Inside Story

Current affairs & culture from Australia and beyond.

2129 words

Growth and jobs: nice slogan, but…

4 June 2016

The Coalition has a problem at the core of its campaign, says Tim Colebatch. And it reflects a hackneyed view of voters

Right:

Underestimating voters? Prime minister Malcolm Turnbull (left) with education minister Simon Birmingham during a visit last Monday to McCarthy Catholic College in western Sydney, where he announced funding to link students with science and technology jobs. Tracey Nearmy/AAP Image

Underestimating voters? Prime minister Malcolm Turnbull (left) with education minister Simon Birmingham during a visit last Monday to McCarthy Catholic College in western Sydney, where he announced funding to link students with science and technology jobs. Tracey Nearmy/AAP Image

No one in this world… has ever lost money by underestimating the intelligence of the great masses of the plain people. Nor has anyone ever lost public office thereby.
H.L. Mencken, 1926


Scare campaigns sometimes work, sometimes don’t. They worked for Paul Keating in 1993 when he demonised a GST, yet not for Kim Beazley when he tried the same trick in 1998. They helped give Tony Abbott a landslide victory in 2013, yet so far the opinion polls are showing no sign that they have done any good for Malcolm Turnbull.

At the halfway mark of this campaign, the polls are, if anything, continuing a slow drift towards Labor. On average, they have Labor marginally ahead, 5149, which puts the election on a knife edge. Yet oddly, as the polls drift towards Labor, the punters are drifting towards the Coalition, which Sportsbet now has at almost 31 on.

In the first half of the campaign, we’ve seen nothing decisive. It’s been like one of those soccer games where the ball has been kicked a lot, often out of bounds. Some passes have connected, some have been intercepted by the other side. There’s been a lot of physical contact, but the only player carted off the ground so far has been David Feeney. And the score at half-time is nil-all.

Perhaps this will be one of those games where the goals are scored in the final minutes. Or perhaps neither side will score at all.

Neither ever looked like scoring in Sunday night’s debate. If it is true, as has been reported, that 880,000 people tuned in when the debate began but only 93,000 were still watching when it ended, then we should be commended for good judgement. Malcolm Turnbull and Bill Shorten are intelligent people, but they assume that most Australians aren’t. The decision of viewers to switch off proves them wrong.

I’m with the pollsters, not the punters; I think this election is wide open. One of the signs is that Turnbull is not campaigning as his normal self. The smartest man in the room, a natural communicator with a persuasive fluency, is resorting to endlessly repeating propaganda points and three-word slogans, as we (those of us who felt professionally obliged to watch it) saw in the debate. And this week, he and Scott Morrison launched the latest in a series of scare campaigns that seem to assume that the average Australian voter is too dumb to recognise them as such.

The first scare campaign was his frightening depiction of the darkness that would descend on the land if Labor were elected and carried out its plan to shut the door on negative gearing. According to the PM, all rental investment would cease. That would send the value of our homes crashing. Then the whole economy would go into recession. Subsequent polling suggests that, for some reason, Australians didn’t take him seriously.

The second scare campaign came this week. Bill Shorten, the PM tells us, has declared “war on business”. The sound bites are obviously well rehearsed, and come out much the same at every event. Here he is at a mattress factory in Sydney on Thursday:

Let me say this to you. Bill Shorten has declared war on business. He’s declared war on the family businesses of Australia. He is denying them the tax relief that in the past he himself has said they deserve. And in the past Labor governments have delivered. This is a change; this is a dramatic move to the left. This is the most anti-business Labor leader we have seen in a very long time. He’s more anti-business than even he used to be in the past. Now the reality is that Bill Shorten has declared war on business and the first casualties are jobs. The first casualties of Shorten’s war on business are Australian jobs.

At a press conference with Scott Morrison the day before, we heard a bit more argument, but the same three-word slogan:

Our opponents in the Labor Party and the Greens everything they propose is going to reduce investment. And that is an objective fact. If you want less of something, you increase the tax on it. They are increasing taxes on investment right across the board. They’re increasing income tax. They’re refusing to cut company taxes even for businesses with turnovers of less than $10 million a year. They’re waging a war against business. A war against the business men and women of Australia, whether they are family businesses in traditional industries or whether they are the young entrepreneurs I was with today. They’re waging war on business and the casualty of that war is jobs.

