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The 2014 Federal Budget Review – and a Few Constructive Suggestions

Greetings Joe,

we’ve not met but as a Castlecrag resident I’m in your catchment area, so I hope you’ll do me the courtesy of a well thought out reply to the various points I raise. None of these points are particularly original – they’re simply a reflection of the general clamour arising in protest at your first budget.

It’s not enough for you to say, I’m right – and everyone else is wrong! It seems undeniable there does seem to be a serious groundswell of opinion, that you’ve missed the boat in terms of achieving what you lead us to believe you were seeking to do – i.e., to bring the axe down evenly upon ALL.

I am what you may regard as a rusted-on Liberal. For my sins I was once president of the Lindfield party (mid-1980’s) and you may have even met my father (Wal Cryer) when he was president of the Chamber of Manufacturers (as it was then, at the time of the bicentenary celebrations, in1988).

So it takes a fair bit to get me agitated, as I am fairly forgiving of the sins on our side” of politics. I have never written to a federal Treasurer before, so you can make of that what you will.

But you have managed to do the impossible with this budget – proclaim to do one thing and in effect achieve the exact opposite.

I listened patiently to the audio of your talk to the Sydney Institute last week, where your theme was attempting to hose down accusations that your budget was unfair. You even had a shot at Ross Gittins, which was probably unwise as he has a loyal following on BOTH sides of politics. I know he’s also labelled your budget as scoring badly in term of equity – but why should you go on the attack? He may have a point.

Your speech was liberally sprinkled with the suggestion you or “someone” had to take the lead in arresting the over-spending of the other mob. Fair enough – nobody has a problem with that.

But in going on that morale crusade you built up everyone’s expectations that finally, the heavy-hand of tax reform would fall equally across all sectors of society.

But it hasn’t and you know how I know? You’re getting inundated with middle class punters telling you they would have been quite happy to pay something but you completely missed them in your so-called desire to share the burden! You failed to adopt one of taxation’s oldest rules: levy the burden according to the capacity to pay.

You’ve committed the crime of omission, by not doing something you should have, i.e. not taxing a large chunk of people who would have willingly coughed up! How silly is that?

As you know, taxes can fulfil two purposes – to raise revenue (e.g. PAYG) or to modify our behaviour (e.g., on cigarettes).

So, the $7 co-payment, rightly or wrongly, has become a massive distraction, because it raises so little revenue that it’s easy to cast it as class warfare. I have no major problem with it but you can’t in all seriousness, try to sell it as a revenue-raiser, particularly as it has huge compliance costs and will probably be easy to circumvent anyway, so it won’t change behaviour.

No experienced federal Treasurer would have introduced that one, it’s far too contentious! You and Tony seem to have forgotten that politics is the art of the possible. Just reflect how much time you spent on Q&A trying to deflect palpable taxpayer anger to little effect, as you’re really wrestling with people’s deep, dark class-entrenched demons. And for what? I’m not aware of a massive conspiracy to defraud the Commonwealth by the poor, the disadvantaged or the elderly, all trying to rip-off the system by popping off to the quack more often than they should.

But, if you don’t like accusations that this user charge is just part of your class warfare, then don’t rich people abuse the system, too? If you want to be really fair, and at the same time discourage over-use, why not simply introduce a law that says Everyone is entitled to 10 free visits to the quack per year – after that you die! That would satisfy the test of equity i.e. it’d kill all people equally regardless of income or wealth, and it would lead to a much stronger society as all the sick people and hypochondriacs would disappear off the agenda, thus achieving another of your objectives: to return the budget to surplus.

Maybe the problem is more to do with the fact that we only have a “one-size-fits-all” system, where the first port of call is to visit the doctor – instead of having more community-based medical centres, who can take the pressure off medicos by dealing with all the low level issues as a first line of defence. Did you or your colleagues  – Peter Dutton, perhaps? – consider that?  I don’t recall hearing about that idea or you mentioning it on Q&A?

