When governments find themselves in a corner there are two things they will do in a bid to turn things around - try to spend their way out of trouble and buy votes, or resort to cheap populism.
John Howard might be one of the greatest conservative PMs Australia ever had but he spent his way out of trouble at the 2001 and 2004 elections with billions and billions in outlays for families and the aged, much to the anger of his Treasurer Peter Costello who regarded Howard’s tactics as profligate and reckless.
When Mark Latham was making headway ahead of the 2004 poll with his populist call for an end to the MPs’ super gravy train, Howard stunned colleagues by simply copying Latham’s policy to neutralise the Labor leader’s surge. It was one of the few times Howard was ever confronted aggressively inside his cabinet, with foreign minister Alexander Downer denouncing the PM for caving in.
In the US right now President Barack Obama has changed from his tack of trying to buy votes with profligate stimulus spending, and is instead trying to generate revenue with a tax shake-up which is a transparent exercise in class war. When billionaire investor Warren Buffett said last month that he didn’t think it was fair that his secretary paid a higher proportion of her income in tax than he did, Obama used this as the rhetorical basis to propose radical increases in taxation on Americans earning more than $US200,000 per year.
The Gillard Government could not be any more unpopular. If it gets any less popular Julia Gillard might find herself out of the top job before the election anyway.
Against this backdrop the two-day tax summit, led by Treasurer Wayne Swan and starting today in Canberra, is the type of event which could be seized on by a desperate government to change the national debate.
It would not be remotely surprising if Gillard tried to connive a situation where an Obama-style assault on Australia’s so-called super rich, or big business itself, was one of the main policy outcomes.
The trade union movement is already laying some foundations for her should she choose to go down this populist path. In its submission to the summit the ACTU has compiled figures for the past decade showing that, from 2001 to 2011, a worker on an annual income of $52,430 has received a tax cut of $1492 per year. A worker earning $104,859 has received a tax cut of $3168, while a worker on $157,289 has pocketed $8420.
The ACTU seems to think that the difference in the tax breaks enjoyed by people on 50k and 100k is noteworthy, but it seems utterly unremarkable. The $100,000 worker has enjoyed just over twice the level of tax relief as the $50,000 worker, which seems completely fair. In the case of the $150,000 worker the ACTU’s crude figures also fail to take into account is the tapering down of welfare assistance as people rise up the salary scale and lose payments for childcare and incentives to take out private health cover.
The flipside of these superficially generous tax cuts enjoyed by people earning more than $150k is that these so-called super rich people are the ones who have been enlisted by the Gillard Government to bear the brunt of some of its most contentious policies.
As the carbon tax is introduced and the cost of living goes up there will be no relief whatsoever for these people as they pay higher power bills, more for travel, more for food.
While few disputed the need to help Queensland after this year’s floods and cyclones, the absence of a surplus meant the Gillard Government had to go down the path of introducing a levy. Australians earning more than $200,000 who will provide more than half of the $1.8 billion to rebuild Queensland.
Julia Gillard might be tempted to go down the path advocated by the unions, but her political standing is such that even many low-income earners would see such a move as desperate vote-grabbing. It doesn’t appear to be working for Obama as of yet and it is unlikely to work for her, certainly not to the extent that she needs it to.
The other problem she faces with this tax summit is the very live and pertinent question as to why we are having it at all. It promises to be quite the gabfest, and is hardly the first event of this kind which has taken place since 2007. One of the defining moments of Kevin Rudd’s prime ministership was his lofty and waffly 2020 summit, where aside from Hugh Jackman leading an all-in rendition of From Little Things Big Things Grow, nothing of memory happened and no actual policies of significance were introduced.
Former treasury secretary Ken Henry completed a review of the tax system less than two years ago anyway, and memorably the Rudd Government ignored several hundred of his recommendations and stumped for just eight, one of which, the mining tax, helped cost Rudd his job as PM.
It is not like the government has not been presented with some carefully thought out tax proposals already. As such the immediate suspicion is that this get-together, demanded as it was by the independents when they helped Gillard form government, is going to be typically long on hot air.
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