A political shift masking an economic assault

Two weeks after the federal budget, we need to separate the political narrative from the economic reality.

On one hand, we have what seems a profound shift. A Liberal Party that originally came to office with histrionics about a “fiscal emergency” and a debt and deficit “disaster”, which railed against burdensome and arbitrary taxes, now talks about “good debt” and reassures everyone that, because it is the party of fairness, it is totally comfortable spending big and hitting the biggest banks with a levy.

Following the scrapping of the $14 billion zombie measures from the 2014 Abbott-Hockey horror budget, the political optics have refocused because the new budget swings to revenue raising, rather than spending cuts, to deal with the federal deficit and ballooning national public debt. For example, last year’s budget booked in revenue increases of just half a billion dollars and expenditure cuts of $5.5 billion over four years. This year’s budget books in $23 billion in extra revenue and $15.7 billion in extra spending.

But we have to be careful not to get carried away with the political messaging. An ideological retreat can be conducted while still carrying out an economic assault. Not to understand that leads to fantastic commentary. GetUp, for example, announced to its members and supporters on 19 May that there has been a “seismic shift” in our favour and that “both sides of politics are prioritising bold, progressive economic reform measures”.

The first thing to note about the economics of the budget is that, following on from the $6.3 billion Omnibus cuts passed in September, there are still cuts galore: $3.8 billion from higher education, $2 billion from family payments, more than half a billion from Newstart recipients – some of whom will now have to piss into a cup at Centrelink to prove they’re worth keeping alive. Add to that the Department of Human Services’ ongoing “robo-debt” notices that will collect $4.5 billion from the unemployed and pensioners.

It’s true that these don’t compare to the sort of wholesale cuts attempted in 2014. But once you start adding them all up, you see that they go pretty far in making up for the dropped zombie cuts.

The main thing to note, however, is that the Liberal Party has decided that, if it can’t make drastic cuts to the services needed by working class people, it will simply take the cash straight out of our pockets. This isn’t just about this year’s budget. Large revenue-raising measures have been passed every year for the last three years, which have been anything but progressive.

There is clearly some confusion about this, which is typified by GetUp’s response, although not shared by the whole population, more than 50 percent of whom believe that the budget will leave them worse off. The confusion reflects the established idea that taxing and spending are somehow inherently left wing – a position that would have been rejected out of hand by conservative hero Robert Menzies, who was a big spending deficit-producing PM.

And the figures show how wrong the idea is.

The 2015 re-indexation of the petrol excise is set to raise $23 billion by 2025 – a massive impost on working class people, which rises over time. The 2016 decision to increase the tobacco excise, which disproportionately targets the poor, will raise at least $7 billion extra by 2021; economist Stephen Koukoulas estimates that the total tobacco tax take in that year will be more than $15 billion.

With this year’s decision to increase the Medicare levy, the government will pocket an extra $4 billion per year and rising from 2021. This levy isn’t as regressive as the tobacco tax, but it is still a 2.5 percent tax on the wages of everyone on more than $22,000 a year. On what planet is a flat tax a “progressive economic reform measure”?

On top of these explicit attacks is ever-encroaching bracket creep, which has been carefully managed to hit workers on lower incomes harder, relative to total wage increases. Treasury’s 2015 Re:think tax discussion paper noted three examples that illustrate this.

The Treasury estimated that by 2024 the overall tax rate of a person on half the average wage would jump from 10.3 to 17.8 percent – a 73 percent increase. By contrast, the tax payments of someone on the average wage would increase 21 percent; for someone on twice the average wage, they would increase 12 percent.

It’s important to note that those on the average wage (or above it) make up only a fraction of all income earners – about 15 percent according to the Australia Institute, a think tank. So when the government last year announced a rise in the threshold for the second-highest tax bracket from $80,000 to $87,000 per year, Scott Morrison lied when he called it a win for “middle income Australians” against bracket creep.

That will be true in perhaps 15 years, once inflation increases the nominal value of wages and more of the population are pushed up the income scale. But for now it is $1 billion per year relief for the wealthiest people in the country.

By contrast, according to Deloitte Access Economics, the budget expects that the number of taxpayers earning less than $87,000 will increase by about 3 percent over the next five years. Yet income taxes collected from them will increase by 18 percent – an extra $11 billion a year by 2021.

The assumptions about wage increases underpinning these figures might be unrealistic. As many people have pointed out, wages are growing at historically low rates, so bracket creep will occur more slowly than projected. But that only underlines that workers are damned while wages stagnate, and damned in a different way if they grow.

While it raids the wages of the working class, the Coalition has locked in $2.3 billion in business tax exemptions and concessions, the $1 billion a year tax cut for the rich and more than $25 billion of company tax cuts. Its full program of corporate tax cuts would cost more than $65 billion over a decade. And we now know that in 2027 the cost would be $15 billion and grow each year after that.

So don’t be fooled by the gushing of the Canberra press gallery, the triumphalism of GetUp or the government’s claim that “fairness” underpins the budget. Over the last three decades, the wealthiest 10 percent of the population have gained almost 50 percent of income growth. The government wants not only to cement that inequality, but to increase it. Its ability to do so by taking a wrecking ball to services has been constrained. Instead, it’s using the tax system to pick the pockets of the working class to the tune of tens of billions of dollars per year.