The last time the Labor Party delivered a surplus budget was in 1989.
If elected this year, Labor is on track to repeat the mistakes of years past and lock Australia into more deficits.
Labor’s deficits occurred simply because expenditure exceeded revenue each year.
Creating poorly thought out new taxes which fail to raise money but lock in spending has often driven Labor’s hopeless record. Labor’s latest effort is their $55 billion Retiree Tax and the $32 billion Housing Tax.
Unlike Labor’s 2010 Mining Tax which had specific expenditure tied to the revenue, we have few clues where the money is going this time. It is buried, probably deliberately.
Labor Treasurer from 2007-2013, Wayne Swan delivered one of the most memorable and least credible promises in the economic history of Australia on 8 May 2012. “The four years of surpluses I announce tonight… I am very confident that we will achieve a surplus and build our surpluses over time.”
The surplus(s) never happened. The new taxes failed, the big promises were not kept and the biggest deficits in Australian history were delivered.
Sound familiar? Labor in 2019 increasingly sounds like the Labor Party of 2010.
There are two main reasons that Labor is on track to make the same mistakes of the Rudd Gillard period and should not be trusted on the Treasury benches.
Firstly, Labor’s new taxes strap unfunded, unsustainable spending into the budget.
Wayne Swan created his own problems like new taxes such as the Mining Tax which he claimed would deliver endless revenue but failed to do so.
The initial Mining Tax was supposed to raise $49.5 billion from 2012-13 to 2016-17. Then, after a few nips and tucks by the same Treasurer, it was claimed to raise $26.5 billion over the same period.
It was given plenty of time to raise the promised several billion dollars in each of the 2012-13 and 2013-14 financial years. Swan’s 2012 budget promised $3 billion in receipts in 2012-13 alone.
When repealed in late 2014, total receipts collected to 2014-15 were $500 million.
The trouble is, Labor started spending the money.
The Mining Tax was to pay for increasing the superannuation guarantee to 12%, school kids bonuses and a range of mining industry changes.
This is how a permanent deficit is created: politicians promising payments against a flimsy revenue base.
This is what Labor is promising again in 2019.
Labor say their new Housing and Retiree Taxes will drive $87 billion of new revenue. No doubt all of this money will be spent in Labor’s alternative budget figures which are unlikely to link spending commitments to these new tax hits.
Whether the spending promises are in block programmes like national Centrelink services or are as scattered as an MRI machine, they will not be paid for by these new taxes.
The fly in the ointment is the revenue will not be raised. Australians will invest less in shares and houses. We are already starting to see large market distortions which will reduce Labor’s revenue hopes.
Earlier this month it was reported “the nation’s largest and oldest listed investment company, Australian Foundation Investment Co, dumped shares in BHP and Rio Tinto to capture the value of franking credits for its mostly elderly, retired shareholders before the dividend imputation system is ripped up by a future federal Labor government.”
These movements will reduce the cash that Labor has already included in its alternative budget.
As former OECD Director Adrian Blundell Wignall wrote in January,the Retiree Tax “policy (will not) achieve the hoped-for revenue gains. It is precisely the sort of thing that financial markets are good at avoiding.”
Similarly the Housing Tax measures will reduce investment in housing and therefore the revenue collection levels will be lower than claimed when Labor announced their Housing Tax when house prices were rising. They are now falling.
Secondly, Labor is promising a surplus but its new taxes will cut growth and its record shows it cannot cut spending.
The economy will be smaller thanks to the higher taxes. For instance, the Centre for International Economics found Labor’s CGT tax alone will hit GDP by $3.7 billion per annum & reduce state balance sheets by $1 billion each year.
As Wayne Swan discovered, a smaller economy generates less revenue!
If Labor wins and legislates its big new taxes, shrinks the economy, fails to generate the promised revenue but is politically stuck with its spending commitments, what can be done?
Cut spending. The trouble is cutting spending is hard. Even as the Mining Tax which paid for the “SchoolKids Bonus” was being repealed, Labor voted against its abolition.
From its last period in office, Labor had spending hitting 26.5 per cent of GDP by 2023-24. Spending is now on its way to 24.6 per cent in 2022.
In annual growth terms, Labor had the budget growing at over 4 per cent. Spending growth is now down to 1.9 per annum since the Coalition was elected in 2013. This is the lowest spending growth in 30 years.
Labor is relying on a Henry Kissinger proverb “It is not often that nations learn from the past, even rarer that they draw the correct conclusions from it.”
The market distortions the Retiree Tax are now provoking cuts away at Labor’s economic credibility on a daily basis.
This ensures the froth of an election campaign will not provide cover for Labor to advocate its flimsy alternative budget free of proper scrutiny.
Andrew Bragg is a Liberal Senate Candidate for NSW – Twitter: @ajamesbragg