But let’s not flog this horse to death. Let’s focus on your repeated mantra that the burden should fall equally upon all sectors of society. Presumably that includes companies? But, then again, maybe not.

I’m sure you read the financial pages over brekkie? In which case you must have choked on your Wheeties when you discovered that numerous large companies, like Shell, or Facebook or Google are generating billions of dollars of revenue but are hardly paying any tax!

In fairness, maybe you weren’t aware of it, as you’ve been busy suing Fairfax and chasing all those crooked pensioners and unemployed dole-bludgers.

But Joe, let me be the first to let you into this dirty little secret: in your desire to get people to the starting line (your words), these and other large multi-nationals are running off over the horizon with their saddle-bags bulging with unpaid taxes worth billions. All of which could have been put towards restoring the budget surplus. Even today, we learn another huge mining giant, Glencore, has caught the bug, according to Michael West in the SMH. You don’t read that rag anymore, but if you did, you’d learn that they’ve only paid company tax at the rate of less than 2% over the last few years.

That’s a far cry from the official rate of 30% and that’s a lot of schools, hospitals or, in your own words, a lot of Cochlears that could have been built.

Again, in your own words, repeated several times with great rhetorical flourish during your talk to the Sydney Institute, – “Who’s going to pay for all this over-spending?” Well, making large multi-national pay their fair share of tax would be a good start. I would have thought that would be a no-brainer. You wouldn’t even have to pass any legislation – they MUST be breaking our laws, right now. (Hellooo, where is ASIC … – Greg’s probably overseas again?)

Even local heroes like Westfield and the banks pay a much lower effective rate than the “nominal” company rate of 30%. You could even lower the nominal rate (to compete with Singapore and the like) if you made ALL companies pay their fair share!

Joe – and I don’t want to pre-empt things, but you’re starting to look like a bit of a bully who goes after the little guy – not because he’s an offender, but merely because he’s an easy target. Am I wrong?

OK – enough said – let’s assume you’ll get stuck into plugging-up these billions of dollars which you (as Treasurer) are letting “leak” out of the country.

Turning back to domestic matters and the question of “middle-class welfare”:

Back-tracking briefly, by your own admission (in your speech) you made mention that we’re all a lot better-off now, than say 20 years ago. If that’s the case, it suggests there’s a huge untapped source of personal income tax – or elimination of lurks and perks – that, yes, would provoke some cries of anguish. But isn’t that what you’re there for (to make “tough decisions”) – for the axe to fall evenly across all necks?

But in your budget, us middle-class punters got away scot-free! Is this because you’re afraid of us because “We also vote”?

There are so many easy-pickings for you within the always-aspiring, bloated upper-middle-class (of which I’m a member) – the list is almost endless, courtesy of your two Great Helmsmen colleagues, Howard and Costello, who both ramped up the level of largess dished out to the so-called “middle-class” till it bordered on the obscene. But you seem to feel no need to even “go there”?

What about a small tax on the family home but only above, say $5 or 6m, so that it impacts only on a very small fraction of the population? (Joe – it would make you look good – which is something you could do with more of, right now.)

What about reducing the benefits of capital-gains tax concessions?

What about reducing some/all of the superannuation “rorts”?

What about nailing “trusts” as blatant tax-avoidance schemes for the very-rich (I thought you said you wanted the burden to fall evenly?)

Joe – just a quick reminder: many of the above reforms were hinted at in the Henry tax review – have they all been swept under the carpet?

And what about taking Tony out the back and saying “Tony, maaate – what were you thinking of, dreaming up that stupid PPL idea, of paying high-income earning women up to $50K!”  Tony, please mate – no more brain snaps – not while I’m trying to flog this notion of fairness and equity – please! – let’s not give our enemies any more ammunition than we have to!”

On this issue: was any thought given to creating a “HECS-like” scheme – whereby you loan parents as much as they want (be it large or small, will depend on their circumstances), so if a wealthy couple wish to borrow a large amount to cover their childcare expenses, so be it. But at least you’re giving prospective parents the choice – and by providing cash it also helps pay for childcare – probably the biggest issue and which goes unaddressed in Tony’s brain-snap.

