What I want for Budget, Santa Hockey

Michael Pascoe is one of Australia's most respected finance and economics commentators with 37 years in newspaper, radio, television and online journalism. He regularly appears on Channel 7's Sunrise and news programs and is a regular conference speaker, MC and facilitator.

 

One person’s dream federal budget is another’s nightmare – just consider the dream that the Commission of Audit chief, Tony Shepherd, apparently has for those dependent on welfare. My dream wouldn’t be everyone’s right now, but it would try to do what the politicians should always try to achieve: something that’s better for the nation over time.

Full coverage: Federal Budget 2014-15

First priority: don’t frighten the horses this year. Australia is in with a chance to pull off a most amazing feat – coming off a resources construction boom without suffering a crash. Building approvals, the trade surplus and retail sales are all booming, but they need to be to take up the slack of resources construction tapering fast.

So, I’d want a budget that slips in some saving measures that will have impact over the coming years without causing much immediate pain. Thus, no, there certainly wouldn’t be a “deficit levy”, alias the proposed income tax increase for most people on above average income. The idea of an allegedly temporary tax to deal with a longer-term structural problem really is rather silly, especially when there’s more than a touch of suspicion that it’s all planned to make possible the announcement of tax cuts just before the next election.

At the same time, this isn’t the budget for fresh generosity from the government. Nobody would receive a nice surprise, leaving the usual whingers to complain that “there was nothing in it for me”. Too bad.

What I would be concentrating on is fixing the lurks and perks in the current tax system that are simply wrong and inequitable.

I’d start with redoubled efforts to collect the many billions of tax that should be paid and are not. The multinationals enjoying legal tax holidays by keeping their costs in high tax countries and their profits in low or no tax countries would be in my targets. Yes, Google and Apple are the most obvious candidates, but there are plenty of others. Our local multinationals play the game too.

One step down are the two big tax avoidance vehicles enjoyed by well-off locals: family trust structures and superannuation.

Joe Hockey once gave a speech questioning the way trusts are being used to avoid tax that should be paid, but he was immediately taken out the back and bashed by his parliamentary colleagues for suggesting such a thing. I’d find out how New South Wales’ famous Obeids have run their family trust – and then change the law to prevent it happening again.

As for superannuation, the government (that is, us taxpayers) should only provide sufficient tax incentives for people to have enough super so that they won’t need the age pension. Above that amount, there’s no need to provide a massive tax break. As it stands, the superannuation system means the wealthy can live in an on-shore tax haven after they turn 60.

You don’t have to incentivise the wealthy to invest – it’s the way most of them became wealthy and it’s how that remain wealthy and become wealthier. Meanwhile, the way the system works now, there is zero tax benefit for low-paid workers putting money into superannuation. That’s not right.

The other boot that has to drop as part of rationalising the enormous cost of superannuation tax breaks is that most of a person’s super savings should be only available as a regular pension – not taken out tax-free as a lump sum and disposed of so that the retired person can claim a government pension. Even ASFA, the peak superannuation industry body, has suggested reforms along those lines.

(Mind you, ASFA is a little conflicted, as such a change would keep more money in super accounts for longer, allowing ASFA members to collect more fees for longer.)

The super and family trust changes would be enormously unpopular with those affected, egged on by the vested interests in the investment and tax avoidance industries that make billions of dollars in fees out of it. But this is my “dream” budget”, so I can just ignore the massive and misleading advertising campaign that would be launched against me. Existing arrangements would be grandfathered so there would be no immediate impact on spending patterns and we would all adjust quickly enough.

Also worth revisiting, remember the kerfuffle before the last election over Fringe Benefit Tax changes that meant ending the novated lease lurk that allows many employees to effectively receive the equivalent of work-related deductions for their private-use car? The coalition scrapped it as part of its win-at-any-cost campaign, but I’d reinstitute it. That would cause pain for the salary packaging industry, but it’s pain that wouldn’t spread far and we wouldn’t miss it. It’s inequitable and wrong.

On the spending side, I’d be prepared to take on a couple of Australia’s strongest unions – the doctors and pharmacists. Well, not so much the pharmacists, but pharmacy owners.

The Commission of Audit, while draconian and simply odd in some respects, had some good ideas, as have had previous such studies. One that came up last week and has come up before is rationalising the now out-dated protection for chemist shops. There’s can be a special role to consider in regional areas, but the cities and major towns would be better served by allowing competition to work.

As for the cost of health care, there is much to be done in adopting best practice to reduce costs. One small example: I’m told that if you need a colonoscopy in Scotland, it’s performed by a trained technician rather than a very expensive specialist. In the same way that you don’t need a radiologist to take an X-ray, a technician can very adequately replace the highly-trained specialist who really should have better things to do.

That’s not really a budget measure per se, but it’s a broader course of action that the government should be pursuing to reduce the rate of growth in medical costs.

I’d go along with the Commission of Audit recommendation to fix the way pensions are indexed, scrapping the male weekly earnings growth option and leaving it to the special aged pension cost of living measure. That wouldn’t cut any pension, but over the longer term, it would mean pensions wouldn’t rise by as much.

If the government can keep growth humming, we can afford to be gradual in the way we reduce the immediate deficit and build in savings to pay from some demographics-induced longer-term costs.

As for the public service, I’d be wanting to change the way it works rather than necessarily target numbers. The big problem with the public service is that people are punished for getting things wrong but not rewarded for getting them right. That leads to layers of backside protecting and a dumbing-down of the service.

Duplication between the states and the federal government is a waste, but I don’t trust the idea of competitive federalism – I’d be happier to see a rationalisation the reflects the fact that we’re not that big a country, just 23.4 million of us.

I would push two areas of increased spending. Contrary to the general fear of debt per se, I’d want to increase it by beginning the issue of, say, $100 billion worth of long-dated Infrastructure Bonds to be used strictly for productivity-enhancing infrastructure investments – investments that would require double-digit rates of return and, mainly, would be suitable for eventual privatisation.

There’s a problem with governments continuing to borrow to pay for recurrent expenditure, but there’s no problem in borrowing to invest wisely. That’s what smart individuals and businesses do all the time. As Professor Warwick McKibbin has explained, such bonds also would give foreigners something to buy here without pushing up the price of real estate and equities and while shouldering the foreign exchange risk.

The second area is the only one that really counts in the long-term for the nation: education. I’d lock in the Gonski scheme spending while always being ready to fine tune it. I’d also be concentrating on quality child care for those who need it most – the disadvantaged. I’d accept the Commission of Audit’s recommendation that Tony Abbott’s paid parental leave scheme be capped at average weekly earnings rather than $100,000, but, unlike the Commission, I’d also means test it.

That’d do for a start. Enough vested interests would be offended without the economy being tightened more than is wise. Then I’d have another crack in 12 months time.

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