Revenue raising or spending cuts? Mojonews.com.au business editor ARON LEWIN looks at the latest hints that suggest Hockey will deliver on his “boring Budget” promise.
Budget: Labor super tax talk spooks Coalition
The Labor Party has unveiled a new policy to tax superannuation just two weeks out from the Federal Budget, placing the spotlight on the Government’s super policy.
Individuals who earn less than $300,000 pay a 15 per cent tax on their superannuation, but under Labor’s policy, the 30 per cent tax threshold would be lowered to those earning $250,000.
Opposition Leader Bill Shorten said the current superannuation taxation model – where the top 10 per cent of earners account for more than 30 per cent of those receiving superannuation tax concessions – was unsustainable.
“This demonstrates how Labor will responsibly manage the Budget and the economy without stifling economic growth or cutting billions of dollars from pensions, health and education like the Liberals want to do,” Mr Shorten said.
He also promised that Labor’s superannuation taxation model would add $14 billion in revenue, but Treasurer Joe Hockey was sceptical.
“Mr Shorten is making it up as he’s going along. Last time he tried this the Treasury said it was unimplementable in various ways,” Mr Hockey said.
In The Conversation, UNSW Australia Business School senior lecturer Gordon MacKenzie explained how superannuation was currently taxed, while opinion was divided on Labor’s proposed changes, including in the Sydney Morning Herald, the Herald Sun, The Australian, and Crikey.
He also wrote that Labor’s proposed tax would not generate near $14 billion in revenue.
Hockey touts negative gearing’s positives
On Thursday, Mr Hockey ruled out changes to negative gearing in the Budget.
The controversial policy allows landlords to claim a tax deduction on a property when its costs – such as mortgage payments – exceed its earnings.
When Shadow Treasurer Chris Bowen said there might be changes to negative gearing if Labor were elected, Mr Hockey defended the policy, saying it lowered rental prices and encouraged investment in housing.
“If you change negative gearing, then there are significant flow-on consequences for people that rent homes, and that needs to be properly considered,” he said.
“A lot of Australians have invested their hard-earned money in real estate and, in doing so, they have offset the losses of that real estate against their primary income, in order to give themselves and their children some financial security.”
Finance journalist Adam Carr wrote in the Business Spectator that negative gearing wasn’t really encouraging investment in housing because the tax benefit received was “not a decision-making amount of money”.
Bank of America-Merrill Lynch chief economist Saul Eslake told Sky News negative gearing undermined the fairness of the tax system. While 1.2 million Australians engage in negative gearing, 30 per cent earn more than $300,000 per year.
The Hawke Government was blamed for a surge in rental prices in Sydney and Perth after it scrapped the policy in 1986, leading it to reinstate the policy the next year.
But Mr Eslake said it did not affect rental prices.
“If it had been a cause of rents rising they would have risen everywhere but they didn’t, they only rose in Sydney and to a lesser extent in Perth,” he said.
Debate divided on Direct Action
Results for the first Direct Action reverse auction – completed last week – were released on Friday, and the verdict is divided.
In The Conversation, Monash University industry fellow Gujji Muthiswamy explained that companies bid to implement their emission-reduction project.
The Clean Energy Regulator – the Government body that implements emission-reduction legislation – is capped at $A2.55 billion in spending on contracts for four years.
Payments are made “after the projects’ emissions reductions have been achieved and verified”, Mr Muthiswamy said.
The reverse auction replaced the "carbon tax" in helping the nation meet its UN obligation to reduce emissions by 5 per cent on 2000 levels – 236 million tonnes – before 2020.
An infographic in The Conversation showed $660 million was spent on 107 contracts in last week’s auction, which is forecast to reduce 47,333,140 tonnes of carbon at $13.95 per tonne.
But Environment Minister Greg Hunt said the outcome was a “great success”.
“Yesterday we exceeded expectations about 10-fold and produced the largest reduction in emissions in Australian history,” Mr Hunt told ABC Radio.
“This is four times the emissions reduction on the absolute best reading of what happened throughout the carbon tax experiment, and that’s just from the first auction.”
The Australian foreign editor Greg Sheridan echoed Mr Hunt, saying reverse auctions were set to reduce emissions by four times more than the carbon tax.
“The reverse auction process is more robust, and transparent than the rorted European ETS [Emission Trading Scheme] and its imitators,” Mr Sheridan said.
“Environment Minister Greg Hunt may have won the next election for the Coalition Government.”
But Climate Institution deputy chief executive Erwin Jackson said it secured just 15 per cent of the reduction needed to meet the target, despite costing more than a quarter of the cap.
“The results highlight the inadequacy of the policy in two key ways. First, the abatement purchased through the auction is a mere drop in the bucket of the level of carbon pollution reduction that the government needs to achieve,” Mr Jackson told reneweconomy.
“As the Government has admitted, Australia’s pollution is continuing to grow, and therefore so will the costs to the public purse of this expensive, inefficient policy.
“Under the previous carbon laws, major emitters would not only be responsible for their emissions, they would be paying around $10 a tonne, whereas the Government is paying nearly $14.”
RepuTex executive director Hugh Grossman – a company that provides information on Australian emissions policies – told reneweconomy big polluters would hesitate to join the reverse auction, because $14 per tonne was too expensive.
“That price is unlikely to see high emitting companies rush to participate,” Mr Grossman said.
In Crikey, economist Tom Westland mocked Mr Hunt and Mr Sheridan for celebrating the reverse auction’s results.
“We still don’t know exactly how the punitive “safeguard” mechanism is supposed to work, and there’s an inbuilt incentive for companies not to make emissions abatement they might have made anyway, unless or until they win the reverse auction,” he wrote.
“In the lead-up to the budget — with the underlying fiscal balance at risk from plummeting iron ore prices — we could have a new scheme: a market-based mechanism that places a price on mistakes in Greg Sheridan columns with a cap that declines with each article.”
The Conversation infographic showed most contracts went to vegetation sequestration – widely seen as a short-term fix, because it stores carbon in vegetation – rather than the energy sector.
In a joint article, The Conversation editors Emil Jeyaratnam, James Whitmore and Michael Hopkin wrote: “What this first auction has failed to do is unlock positive longer-term changes in energy efficiency, especially in the most carbon-intensive industries.”
“In essence, the land sector is offsetting emissions from the rest of the economy and delaying any real change to emissions intensity.”
Feeling tight? A million Australians destitute
According to the Committee for Economic Development of Australia (CEDA), 4-6 per cent of Australians – about one million – live in poverty “with little to no hope of getting out of that situation”.
A CEDA report – released April 21 – includes 13 recommendations on how the Government should tackle entrenched disadvantage in Australia.
In the report, an individual is defined as living in poverty if their income is “below 60 per cent of the median equivalent disposable household income of that year”.
New Matilda journalist Thom Mitchell quoteD the report: “[as] one of the richest [nations] in the world … the success of our economy has not translated well to moving people out of poverty and disadvantage”.