer we take to get back to balance, the more our interest bill grows. If this arises from borrowing to cover recurrent spending at a time when the economy is back to growing at about its trend rate, this is a bad thing.
However, if the borrowing is needed to cover spending on infrastructure (as you discover is largely the case when you study the information buried on page 6.17 of the budget papers) this is no cause for concern – provided the money hasn't been spent wastefully.
The cost of any credit rating downgrade is overrated, but it is true that, if we've got the budget back to surplus by the time we're hit by the next recession, we'll feel freer to respond as we should: allowing the downturn to push us back into deficit and adding temporary stimulus spending on the top.
Getting the budget back to surplus will do nothing to create "jobs and growth". Indeed, if you go about it the wrong way, it could come at the expense of jobs and growth.
A lesser-known point is that improvements in our productivity performance do little to improve the budget balance.
That's because it does about as much to increase government spending (directly and indirectly) on public sector wages and wage-indexed welfare payments, as it does to increase economy-wide wages and profits and, hence, tax collections.
As he casts about for a real plan to implement in the coming term, Turnbull should remember the thing that does help both the budget and Jobson Grothe: increased participation in the workforce.
This truth was lost when Turnbull was led astray by the rent-seeking of the Liberals' generous big business supporters and their obsession with cutting their own taxes in the name of "reform".
So one obvious place for Turnbull to start is with women. The Abbott government made a good start with the reform of childcare subsidies, but this has been blocked in the Senate because of the insistence on linking it with a crazy attempt to save money on paid parental leave in a way that would discourage employers from offering paid leave at their own expense.
The government should ensure that lack of available childcare isn't limiting young mothers' participation and continuing progress in their careers.
It could do much more to reduce the amazingly high effective marginal tax rates that discourage "secondary earners" (aka married mothers) from moving from part-time to full-time.
And then it could take a more careful run at winning public support for raising the age pension age to 70. We can get on with a slow phase-in, or wait until it's unavoidable.