And what about this ongoing madness of continuing to generously subsidise private schools? I’m on thin ice here, as I went to one (Grammar, for which I’m eternally grateful) – but this is simply more “middle-class welfare” madness. You have ZERO credibility, if on the one hand you’re trying to tell a pensioner in Blacktown that they’ll be penalised for going to the quack too often (forget about all your “exemptions’ – I’m talking about the only thing that counts: perceptions) – and on the other hand, you can happily come up with millions (if not billions) to assist families who “choose” not to use the perfectly adequate public school system.

But, just as you’re berating our putative pensioners (who should be ashamed of themselves for being a burden on society) you can also find $250m over the next few years to fund the employment of clergy in schools!

Now, this is dangerous business on several fronts – one, it puts paid to your suggestion that you’re serious about tightening the purse-strings; second it challenges the time-honoured notion of the separation of church and state; third, it probably favours mainstream religions rather than “non-Christian” ones, and fourth it discriminates against other secular counsellors, who arguably, could do just as good a job!

Joe – I know “once a Jesuit always a Jesuit” – but you’ve got to suppress your inner religiosity – we live in a secular state (for better or worse) – you can’t justify pouring a quarter of a billion dollars of taxpayers’ money down the drain on matters that aren’t your business (as a government, that is). Wrong! Wrong! Wrong! Particularly if you’re trying to cry poor-mouth. You’ve even managed to annoy the High Court with that one – I think that’s an “own goal” by any standards.

And it gets even worse! You actually allow these vast religious bureaucracies, who’re as rich as Croesus, NOT to pay any tax. Joe – you are a very generous man – you let the big multi-nationals off the hook; you let many other huge corporations, like Westfield, pay hardly any tax – you let the military con you into buying un-coasted “toys for boys” – and you let the churches off the taxation hook – and then give them $250m to peddle their propaganda in public schools! You are either very kind or extremely naive.

These are hardly the actions of someone who keeps telling us there’s a “crisis”. It’s more a case of you experiencing “cognitive dissonance” – where one actually tries to reconcile the irreconcilable. Which is getting close to “delusional”, where everyone is wrong … except you!

To be honest, if we judge you by your budget and not your words – there CANNOT be a fiscal crisis!

But if there was, you know what else you “could” do? You could have added a few cents tax (i.e., user charge) on petrol (you did, but it was such a measly amount it will have virtually no impact on curbing demand for fossil fuels – but to add insult to injury, your mate Tony promised to pour any revenue it raised, NOT into public transport – but into building more roads. How so 1970’s!

And what about defence – one of the biggest, most bloated, most bureaucratic of all government departments – responsible for such multi-billion $ fiascos as the Collins submarine debacle – costed variously at around $6 or 7 billion. No apparent belt-tightening here? No, sir – I suspect we’ve got more pen-pushers than ever before, with very little to do, other than to commit (“squander” would be a better word) $25 billion on an unproven jet-fighter. No crisis here. And this extravagance at a time we’re trying to foster closer relations with the likes of China. At the rate the Chinese are buying high-rise in Chatswood, dropping bombs on us is the LAST thing they’d do! So just WHO are these “baddies” (in Tony’s words) that warrant this massive outlay?  

And what about the ongoing contract that requires us to pay the French arms giant, Thales, $93 million pa, to maintain factories here, producing “increasingly irrelevant items” (SMH, 11/3/2010). Most taxpayers feel the Defence Dept is just a vast, black hole down which we pour millions (if not billions) with very little auditing or accountability. I would have thought – in these times of crisis as you keep bleating – that Defence would be the perfect “hollow log” that a federal Treasurer would just love to pounce on. No? Maybe the generals have got you spooked?

