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Turnbull should be careful of compromise

David Speers
24 March 2017

By David Speers

George Brandis isn’t often credited with an ability to distill complex concepts into easy sound-bites (think 18C and meta-data). But the Attorney General couldn’t have put it more succinctly when he said last year that “the byword of the 45th Parliament is compromise”.  

Nearly every bill that’s managed to pass through this parliament has required significant change; the ABCC, superannuation reforms, the Backpackers’ Tax.

Right now, though, we’re seeing the government move from compromise to concession and possibly capitulation.

It’s being forced to seriously water-down core promises on two fronts; budget repair and company tax. The concessions are necessary and have been coming for months. But they’re staggering nonetheless.

In the final days of the election campaign, the government boasted about the slightly better budget bottom line it was able to project over the next four years compared to Labor.

This was largely built on pursuing spending cuts that Labor says families, jobseekers and pensioners couldn’t afford.

Now, the government has finally been forced to abandon most of these cuts. Many of them had been hanging around in various forms since the first Abbott-Hockey Budget in 2014. They’re expected to be taken out of the Budget in May.  

Once that happens, the Coalition’s high moral ground of budget repair won’t be looking quite so high any more.

Just enough savings were secured this week to pay for the important Childcare package crafted by Simon Birmingham. This reform, which will boost subsidies for low income families while cutting them for the rich, passed the Senate last night.

It’s worth noting the additional $1.6b in childcare spending has been funded by a two year “freeze” in family payments, rather than a permanent spending cut. It’s a reminder of how difficult budget repair has become when the Senate is filled with populist cross-bench parties and an opposition determined to inflict pain at every opportunity.

On company tax, we’ll find out next week just how much of the 10-year “Enterprise Tax Plan” the government is able to salvage. Chances are the Senate will only back a tax cut for businesses with a turn-over up to $10 million.  

The difficult question for the government will then be whether to keep the rest of the plan on the budget books or not. Taking it off the books might make the bottom line look healthier, but it will leave the government’s “plan for jobs and growth” looking a little thin.

When Scott Morrison first outlined this plan in last year’s Budget (his first), he framed it as an essential part of helping the economy transition away from the mining boom. The company tax cuts would boost jobs and keep Australia competitive as a destination for investment. 

Nothing has changed on any of these fronts in the nine months since the election. The economy still needs help transitioning away from mining, the unemployment rate is higher now than it was at the election and Australia is at risk of becoming even less competitive on company tax.

Donald Trump wants to take the US corporate tax rate down to 15%, while Theresa May has indicated she may want to take the rate in the UK even lower. 

Malcolm Turnbull therefore can hardly abandon his 10-year plan. Using his own logic, we need these company tax cuts now more than we did last year.

The only way to win over the Senate though, is to come up with a plan to fund the tax cuts. This has always been the missing piece of the puzzle. The tax cuts, we were told, would generate enough economic activity to eventually pay for themselves! Few bought it.

The company tax cuts, worth $48b over 10 years, could be funded through genuine, comprehensive tax reform. This would require going into some of the areas this government has declared no-go zones; Negative Gearing, Capital Gains Tax and yes, the GST.

Would this be politically difficult? Absolutely. But Turnbull needs a plan to fight for. Dropping the bulk of the company tax cuts after next week really isn’t an option.

Labor’s lack of a plan to boost economic growth is a weakness the Government should be able to exploit. It needs a strong plan of its own to do so.

Compromise may be the byword of this parliament, but the Prime Minister needs to be careful. He can’t afford to give away too much.

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