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Swan budget big on class warfare

When Treasurer Wayne Swan wrote his controversial essay on the rising influence of vested interests he was laying the groundwork for a federal budget based more on politics than economics. Today, he took aim and fired a big dose of class warfare.

The promised 2012-13 federal budget surplus of $1.5 billion was achieved largely by targeting companies and the so-called one per centers, sprinkling it with a good dose of accounting trickery (shifting some expenditure between years), and using some overly optimistic economic forecasts and super-sized projections for carbon pricing.

To make the class warfare seem real, and reposition itself as the party for battlers, the treasurer hammered the point that he was spreading the benefits of the mining boom to the “most vulnerable in society”. This included tripling the tax free threshold and dishing out a Schoolkids bonus.

Adding to the histrionics was a decision to abolish the generous living-away-from-home perks largely exploited by highly-paid executives and clamping down on “golden handshakes,” which again benefit high income earners receiving large payouts.

But the biggest savings came from backflips on previous promises, again mostly aimed at the wealthy or medium to big companies. These included a decision not to proceed with a 1 per cent cut to company taxes on July 1, which will save them a whopping $4.7 billion over the next four years. Another was the dumping of the standard deduction on work related expenses, which will save the government more than $2 billion over four years, and the scrapping of a proposal to offer a 50 per cent discount on interest, which was announced in last year's budget to encourage Australians to save more. The decision to renege on this will save them $1 billion.

This reprioritisation of the tax reform agenda away from the rich towards the “vulnerable” is a cynical move to try and win back Labor's heartland and get its polls out of the toilet. When taken in this light it explains why the few infrastructure projects that it has listed as supporting are in constituencies that traditionally have a strong Labor vote.

Other nips and tucks include a deferral of higher concessional contributions cap to save it $1.45 billion and a reduction of the higher tax concession for contributions on Australians earning more than $300,000 a year, to save almost $1 billion over four years.

In Swan's own words: “Across the budget, by saving and redirecting $33.6 billion, we're balancing the books. Making room for $5 billion in new payments to households.”

While the budget and Swan's speech is a desperate attempt to have him posturing as the modern day Robin Hood, it is fundamentally flawed. While nobody denies that a return to a budget surplus is a good objective, the argument is more about timing and the big rush to get there when so many things are up in the air. The latest developments in Europe and the worse-than-expected US job figures out last Friday are a timely reminder that overly optimistic forecasts about China, economic growth and inflation could easily make this budget a meaningless set of numbers.

It is a budget that promised to be austere but it has left Australia vulnerable to the gathering risks in the global economy, with too much punted on the China boom continuing to hold.

The economic outlook assumes the economy will remain strong, the outlook positive, the unemployment rate will remain low and inflation will be contained, not to mention an unprecedented pipeline of mining investment. The budget forecasts for the next four years are premised on real GDP growing at 3.25 per cent in 2012-13 and 3 per cent the following three years, the unemployment rate remaining stable at 5.25 per cent and employment growth of 1.25 per cent through the year to the June quarter of 2013 and 1.5 per cent through the year to the June quarter of 2014. It says: “Emerging economies, particularly China and India, are expected to account for a large part of global growth over the next two years.”

This is no longer certain. Nor is the size of tax collections, which have grown less than expected because of several factors, including reduced capital gains tax revenue owing to the poor performance of the sharemarket and falling property values.

To put it in perspective, capital gains tax as a share of gross domestic product tripled to 1.5 per cent in the five years to 2008. When the financial crisis hit, causing tax losses, the share fell to 0.5 per cent of GDP. This translated into a fall of $11 billion.

If Europe burns and China comes off the boil, it will adversely affect company and superannuation taxes, as well as the estimated $9.7 billion in net revenues expected to be raised from the new mining tax, the minerals resource rent tax (MRRT). The jury is out on whether this is doable. Even the company tax raised by the miners is unlikely to be as high as the government anticipates as most of them have allocated substantial capital investment to new projects, and have offset a large part of their tax bill with depreciation.

Swan has spent billions of dollars in a new round off handouts, which has left the country with a budget that has little to cushion it when it next turns down.

He is also relying on overly optimistic forecasts on carbon pricing. The budget papers set out for the first time carbon price estimates for the 2015-16 year year, when the scheme transitions to a flexible price that is linked to the international market. The problem is that the forecasts are almost double the international market forecasts which leaves it vulnerable to a multi-billion dollar black hole.

Swan is clearly hoping for a miracle. He might need one for the next election.


