Breaking the heart of the heartland

The Liberal Party, when appointing Malcolm Turnbull as Leader and PM in 2015, aimed to gain more of the middle ground in Australian politics. In this respect it mimicked the Hawke Government, which had wooed the middle classes with some policies (e.g. economic deregulation, relative spending restraint) not particularly associated with the centre-left. While Hawke retained the Labor "brand" in all this (by simultaneously implementing Labor's social, industrial relations and other policies) the same cannot be said for Turnbull and the current Coalition. This is because recently adopted policy stances are inconsistent with core Liberal and conservative values.

Conservative voters' chief expectation is that Liberal/National governments will be economically responsible. There was an expectation that they would put an end to the Rudd-Gillard spending-spree-driven deficits. Instead the Coalition has continued them with $29 billion to $49 billion deficits, and a debt ceiling soon to be raised to $600 billion. There is little tangible to show for the increased debt, and the Government's promise of a Budget surplus of $7.4 billion in 2021 is as unbelievable as earlier promises of a return to surplus made by Labor's Wayne Swan.

Despite media rhetoric from the likes of the ABC and Fairfax, the only responsible federal Budget brought down in the past decade was the Hockey Budget of 2014. While its individual elements can be debated, there is no doubt that that the spending restraint of that budget was on the right track.

Tony Abbott made three major mistakes in relation to the 2014 Budget.

First, in the run-up to the 2013 federal election, he should never have agreed to implement Gonski Mark 1 or the NDIS, which were both unaffordable. Secondly, his profligate (and subsequently doomed) paid parental leave scheme should never have been contemplated in an environment of deep budgetary cuts. Thirdly, he should have been prepared to call a double dissolution election in reaction to the blocking by the Senate of so many 2014 Budget savings measures. (His government had 90 seats in the House of Representatives and a majority of 29 on the floor and could have won such an election.) Essentially, by not responding on that occasion, Abbott mandated reckless behaviour by the Senate, which has continued to pass spending proposals but blocks nearly all sensible savings measures. No wonder that then Treasurer Hockey (in his most honourable moment) gave up and resigned.

Many of Turnbull's Budget compromises are not worthwhile.

He sought (despite a clear shortage of revenue) to cut the company tax rate to 25c in the dollar for all companies over a decade, mainly because the Government wanted Australia to remain a competitive country for large international corporations. The Senate will only back a cut in the company tax rate to 27.5 per cent for companies with up to $50 million in annual turnover, so that the Government ends up with the worst of all worlds. It loses revenue it can ill afford but has done nothing to attract mobile international capital.

Nearly every bill that Turnbull got through the Senate (e.g. Backpackers' Tax, the ABCC, superannuation reforms) required change to the point of greatly compromising the original aims. He continues to turn a blind eye to ever-increasing blowouts in Medicare and the NDIS.

Besides economic responsibility, other things people expect of Coalition governments include facilitation of individual choice in matters such as education and health, reduced income taxes, an atmosphere that encourages enterprise, and investment decisions based on merit (though allowing minor pork-barrelling of the bush to please the Nationals). The latest Budget seems to have ditched these aspirations also.

The raft of investment decisions approved by the Turnbull Government don't stack up. We don't need an $8.4 billion inland rail link from Melbourne to Brisbane. This will merely duplicate the existing link via Sydney, and will not justify its cost. Decisions to build submarines and Navy warships locally (a massive pork-barrel to places like Adelaide), are at odds with the disastrous track record of these industries. (Our shipbuilding and submarine industries in reality were more deserving of a shutdown than the car industry.) The biggest investment disaster, however, is the Rudd-inspired NBN, which some analysts now tip to eventually cost as much as $90 billion, and which risks being overtaken by developments in wireless technology.

The Federal Government has commissioned David Gonski to deliver a new education report dubbed "Gonski 2.0" by year's end, and says it will overhaul education funding in a bid to end the "school funding wars". Mr Turnbull said the Government would also introduce a new "needs-based system" to determine school funding across the country. 

Under the new system, the Commonwealth Government will boost its share of schools funding by an additional $18.6 billion over the next 10 years.  Just $2.2 billion is of this is funded over the next four years (within the forward estimates).  The remaining $16.4 billion for the last 6 years (88 per cent of the total increase) is effectively unfunded

.The proposal is yet more waste. The original Gonski model depended on a big increase in spending to deliver large funding increases to Government schools without negatively affecting the non-government sector. The reality is that bigger spending on schools has not delivered better results, and it is not clear why such extra resources are needed. Indeed the Catholic system, often with less resources, delivers better outcomes than the government system.

The latest proposal, despite another unaffordable increase in spending, will still result in funding cuts for many non-government schools.

A major blunder is the notion that a "needs-based" funding system, as recommended by Gonski, should only target the lowest achieving schools and students. What about our best and brightest and their needs? What about freedom of choice? Why penalise parents, who put their hands in their pockets to pay fees, by savagely reducing funding for their kids? The reality is that if the funding system gave better choice to parents and students, the government system in the cities would lose pupils in droves to the non-government system, and children from less affluent families might be able to afford to attend better schools.

In my own case we have one child still at a non-government (independent) secondary school, costing us about $17,000 annually in fees. The school gets about $6450 in government (all sectors) recurrent funding, and under Gonski Mk 2 the Commonwealth element is due to reduce by 6.3% from $4904 to $4593 by 2021. By contrast the government high school down the road (with 41% of students in the top SES quarter, 48% in the middle quarters, and much inferior academic achievements) gets about $15,000 in recurrent funding, with the parents and other private sources only contributing a paltry $700. That school (unlike the one my son attends) will get more Commonwealth funding under Gonski 2. By my estimation, for every dollar I contribute in school fees the Commonwealth reduces its funding by 49 cents, and it is set to get worse!

Then there is the bank tax (levied on the liabilities of five big banks at an annual rate of 0.06 per cent). The levy applies to their sources of funds but excludes deposits below $250,000, shareholders' equity and retained earnings. While nobody likes the banks (and there are issues of market power and lack of competition among the big banks that merit public scrutiny), there are three strong economic arguments against the tax.

In principle, all companies should face the same income tax scales. The new tax discriminates against the bigger banks, and seems to be justified only on the basis that the banks make a lot of money. It is no more than a money grab from bank shareholders and customers.

A second matter is that, in the past, financial institutions duty and bank account debits tax (both abolished as part of the GST package) were passed on to customers. The bank tax firstly seems to involve the Government reneging on the spirit of undertakings made when the GST was introduced. Also, since the bank tax increases the cost of funds to the banks, it does seem logical (despite public utterances to the contrary from the Treasurer) that the banks should be entitled to pass on this extra cost, provided the market permits.

Overall, conservative voters are now wondering whether the current Government actually represents their interests, and whether the high taxes they pay (and the growing debts raised in their names) are being well spent. I sense that there is now a strong feeling that PM Turnbull is a cuckoo in the liberal nest and that this is responsible for what many call a "Labor Budget". PM Turnbull has long struggled with voter dissatisfaction concerning the way he is doing his job, and Treasurer Morrison is now afflicted with collateral damage .

All this may well result in another leadership change before the next election. This time, however, I don't think the Libs will mimic Labor and go back to Abbott. No matter what now happens with the Liberal leadership, I don't fancy the Coalition's chances of re-election.