Tax sweetener turns sour

  • Letters
  • Sunday, 18 May 2003

By Jeffrey Francis

THE method is not important, but the outcome is what counts. This is the only conclusion that one could form about the Australian Federal Budget, which was brought down last week. 

Few countries around the world could boast the fact that they have paid in full their defence commitments, met the costs of fighting terrorism within and abroad, took stringent actions against the SARS epidemic threat, balanced the books and made a tax cut despite facing the disastrous effects of severe drought, bushfires and acute water shortage. 

It’s no wonder Prime Minister John Howard walked tall with humility and a sense of pride the night of the budget delivery while his Treasurer Peter Costello gleefully smiled at the surprise he had sprung on everyone. 

Neither the government ministers nor the Opposition and almost all the federal MPs had a clue of the tax cut that was to be unveiled. Even the media that usually speculates on what is expected in the budget was taken by surprise. 

Was the absolute secrecy meant to maximise the impact on the community? It certainly did. But it was not the type of publicity that the government would want to seek. 

Instead, it backfired. And whatever political advantage the Howard government had hoped for dissipated into the air. 

No doubt it was a well-kept secret, finalised only in the last hours of the budget preparations. 

But whose idea was it to give what one economist estimates as A$2.7bil in tax cut in the 2004-05 financial year that would be outstripped by the additional A$7.5bil the government would rake in through bracket creep before the changes? 

Was it Howard’s or Costello’s? No one would say, although both have had discussions on the tax cut and a last-minute change was made to the budget. 

Howard says there is “no particular mystery” about the genesis of the tax cut but refuses to dispel the mystery. He also dismisses the suggestion of tension between him and Costello over the tax process. 

Costello is nonplussed about the argument. He is more concerned about removing the burden of government debt, which is one of the central aims of his eight years as Federal Treasurer. 

Government debt has been reduced from A$96bil in 1996 to A$29bil in this year’s budget. 

“We are in a different situation (now),” Costello says assuredly.  

“We are much stronger, we have a much better credit rating as a consequence of what we have done. And I think we can start thinking about that return to the taxpayer.” 

But the tax sweetener has turned sour as many in the community and the Opposition realise it is so insignificant that they consider it a cynical move. 

The return of A$4 a week to the taxpayer’s pocket is the smallest tax cut in the nation’s history. It is not even enough to buy two loaves of bread or a cup of coffee and a scone. 

You’ll be lucky if you could pay for a sandwich and a milkshake, as Family and Community Services Minister Amanda Vanstone admits to the surprise of the Opposition. 

Howard copped the flak from people around the country, and bravely went on the air in four talkback radio programmes in a day to defuse the criticisms. 

In the end he, too, admits that the tax cut is not enough. But he explains that the priority is to spend on the necessary areas and to provide a surplus in the budget because it is good economic management to do so. 

“We would have liked to give more, if we hadn’t had a drought, if we hadn’t had a number of additional things,” he says.  

And he denies that the cut is a cynical move or political tokenism. 

“No matter what we do in this area we’re wrong,” he says, almost irritated by the continued criticisms.  

“If we hang on to the money, we’re hoarding the people’s money. If we provide a modest tax cut, well that’s not enough; it’s cynical.” 

Predictably, he blames the media for “having a go” at the government because it did not foresee the tax cut and was taken by surprise. 

He stresses that this is not an election budget although it seems premature to go to the polls in view of the mounting criticisms. However, he points out that no prime minister “can put his hand on his heart” and says there would never be circumstances in which he did not have to go for an early election. 

Somehow, it is difficult to believe him. Many still remember that after the Liberal-National Coalition defeat in the 1993 federal election, Howard, who took over the leadership, pledged that the GST would never be resuscitated. 

In his second term in office, the GST rose from the ashes and became a reality with the aid of the then Democrat leader Senator Meg Lees. 

“The country is in a solid financial and economic position and that is what, after all, the public wants,” Howard declares.  

“They want the government to provide security and national security so that they can get on with their lives.” 

In this year’s budget, his government boosts defence and security with an extra A$2.1bil over the next five years on the new strategic environment and increased defence force operations. This will take the defence expenditure to A$15.8bil a year. 

The Iraq war is estimated to cost Australia A$645mil and another A$500mil will be spent on Australian peacekeeping forces in East Timor. 

High priority is given to the anti-terror fight in Australia as an extra A$411mil will be spent on top of the A$1.4bil already committed since the Sept 11 terrorist attacks in the United States and the Oct 12 Bali bombings that killed 88 Australians. 

Another A$70.7mil will boost guard patrols and searches around defence and intelligence facilities over the next two years. 

Counter-terrorism exercises will be boosted by an additional A$15.7mil while the terror hotline will get an extra A$11.2mil. 

An assistance package worth A$10.5mil will be given to Bali in memory of the tragedy through the Australian Agency for International Development. 

This includes A$2.9mil to build an eye treatment centre to improve Bali’s capacity to provide high quality eyesight restoration services, surgery, training and community outreach services. 

About A$4.5mil will be given to upgrade the Sanglah Hospital in Denpasar and another A$3mil to support medical and health scholarships for health officials and workers in Bali. 

At the same time, Australia will increase its total aid to the Asia-Pacific region by more than 4% to A$176mil, including the establishment of a A$7.5mil peace and security fund to help countries after conflict. 

Aid to Indonesia will go up by A$30mil to A$152mil to support better government and counter terrorism. 

The government will also spend A$1bil over the next five years on programmes and initiatives to feed people in developing countries. 

Domestically, universities will receive an extra A$1.5bil over the next four years while the Medicare reform package will get A$910mil. 

Universities will be allowed to raise their own funds by charging upfront fees and increasing Higher Education Contribution Scheme fees, which are now set by the government. 

From the 2005 academic year, these fees can be varied by universities up to 30% more than the present level. The places set aside for full-paying students will double from the present 25%. 

But these measures and the controversial Medicare reform package, which will receive A$1bil less than estimated in last year’s budget, have angered the Opposition in the Senate. They threaten to block the budget unless it is amended. 

It will be interesting to see how far Labour and the minor parties will go on this issue although they do, indeed, hold the balance of power in the Senate. 

  • Jeffrey Francis is editorial consultant, Australasia-Pacific Media (e-mail: )  

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