Six years in opposition, the last 3 of which Tony Abbott believes should have been spent in government, have left the Liberal party far better prepared for office than their critics would have you believe.
They may have arrived in an apparently erratic scorched earth frame of mind but their hasty dismantling of Labor’s legacy is just the precursor to the main game: raising the GST.
Following his historic defeat of a hollowed out Labor party, Abbott took office last September with as much political capital as any new Prime Minister before him. Clever politicians, and Abbott is among the most clever, understand the perishability of capital. Clever politicians know to spend their capital while they have it because its value can disappear very quickly.
This new government’s style is hardline, churlish and reactionary and their indictment of Labor for all that is wrong in the world has been impressively audacious. But it is plainly obvious the party leadership knows two things: they have a lot of political capital in the bank; and they know how to spend it.
The hit they’ve taken in recent polls is evidence of the rate at which they’re burning popular support but it would be naive to think they are blind to this. Despite some early poor diplomatic performance, Abbott and his senior ministers are not new at this and they have real business to get done over the next six years.
Their first order of business has been to tear down much of the previous administration’s work as early as possible in the election cycle. By the next election the voting public will have forgotten much of what happened in Abbott’s first one hundred days, especially with such impotent opponents in the ALP. Right now is the best opportunity the Liberals will have to cleanse the country of the bureaucratic burden, wasteful spending and bleeding heart ideology they say was left behind by the previous government.
But an exorcism of the Labor party is just a fortunate corollary to the broader Liberal agenda.
A key challenge facing government in the medium term is correcting the structural problems built into the budget, while transitioning out of the mining investment boom.
As the stimulus of mining investment passes, government revenues will decline until and unless other sectors of the economy can pick up the shortfall. With the RBA running out of room to move on interest rates, and with economic activity slow to react to earlier rate cuts, the government has plenty of work to do if they are to begin delivering the budget surpluses they covet so dearly.
The income tax cuts and flawed GST of the Howard government have locked Australia into a structural deficit, made tax receipts heavily reliant on company profits, and left revenue excessively exposed to cyclical volatility. Neither a Liberal or Labor government can now guarantee budget surpluses without one-off revenue raising, especially during economic down-cycles. A significant shift in the tax revenue mix is required if governments are to reduce dependence on borrowing and return a dependable stability to the tax base.
The Liberals know there is insufficient scope in spending cuts alone to deliver a regular budget surplus and Hockey’s austerity rhetoric of a year ago has thankfully been replaced by a focus on growth. To get the budget back in the black they have to increase government revenue beyond its current levels. Raising personal taxes could quickly help restore budget balance but would be a very tough sell for any Liberal government. Broadening or raising the rate of GST would deliver a reliable and substantial increase in government revenue and pave the way for returning the budget to structural surplus.
This term, however, is not the time for Abbott and Hockey to risk changes to the GST. By the time they have a friendly Senate and a full set of Liberal State governments it would be too close to 2016 to overhaul the GST and risk an election loss. No, GST reform can and will wait for Abbott’s second term and he and Joe Hockey telegraphed as much in the lead up to last September when they explicitly ruled out changes to the GST in their first term.
They must position themselves in the electorate to take the GST to the next election from a winning position.
Their first step has been to unravel as much Labor spending as they can, limiting the amount by which they will need to raise tax later. Hockey’s next step has been to use downgraded forecasts to create an artificially dire economic outlook. The Treasurer couldn’t have painted a more bleak economic picture at his MYEFO this week but by 2015 expect him to have begun using more favourable assumptions in his forecasts. Rather than talking down the economy, expect to hear how his tough decisions and masterful economic management have miraculously turned the economy around. Playing us for fools, Joe will tell us he has cleaned up Labor’s mess and set the country on the path to the type of prosperity only a Liberal government can apparently deliver.
Abbott and Hockey’s strategy at this point is writ large for all to see. They will emerge as our economic saviours in time for the next election with sufficient political capital to win on a platform of GST reform. But make no mistake, they will be correcting structural problems in the budget left behind by John Howard’s flawed GST and excessive tax cuts so just how they manage to blame Labor for that should make for entertaining viewing.
When he’s not here helping fill the gaps left by Australia’s Olde Worlde media, Damien Walker writes about that which amuses and bemuses him at The Underwhelming Blog.
