Dealing with the zombies that haunt the Coalition's budget bottom line
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How many zombies must live?
This is not a question for movie night but one that will be keeping Treasurer Scott Morrison up late in coming weeks.
The zombies are those measures that have been haunting the Coalition's budget bottom line for the past three years, making the red seem, well, not so red.
It's a pea and thimble game that attempts to convince voters, the financial markets and the ratings agencies that all is in hand. Sort of.
To his credit, the Treasurer wants to present a more honest assessment of federal finances in the May budget.
Getting rid of zombie savings that don't have any hope of winning parliamentary approval is at the heart of this thinking.
But there are always limits to budgetary honesty insofar as it must be balanced against broader political interests.
Which brings us to the company tax cuts.
Ever since the Government unveiled its 10-year, $50 billion plan to slash the corporate tax rate to 25 per cent in last year's budget, there have been severe doubts as to whether it could be fully delivered.
The plan was seen as a critical step in defining Malcolm Turnbull's pitch for election. It certainly gave the Prime Minister a platform on which to begin that tortuous eight-week campaign.
Labor's nostrils picked up opportunistic scents from the grandly named "enterprise tax plan" and Bill Shorten immediately set about using it as a beachhead from which to attack the Prime Minister as an out-of-touch silvertail looking after his mates at the top end of town.
It was cynical but masterfully successful in shaping the public argument, evidenced by the fact that during the election campaign the PM sought to keep the focus on the benefits that would flow to small businesses.
Labor's campaign was hypocritical too. Go back seven years:
"Reducing company tax will create new jobs and grow the economy right around the country to the ultimate benefit of all Australians."
That was former Labor treasurer Wayne Swan talking about his plan to cut company income tax to 28 per cent.
Though significantly short of the 25 per cent recommended by an independent review committee chaired by then Treasury secretary Ken Henry, Mr Swan said the tax cuts would increase Australia's tax competitiveness tax rate and would increase long-run real GDP by 0.4 per cent.
Sounds horribly familiar, doesn't it?
But Labor abandoned its $4.8 billion company tax cut plan two years later after the Coalition rejected the proposition that the cuts would be funded by a mining tax.
The Gillard government instead increased Family Tax Benefit Part A, trebling the tax-free threshold to $18,200 and bonus payments for parents of schoolkids.
It was a drastic switcheroo of political priorities aimed at conjuring appreciation and support from Middle Australia.
Inside the Turnbull Government there are people who believe that the Prime Minister should attempt the same.
Let the zombies continue to roam?
As the Senate made clear this week, the company tax plan has no prospect of living in its entirety any time soon and the question for Government has been what to do with the remainder.
The ministry has been split on this question.
Some believe the Government should cut its losses and pursue other priorities rather than allow its tax plan to be conscripted to Bill Shorten's developing class war rhetoric, already fuelled by the dispute over Sunday penalty rates and this week's spat of the minimum wage.
They contend too that abandoning the rejected parts of the company tax cut plan would expose Labor's budget alternative because shadow treasurer Chris Bowen hypothecated spending on the basis of money that the Coalition set aside for tax cuts.
But the Prime Minister, perhaps motivated by a desire for his Government not to look weak-kneed at Senate intransigence, sought to end uncertainty a week ago, with his office briefing correspondents that Senate judgment this week would not be the end of the bigger plan.
In other words, the unlegislated remnants of the $50 billion plan would sit on the books as presumed spending all the way to 2026-27.
While this might satisfy a political imperative to have a long-term vision, it is a budgetary dead weight.
Which might help explain why Mr Morrison was less definitive when asked by 7.30's Leigh Sales on Thursday night whether the company tax cuts would remain coalition policy until the next election.
"The budget's in May and all of this will be clear then," was all Mr Morrison would say.
This brings us back to those dreaded zombie measures.
The only things that can offset zombie spending, such as unlegislated company tax cuts, are actual cuts or zombie savings.
By Labor's reckoning, the Budget goes backwards by about $10.7 billion over four years if zombie savings are ditched in Treasury calculations.
The Treasurer and Finance Minister Mathias Cormann will be able to make up some of that ground through changes to the Petroleum Resource Rent Tax and measures targeting the cash economy.
They will shy from negative gearing reform but might pursue a modest reduction to the 50 per cent capital gains tax discount, to 40 per cent for example which would be tolerated by the Property Council.
But in the absence of big — and achievable — savings in welfare and health, the temptation will be to let the zombies continue to roam.
Topics: budget, government-and-politics, tax, australia
