The Verdict – A Swan Dive to the Left as Federal Budget Smacks of Political Opportunism
If imitation is the sincerest form of flattery, Wayne Swan should still be feeling quietly chuffed.
Since Treasurer Scott Morrison handed down his almost Machiavellian political manifesto masquerading as a federal budget last week, much has been made of its giant leap to the left.
Hit the banks with a $6.2bn levy (“nobody likes them anyway”), give more money to schools, introduce a 0.5 percent increase in the Medicare levy to help fund the National Disability Insurance Scheme and throw in a sweetener to help struggling first home buyers one day (possibly, maybe) move out of Mum and Dad’s or the rent cycle.
In fact, Morrison and PM Malcolm Turnbull are now singing so loudly from the opposition’s hymn sheet, they’ve expertly rewritten the national narrative and, with it, quite possibly disaffected Middle Australia and the millions of votes it represents.
In unpacking Morrison’s much-anticipated second budget, it’s become clear just how much of a political masterstroke it is.
There were some main motives behind the measures.
Amid competing pressures of an overheated property market, slow wages and economic growth, cooling commodity prices on the back of a levelling of China’s rapid growth, and ageing big-city infrastructure not to mention persistent, troubling polls for the Coalition and Turnbull the stakes were high.
This is a budget which needed to prove the government was listening; and it does, whilst casting the Coalition as “nation builders” through “good debt”.
They’ve largely left alone some of the high-impact contentious issues of the past (changes to superannuation and Centrelink for example) which caused them so much heartburn, and softened their dogged return-to-surplus mantra in favour of a more pragmatic approach to budget repair.
Whether or not you believe reports the bank levy was concocted on the run, tacked on to plug a budget black hole, the reality is it works on several fronts.
It works because it’s politically savvy. You’re never going to lose from attacking corporations the public dislikes anyway. (The levy will be imposed on the big four commercial banks, as well as investment bank Macquarie Group).
It works because it delivers a quasi-interest rate rise outside the RBA cycle, thus potentially taking some much-needed heat out of the property market. There’s little doubt the five banks will pass on the tax to consumers via a rate rise which would take the standard variable rate from 5.25% to 5.45% equivalent of 20 basis points to offset the levy, potentially creating more competition in the market.
And even if they don’t and the new tax is funded by shareholders via a reduced dividend, the levy may go some way to tempering an advancing stock market (the Big 5 constitute more than 25 percent of the All Ordinaries index), with absolutely no political fall-out. Genius.
It also works because it raises significant tax revenue and effectively counters opposition calls for a Royal Commission, which risks casting Australia’s banking system as unstable and threatens to slow the flow of funds from foreign lenders, thus increasing the price of money.
Win. Win. Win. Win.
Publicly, the government was also under mounting electoral pressure to act on the big-ticket issue of housing un-affordability (particularly on the Eastern Seaboard) and help give struggling first home buyers a leg-up into the market.
Privately, though, they’re loathe to create too much of an incentive for fear it’ll further flood the market with buyers.
So, they’ve tinkered around the edges.
The first home super saver scheme, in which prospective first home buyers will be allowed to salary sacrifice up to $30,000 or a maximum of $15,000 a year into their super accounts for a deposit, is more of a crumb, than a carrot.
They’ll grab the headline, and credit for doing something, but $30,000 won’t go far, especially in Melbourne and Sydney.
Former PM and treasurer Paul Keating has grabbed his own headlines, this week, labelling the scheme “appalling”, insisting it will only add to property prices and runs against legislation the Coalition currently has before the parliament to enshrine the purpose of super.
It’s also worth noting the tax impact of the incentive, in the bigger scheme of things, is negligible. For the average income earner, it may save about $3000 in tax over the saving period. Not to be sneezed at but unlikely to make material difference to the conundrum of affordability.
And at the other end of the spectrum, they have sought to boost housing supply with incentives for older Australians to downsize. (Those aged over 65 will be able to make non-concessional superannuation contributions of up to $300,000 after selling their home, provided they have lived in it for at least 10 years.)
If successful, the incentive not only releases housing stock, it cleverly improves people’s capacity to spend, providing a nice little kick to the economy while reducing the government’s commitment to the Age Pension by transitioning funds from an exempt asset to an assessed asset.
Win. Win. Win. Win.
Morrison and Turnbull are the architects of a budget which has unapologetically, and unashamedly borrowed the best of the left. It’s strategically brilliant but it’s success will, ultimately, depend on the results of other “games”. The Chinese economy must continue growing at projected levels ensuring commodity prices remain solid or the deficit will continue to blow out. The US economy needs to continue on its current path to growth with modest inflation. Our housing market needs to plateau and hold (not collapse) allowing incomes to catch up and the world needs to remain predictable for the foreseeable future as markets are still easily spooked by surprises. Not to mention the small issue of the budget requiring passage through both houses of Parliament to be implemented!
Wayne Swan may be flattered, but Bill Shorten must be fuming.