Increasing the GST is more popular than increasing fuel excise by CPI indexation, according to the Fairfax/Nielsen post-budget poll - and increasing the GST certainly isn't popular.
Yet reintroducing excise indexation is one of the sound and reasonable measures in Joe Hockey's first budget. Some might think it's one of the few sound and reasonable measures.
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Budget: More politics than economics
Joe Hockey is putting his political cycle ahead of the needs of the economic cycle. Michael Pascoe comments.
The majority of the population disagrees with 72 per cent against the change and only 25 per cent supporting it. Increasing the GST scored 66 per cent opposing, 30 supporting. By comparison, the population is more evenly divided over the centrepieces of the coalition's election tax policy (aside from no new taxes). Abolishing the carbon tax is supported by 49 per cent and opposed by 46 per cent. For the mining tax, only 37 per cent want it abolished while 56 want it kept.
Excise indexation gets a bad rap because of its supposedly regressive nature – the idea that the less-well-off spend proportionately more of their income on fuel than do the well off – but mainly because most of us buy fuel and don't like the idea of it becoming more expensive. Crikey's Bernard Keane was one of the few voices raised in favour of indexation before the budget:
"It also shows the Coalition has come a long way, not merely from the Howard era when indexation was abandoned, but from the petrol price scare campaign it launched in the early days of the Rudd government -- although at least that produced one of Brendan Nelson's (unintentionally) funniest speeches.
"That the Abbott government plans to restore the indexation of the petrol excise is being rumoured and reported on in the media ahead of Tuesday's budget. There's a strong case for higher petrol excise. Ignore the rentseekers of the NRMA and Australian Automobile Association -- the current ~$15 billion per annum in excise revenue does not cover the costs that motorists inflict on the community, which include not just road building and maintenance but congestion costs, which are currently around $15 billion a year alone and predicted to reach $20 billion per annum by 2020.
"Moreover, higher petrol excise will function as a de facto carbon price: based on 2008 CSIRO figures, a 10 cent per litre increase would be equivalent to a carbon price of $40 a tonne (2008 prices). This is considerably braver than the Gillard government managed -- it refused to place the carbon price on petrol and would only have levied it on heavy vehicles from July 1 this year. So full credit to the Coalition for being prepared to implement a carbon pricing measure even Labor and the Greens didn't want.
"Restoring indexation won't help the immediate return to surplus, but the treasurers of later this decade and the 2020s will benefit from billions in extra revenue as a consequence -- just as all now rue the freezing of indexation 13 years ago."
My suspicion is that there's more than a little hypocrisy in the opposition – Labor is opposing excise indexation, but will be secretly happy that the Greens are going to let it through the Senate. Similarly, the Greens are opposing the deficit tax on the top income bracket, but will be secretly happy that Labor is letting it through. Such be politics.
For the reasons sketched by Keane, indexing fuel excise is reasonable policy, but Hockey and Abbott are unable to sell it effectively because it would mean admitting that Australia has a revenue problem as well as a spending problem. That wasn't part of their chanting against the Labor Government.
Wake up folks – our demographics mean we do need to raise more revenue down the track as the dependency ratio of workers to non-workers shrinks. And the inherent carbon pricing and user-pays principle in a fuel tax aren't bad ideas – just don't expect Smokin' Joe to admit that.
Somewhat similarly, changing the indexation mechanism for pensions is reasonable given the demographic realities on the horizon. CPI indexing maintains pension spending power – future pensioners will be able to buy the same amount of stuff that they do now. There's nothing wrong with increases above that being a political call from time to time based on the nation's ability to pay. The growing grey army will have a loud enough voice to be heard if it feels it's slipping too far behind community standards.
However, pension changes only make sense if they're accompanied by some serious complementary superannuation reform, but the government doesn't want to scare the horses about that, or offend its biggest supporters. The lack of stomach for making reforms where they're needed most – in the blown-out tax expenditures – is the worst part of the budget. It's hard to imagine the government growing backbone about those closer to the election.
As it stands, Hockey and Abbott are trying to meld a political cycle with an election cycle. The result is a vehicle with wobbly wheels and dubious steering.
Michael Pascoe is a BusinessDay contributing editor.