Howard’s battlers back to bite the government

June 20, 2014

By Emily Millane

Remember Menzies’ forgotten people? Or, in more recent history, Howard’s battlers? That great amorphous mass of humanity, humbly toiling away and trying to better themselves?

Turns out, they’re coming back to bite the conservative Government.

Australia never really did have an age of entitlement. It had a period of economic good fortune, followed by a period of profligacy where spending was used to buy the votes of middle and upper income cohorts in a canny bid to win that most coveted and elusive of prizes in Australian politics: middle Australia.

At the same time, however, the Howard government created certain expectations around living standards that are unsustainable, now the heady days of the mining boom are behind us.

The Howard government spent an estimated $25 billion on tax cuts and concessions, and $50 billion on spending programs and cash handouts like the Baby Bonus.

Successive years of personal income tax cuts, initiated under Howard and continued by the early Rudd government, disproportionately benefited those on higher incomes and hurt revenue.

As the Parliamentary Budget Office has said “over two thirds of the 5 percentage points of GDP decline in structural receipts over the period 2002-03 to 2011-12 was due to the cumulative effect of successive personal income tax cuts granted between 2003-04 to 2008-09.”

It behoves the current Government to deal with this issue to make future budgets sustainable.

The area of superannuation is ripe with examples of concessionality that benefits high income Australians and negatively impacts on revenue. Costello removed capital gains tax (CGT) on disposals of assets by people over the superannuation preservation age (currently 60).

This has led to the situation where people pour money into superannuation investments, to be quarantined until such a time as they can have the benefit of those investments tax-free. When this occurs shortly before pension phase, with the disposal occurring shortly thereafter, the Australian Tax Office has indicated it may be a form of tax avoidance by using the commencement of pension phase to avoid CGT.

Costello also introduced transition to retirement pensions, which permit an income stream for people who are over the superannuation preservation age and still in the workforce. Transition to retirement pensions are used by people with the financial means to funnel income into superannuation up to their contributions cap – often by salary sacrificing.

The current contributions cap for over 60s is $35,000. I haven’t run the numbers but I’d hazard a guess that people with $35,000 to put into super aren’t the same people who survive on fish fingers and International Roast.

The money put into super escapes income tax and may be withdrawn from the super fund as a pension, tax-free. What was purportedly a measure to assist people to scale down work is helping those on high incomes to smooth the transition to a life(style) after work.

When it came out in the wash that the real losers from this year’s budget were those on low incomes, the young unemployed and the poor old, Hockey’s rhetoric jarred. It was obvious that the narrative of broad-based pain sharing was not matched by budget measures.

Had it not been for the Howard government’s relentless pursuit of the votes of the “battlers”, would Hockey’s first budget have been the same? Would it have purposefully steered clear of tackling some of the more difficult fiscal measures on the table? Possibly.

However, there is no doubting the difficulty of taking away benefits with the same political hand that gave them, or even being perceived to be doing so. Even more difficult is the task of redistributing those benefits to other people in society.

It’s a difficulty born of electoral politics and the unspoken rule that governments should be loyal to their predecessors, especially ones as successful and as recent as the Howard government.

There is growing support for winding back expenditure that is unfair and for better government assistance for people in our society who are in need. People who are exclusively reliant on the age pension for income, for example, are surviving on about $20,000 a year.

Superannuation tax concessions, the majority of which go to Australia’s wealthiest people, will surpass the total cost of the age pension in 2016-17. People with multi-million-dollar homes and $1 million worth of assets can claim the age pension.

It beggars belief that a government so hell-bent on selling its fiscal credentials wouldn’t touch these things.

But then again, it’s difficult to manage expectations.