Still taxing and spending

David Leyonhjelm’s op ed in The Financial Review, Friday 24.

Do not believe the Government’s rhetoric about cutting tax and stopping waste, at least not yet. The budget update, released a week before Christmas, includes worrying indications of rising taxation and more wasteful spending.

Tax receipts are estimated to increase by $1.6 billion this financial year as a result of the Government’s policy decisions. Since it came to power in September, tax hikes amount to around $23 million a day. And that’s not counting the tobacco tax increase, a parting gift from Labor that the new government gratefully pocketed.

Perhaps Tony Abbott and Joe Hockey are taking to heart the 4th century prayer of the philanderer-turned-puritan Saint Augustine: ‘Grant me chastity and continence, but not yet!’

The main driver is the expected repeal of the business and superannuation tax cuts that Labor tied to the mining tax. The tax hikes on everyday businesses and individuals far outweigh the tax cut for miners, with the overall effect being a $2.3 billion tax windfall for Joe Hockey by mid 2017. That’s around $100 of extra tax to be paid by each and every Australian.

Government spending is also estimated to increase by nearly $12 billion this financial year as a result of the Coalition’s policy decisions. The main driver of this is a multi-billion dollar payment to the Reserve Bank.

This payment is politically convenient for the Government – it increases the chance of the Reserve Bank delivering dividends to the Government in future years. But it is far from clear that the payment is necessary or prudent.

The Reserve Bank doesn’t need it to set interest rates, service its clients or run the clearing house for interbank payments. The floating dollar means it also doesn’t need a stockpile of foreign currency to manipulate the value of the Australian dollar.

The Reserve Bank shouldn’t be in a position to independently bail out a financial institution – such a momentous decision should rest with an elected Government. And the Reserve Bank is not set up as an investment manager to maximise returns for taxpayers over the long term.

The Government’s vague statements on the matter suggest it has no idea what the payment is really for. It is hard to avoid the conclusion this is wasteful spending on a massive scale.

Further disappointment on the spending side comes from the Government’s decision to ‘review’ its commitment to reduce the head count of the Commonwealth public service by 12,000. This is a core promise that swayed thousands of Australians outside Canberra to vote for the Coalition.

It’s also a responsible promise. The Commonwealth employs around 167,000 people, not counting the permanent Defence forces. Around 25,000 are employed to take our money at the Tax Office while around 35,000 are employed to give some back at the Department of Human Services (an Orwellian title for the agency that processes transfer payments).

Over the last decade the public service has expanded much faster than the rest of the economy, despite no change in what the Commonwealth Government is good at or is better carried out by the States, NGOs and private sector. And cutting 12,000 employees would only take the public service back to its 2007 level, when Kevin Rudd declared that John Howard’s reckless spending must stop.

The tentative start to repairing the Budget is concerning given the soft targets the Government is setting itself. To date, the Government has only said it aims to build sustainable surpluses of at least 1 per cent of GDP by 2023-24. That is a decade away, giving the Government generous wriggle room for years of debt and deficits.

The state of the economy offers no justification for ongoing debt and deficits. Real GDP is forecast to grow at 2.5 per cent this year and next. This is a respectable rate of growth that could well be the norm for the period ahead. And debt and deficits to fund current spending represent a cruel burden for future Australians.

Hopefully the Government will impress us with its Budget in May. But its recent update suggests we shouldn’t get our hopes up.

David Leyonhjelm is the Liberal Democrats’ Senator-elect for NSW.

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24 Responses to Still taxing and spending

  1. Andrew

    I think you miss the point that Rudd built 14,500 cutscutscuts into the forward estimates last minute but without announcing any specifics. To say they promised a further 12,000 is grossly unfair and just rewards Rudd’s fraud.

  2. Andrew

    Which is not to say I wouldn’t like to see another 12,000 more go, but it’s actually pretty difficult to downsize to that scale while adding other services like NDIS. Id rather they “broke” that promise while removing duplication and enabling the states to cut much more.