And now we turn to the financial services sector, which is not exactly struggling, so why didn’t you introduce the so-called “Robin Hood” tax (i.e., a low-incidence tax on all financial transactions). The idea has gained a lot of traction in the UK and Europe (the G20, etc) as being ideal in its redistributive function, and it’s such a small fraction (typically 1/10,000th or even 1/20,000th) it inflicts no pain – certainly not on the banks who are enjoying ever-increasing super-normal profits due to their protected (“too big to fail”) status.

The reason this kind of tax, i.e., on financial transactions, would be so appealing, is that you could earmark all the proceeds to charitable ends – so instead of soaking poor people and pensioners to pay for the mooted medical research fund – you’d be asking the rich banks to do it! You’d raise far more money – and everyone would support you (the opposite of what’s happening now). And if there IS a budget crisis – and you keep telling us there is – wouldn’t now have been the perfect time to implement such a tax, which has all the hallmarks of equity and fairness …?

And finally – why didn’t you (re-) introduce a “super-profits” tax on the mining companies? At the risk of being dogmatic (and guilty of being a heartless rationalist) there is virtually NO case against such a tax. Why? It’s not a business cost as it only kicks in when the companies make a profit, which is in excess of a “normal” return! They should all love paying a “super-normal” tax – as that suggests they’re all making whacking great profits. But no, you either looked the other way – or you let them load up their saddlebags and ride off into the sunset without paying (hardly) any taxes at all! (Thank goodness for those royalties, at least they are “un-avoidable” – unlike “taxes” which governments seem reluctant to apply for fear of upsetting the mining lobby. Is that also why you didn’t want to reduce the miners’ diesel fuel rebate? )

In this country, it seems it “pays” to be a monopoly, where you get credit-protection from the government; you aren’t penalised with even a small “social tax” for the privilege of being a monopoly – and if you’re extra lucky – you get to keep all those profits anyway – and ship them off overseas!

Joe – I think I’ve answered my own question: why tax the pensioners, the sick and the elderly? Because of your reluctance to tax the “big end of town”, you’ve got no choice!

Sadly – and we can only be judged by our deeds, not our words, according to the above, you’re starting to sound more like the school thug who bashes up the little kids – but who doesn’t have the guts to get stuck into the bigger kids who’re committing the bigger crimes. This may confirm the theory that politics is really, just the schoolyard writ large.

A letter in the SMH (and I know you don’t read that rag), on 18th June, seemed to sum it up: “[you] deliver a budget stripping funding from the sick, elderly and the unemployed while leaving the majority of tax breaks [for] the wealthy; [the NSW pair] uses their budget to increase funding to the disabled, the homeless and children at risk”.

Part of the problem is Tony’s tendency to drop firecrackers – explosive-devices all of which cause massive distractions and must be extremely annoying for you trying to flog the notion of “fairness”. These include –

–       appointing “dukes and duchesses” (very un-Australian!),

–       the PPL (which favors high-earning women)

–       trying to intrude religion into schools, by stealth, and

–       the $7 co-payment (a slug on the poor and needy).

These are all diversions to the main game, which have the effect of startling the punters and distracting them from focusing on more important issues. And which makes the Coalition look like they have no coherent policy narrative – only a non-stop series of thought-bubbles.

I suspect your first mistake was to crow too heartily, about how the “age of entitlement” was over and in so doing raised the false hope that you were actually going to DO something about it. But what do we have in your budget: a nominal 1% cut to wealthy people (over $180K pa) and effective cuts of between 10-15% to people on low incomes. How is that fair – please explain? And about 2/3 of the voters see it that way? So even IF by some stretch of the imagination your budget IS fair – you’re not doing a very good job of “selling” it.

Perception is everything in politics and according to how your budget has been received generally (almost universally condemned), it gets a big “fail”.

And how smart was it to create a budget that was virtually un-passable by the Senate – thus leaving others, whose ideology you oppose, to do the things you should have, but didn’t.

Thank you for reading this, and to make it easier to respond, I’ve underlined those key points requiring an answer. As a constituent, I would also be available to meet with you and discuss these issues in greater detail.

Thanking you in anticipation,

Regards,

James Cryer, BA, MBA

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