  • The Treasurer, with his present budget is only adding to the inflation.
    All business sectors and banks have now been give a legtimate excuse to raise their costs and interest rates to cover for their shortfalls in their income.
    To avoid baby boomers live off Government handouts, they should be encouraged to save. The reduction is super contributions for people over 60 years should be withdrawn. This will prevent a crisis similar to the one faced in Europe.
    We should try to move away from a welfare society, which tends to make us lazy, to a society where each individual prepares for his/her retirement. This will reduce the number of dependents on Government welfare.
    It is sickening to note that the Labor Governments like to make the society reliant on them to take care of their welfare.
    Where welfare payments are made, the well bodied receipients should be asked to contribute to the society. Or else, the Government is encouraging them to become beggars.
    Please let us restore some dignity for the individual, be they rich or poor and wean ourselves from depending on Government welfare.

    Date and time
    May 09, 2012, 9:06AM
    • Once again - not a thing for me!

      Single Dad
      Date and time
      May 09, 2012, 9:25AM
      • The Liebor Government is turning Australia into the next Greece. Yet, it hands out billions of dollars to the IMF and other world wide causes not related to Australa's interests. The sooner we head to an election, the sooner we'll axe this incompetency once and for all, along with ridiculous taxes such as the Carbon tax and Mining Tax (which really is a state owned resource).

        President Akuma
        Date and time
        May 09, 2012, 9:37AM
        • Yea labour is really turning this country into Greece ....
          We are a wealthy country at the expense of all the other nations (most poor so we can be rich)....
          I think you & many other people fail to understand what is really happening on a global scale with finances, limited resource consumption, huge waste & unsustainable policies that have got us to the point we are at now.
          State owned resources ... are you pretending to be a clown?
          It would be a royal shame to make people think more about their waste & consumption ....
          It would be a disaster if the mining companies who lead this strong looking economy down the garden path paid a little more back to the people.
          Wow, some people never cease to amaze me??

          Yuppy Ville
          Date and time
          May 09, 2012, 10:59AM
      • "Class warfare"? Really? You just look foolish when you use overblown rhetoric like that. So the middle-class wasn't handed a giant present (that they don't badly need, anyway) and the wealthy are expected to pull their weight a bit more. This is reasonable government, not "class warfare".

        Date and time
        May 09, 2012, 9:41AM
        • @ Alex

          Re: 'The wealthy are expected to pull their weight a bit more'...

          On the ATO website, people on taxable incomes of $1 million, will pay tax this financial year of $423,550 and a medicare levy surcharge of an additional $15,000.

          The average taxable wage of $50,000 pays $8,600 including the medicare levy.

          Does that person on $1 million use more roads, more hospitals, more public schools? Do they go on welfare, take unemployment benefits? No - they are not likely to be taking unemployment benefits, family tax benefits, single parent benefits, the pension. They probably have private healthcare and send their children to private schools.

          A conclusion based on reality would be that they are actually pulling everyone else.

          Even if their tax rate dropped to 10% , they would be contributing 4 times as much to services that they use less of, than the average wage paying a tax rate of %50.

          Date and time
          May 09, 2012, 10:48AM
        • Well I'm middle class and I certainly don't feel wealthy, I don't spend much on anything, I don't have any savings and I don't have much in my pocket when I put my hand in there. Probably because the governments hand was in there first. Having worked hard all my life I'm sick of being the punching bag for anybody wanting to justify increased welfare dependancy and the "bank" for any government looking to shore up its support base with handouts

          Date and time
          May 09, 2012, 12:22PM
        • Ironbark
          The few people I know earning $1M + pay $0 tax as the trust fund and avoidances take care of the rest.
          Sorry but MIDDLE CLASS pave the way for income streams to the government.
          Go figure.

          Date and time
          May 09, 2012, 12:58PM
        • @Ironbark
          What you fail to realise is that they more than likely made their money off the labour of others.

          They probably drive a lot more and pollute with their large uneconomical cars (and multiple's of).

          Also their 'private' health care is underpinned by a public system as is the education for their kids.

          So, yeah, the rich should pay more.

          What is funny/sad is that the rich will bleat hysterically when the crime rate increases due to increasing economic inequality but won't contribute one iota to prevent it all in the first place.

          Date and time
          May 09, 2012, 3:26PM
        • Reminds me of an article I saw recently where the US Unions were going on about the "1%" paying their fair share and how bad it was for the common worker. One researcher checked the amounts paid to unions officials (not the HSU but US unions) and found that many of them were in the "1%".
          We cannot do that in Australia because the Industry funds do not say how much they pay their board members or senior executives nor is it easy to find for the Unions per se despite the ACTU complaining about excessive private sector pay. Well we know that the HSU allegedly paid enough for their senior execs to be in the top 0.5% before other entiltiements (?) were accessed.
          Perhaps Fair Go Australia shhould be the new name for a regulatory body half staffed by the public service and half staffed by private sector secondments - now that would be an interesting workplace regulatory body!

          Reality hurts, so do the facts
          Date and time
          May 09, 2012, 4:31PM

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