  3. Dave Wane

    No matter how many backward steps Australia takes under any big-spending, big-taxing, big-regulating Labor government, including of course the Rudd-Gillard-Rudd socialists, it seems we never take even the same number of forward steps after they leave. In other words, there is always a residue of “Big Socialist Government” left behind. It is not unlike the old two steps forward – three steps back story, where real progress is never achieved.

  4. JohnA

    The RBA money was canvassed here when announced.

    If I recall, it was portrayed as a necessary re-capitalisation after the previous government dragged big dividends out of the RBA.

    The ALP hates banks. It’s part of its socialist mantra.

  5. Tel

    The Government’s vague statements on the matter suggest it has no idea what the payment is really for. It is hard to avoid the conclusion this is wasteful spending on a massive scale.

    The vague statements on the matter mean they know something, but they ain’t telling. However, I’m pretty sure the government was buying back Commonwealth Government Securities (CGS) from the Reserve Bank.

    RBA CGS June 2011: $3.9 billion
    RBA CGS June 2012: $8.5 billion
    RBA CGS June 2013: $15.5 billion

    They print the money, and they buy the treasury bonds… or QE by any other name. Meanwhile at the AOFM: Total Commonwealth Government Securities on Issue: $294 billion

    This is up by about $20 billion from 6 months ago. My thesis is that the ALP were hiding the debt in the leadup to election, and Treasurer Joe has unhidden that debt and I expect that at the end of the year we will see that the RBA has sold down their CGS. As I expected, the RBA waited until after the election to publish it’s annual report, presumably the ALP thought that providing information to voters would just confuse the issue.

  6. Petros

    Spot on Dave Wane. I just hope David Leyonhjelm doesn’t get too focused on things like carry-conceal. These things take a lot of time to change public opinion. Most people like the idea of paying less tax. That topic should be a winner.

  7. Adam d

    While I don’t disagree with David I feel the LDP should be change its focus. For example it has been left to night club owners to make the case against the loss of liberty in NSW. I suspect the man would treat the LDP like a fringe nutter organisation to discredit he right but that is exactly the opportunity to get some real publicity and grow the LDPs base during this time.

    Publicly advocating positions the liberals can take rather then attacking possible shortcomings could be more beneficial for both parties and finally move the debate from the gutter left. Selling the abc, aus post and questioning why we have federal departments for health, education etc will give greater political freedom for the live to do the right thing as well as grow your own support base. On my crappy phone but it brings to mind that quote on creating conditions for politicians where the only option is to do the right thing rather than hope they do it on their own accord.

    Still love your work David but we need to see you on tv as much as we see that disgusting greens creature.

  8. Ed

    So much for the “budget emergency.”
    I guess that was just campaign rhetoric.

  9. Alfonso

    “Further disappointment on the spending side comes from the Government’s decision to ‘review’ its commitment to reduce the head count of the Commonwealth public service by 12,000.”
    Oh dear….ye shall know him by what he does not by what he says at Davros…..

  10. Des Deskperson

    It’s interesting to note, in any discussion of the size and effectiveness of the public sector, that a recent whole of service survey of the Australian (Commonwealth) Public Service employees revealed that
    only 21% of them agreed their agency dealt with underperformance well.

    No-one who has worked for longer than a week in the APS should be surprised at this result, which is, if anything, slightly rosy!

    What is fascinating and depressing is that this situation persists despite the last 25 years focus on efficiency – performance appraisal and review, deregulation, streamlining process, targets, bonuses, none of it appears to have worked.

    The public sector will continue to grow because people expect, and have been encouraged to expect, more from government. I remember Prof John Wanna making this point about ten years ago when everyone else was banging on about how privatisation and outsourcing was going to reduce the size of the public sector.

  11. .

    My impression is that Government sets up departments in direct competition with each other. I know someone who worked for ABARES and he had a friend who worked elsewhere. They were working at the same time on a proposal to regulate and deregulate part of our commodity trade. Worse still is the State which regulates Local government to the point of standstill.

  12. Rabz

    cutting 12,000 employees would only take the public service back to its 2007 level, when Kevin Rudd declared that John Howard’s reckless spending must stop.

    The disgusting dishonest little turd also claimed back then that he was “going to take a meataxe to the public service”.

    Of course, no such thing happened.

  13. .

    Petros
    #1168507, posted on January 27, 2014 at 7:51 am

    Spot on Dave Wane. I just hope David Leyonhjelm doesn’t get too focused on things like carry-conceal. These things take a lot of time to change public opinion. Most people like the idea of paying less tax. That topic should be a winner.

    The LDP focuses on liberalism, we don’t make exceptions or favour paticular groups.

  14. It looks like we’ve got yet another Socialist Federal government. Too frightened to stand up and say ‘no’ or ‘boo’ to anyone.
    **sigh**

  15. Tel

    The disgusting dishonest little turd also claimed back then that he was “going to take a meataxe to the public service”.

    Has anyone studied FDR’s campaign against Hoover> Seems that Rudd did.

  16. Given the current global economy is poised on the edge of a cliff, there’s a good chance real GDP won’t grow at 2.5%.

    We’re about due for a drought too; 1982, 1992, 2003, 2014. Hope it’s not as long as the last one.

  17. Adam D

    The LDP focuses on liberalism, we don’t make exceptions or favour paticular groups.

    Just don’t let the media frame the party. The libertarian cause has many easy wins to pick fights with, don’t let them turn it you into an Australian NRA because that is what they want to do.

  18. Squirrel

    I do, at least, give the Abbott Government credit for the Commission of Audit and for the promised review of Commonwealth-State responsibilities. Both processes suggest that this Government, unlike its Labor predecessor(s), is prepared to make hard, detailed decisions about reducing or eliminating Commonwealth functions and spending, rather than relying overly on arbitrary, across-the-board cuts through “efficiency dividends”, which essentially leaves it to officials to make the difficult decisions – while the elected representatives of the people float above it all.

    That said, the task is large, not least because of promises and commitments made by the Government – I wish Senator Leyonhjelm well in keeping the “b’s” honest on this important subject.

  19. .

    Due for a drought? I’d say it has already come.

  20. Ed

    Just don’t let the media frame the party. The libertarian cause has many easy wins to pick fights with, don’t let them turn it you into an Australian NRA because that is what they want to do.

    That’s what they’re already doing.

    LDP = gun party.

    it should be

    LDP = less laws, less regulations, more control over your property. Less impediments to running a business and making money.

    “lower tax” doesn’t really sell because every party promises that, so there’s no point of differentiation. People here a party promise lower taxes and they just don’t believe it.

  21. .

    lower tax” doesn’t really sell because every party promises that, so there’s no point of differentiation. People here a party promise lower taxes and they just don’t believe it.

    The LDP want a 20% tax rate with a 40k tax free threshold.

    That is very well differentiated from the pack!

    I believe the following would play very well out in voterland:

    http://www.ldp.org.au/index.php/policies/1164-taxation

    The Liberal Democratic Party (LDP) aims to:

    Substantially cut taxes.

    Ensure that no government in Australia increases its overall tax take.

    Ensure limited government, responsible budget management, and a decentralised federation.

    The LDP will seek to:

    Limit the federal government to defence, immigration, basic public services (eg passport services, regulation of hazardous materials, air and sea transport regulation), and assistance to the least well off.

    Stop all transfers from the federal government to other levels of government, including grants from the pool of GST revenues.

    With the associated savings, cut federal taxes by more than half, through:
    lifting the tax free threshold to $40,000, cutting personal tax rates to a flat 20%,
    and cutting the company tax rate to 20%;
    and abolishing tobacco, alcohol and fuel taxes, import tariffs, carbon pricing and mineral resource rent taxation.

    Limit state governments to the provision of: police, courts and prisons; fire services; animal control; roads and other transport services; libraries; local amenities; basic public services (eg consumer protection, building standards), means-tested vouchers for health and schooling, and welfare services.

    Replace insurance taxes, taxes on vehicles, stamp duties on property transfers, along with various other nuisance taxes collected at the state level with less inefficient taxes, while ensuring that the overall level of a state or territory’s taxes as a proportion of state GDP declines over time.

  22. Dotty, I’d vote for that.

    There’s nothing there about gay marriage and abortion funding, and nor should there be.

  23. wreckage

    Yep, looks like I’m locked in to LDP for the senate.

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