Turnbull appears to be referring to Labor’s policies to reduce the tax breaks for capital gains and negative gearing, to limit company tax cuts to small businesses with an annual turnover of less than $2 million, and to retain the 47 per cent top marginal tax rate on incomes over $180,000 when the two-year “deficit levy” expires on 1 July.

That amounts to a “war on business”? You would think a party wanting to make war on business could come up with better weapons and ammo than that. If Labor really wants to make war on business, why not scrap dividend imputation, end the various tax breaks for fuel (as the International Monetary Fund has repeatedly urged), tax family trusts on a level playing field with companies, and even spark a global debate on whether it is time to end companies’ ability to deduct interest bills from tax.

And if you wanted to wage a war on business, surely you could come up with a more likely leader than Bill Shorten. Love him or loathe him, the guy has been a leader of the Labor right in Victoria for decades. He has many old enemies in the left of the party. Just last year the royal commission into unions tried hard to prove that he had sold out the interests of his workers because, as a union leader, he grew too close to business. Shorten wouldn’t be your first choice as the general in a war on business.

It reminds me of Malcolm Fraser telling us during the 1983 campaign that if Bob Hawke became prime minister we should keep our savings under our beds, because they wouldn’t be safe in the banks. People just laughed at him, particularly after Hawke shot back: “You couldn’t put them under your bed, because that’s where the commies are!”

A good scare campaign needs to have a credible basis. The Coalition’s media allies in the Australian and the editorials in the Financial Review have been trying to provide one by attacking Labor for not having a “plan for growth” (another three-word slogan!). That’s true, but nor did any other opposition I can recall, apart from a bloke named John Hewson in 1993, and Australians weren’t convinced by his plan. Parties create plans for growth when they’re in government, where they have the benefit of all the expert advice that is denied them in opposition.


Part of the problem is that the government’s “plan for growth” is itself not particularly credible. Labor’s shadow assistant treasurer Andrew Leigh, formerly an economics professor at the Australian National University, made a formidable case against the plan to cut company tax in an article on Thursday. It came in the midst of a busy week for Leigh in which he also hit back at the Australian columnist Henry Ergas on why competition policy matters, made a powerful defence of Labor’s planned reforms to negative gearing at the Tax Institute, and went from state to state campaigning for Labor. You wish the Liberals had someone who could argue a case as cogently and intelligently as Leigh does.

There is a widespread consensus among economists that lower company taxes attract investment, which is good for growth. But the gains are long-term, and marginal, and the costs are short-term, and heavy. Treasury’s estimate that the tax cut would cost the budget $48 billion over the first ten years severely understates its real cost. That doesn’t begin until year eleven, 2026–27, when the tax rate would be cut to 25 per cent for the banks and the other big companies that actually pay most of the company tax haul. Simple arithmetic tells you it will cost the budget at least $10 billion a year.

And who would gain? Australia’s unusual system of dividend imputation means profits made in Australia by local companies and distributed as dividends to local shareholders are effectively untaxed at the company level (since the tax is assumed to be paid by shareholders). That accounts for about a third of profits, which means that our effective company tax rate after imputation, on average, is more like 20 per cent. Dividend imputation means that, as Turnbull’s old firm Goldman Sachs has estimated, the main beneficiaries of a company tax cut would be foreign shareholders. Treasury itself estimates the long-term benefit to Australian households as just 0.1 per cent of household income.

There would be other beneficiaries, but you get the drift. As the central pillar of the Coalition’s “plan for growth,” it’s a pretty small pillar, with nasty side effects for the budget. Naturally, business groups want it, but in my view Shorten is right when he argues that it is something you do when you can afford it – not when you are grappling with a budget deficit that’s as large now as when the Coalition took office. That deficit could cost Australia its AAA credit rating (making money more expensive for anyone to borrow) should we run into any of several potential crises: a housing bust, serious troubles in China or another collapse on global financial markets.

(For the same reason, of course, it is equally essential that Labor does not spend all the money its tax hikes raise, but uses part of it to reduce the deficit, in the short and the long term – even if it means postponing part of its spending plans.)

The rest of the Coalition’s plan for “growth and jobs” would take us in the right direction, but not at a pace that would make us feel the difference. Tackling sophisticated tax avoidance is a long-term project, necessary but costly, and requires endless court battles designed to take back whatever ground you have gained. The government’s focus on innovation is welcome, but some experts point out that the gains are long-term, and the policy design appears to ignore empirical research on what actually works.

One big difference between the Coalition and Labor is that Turnbull is serious about taking on the CFMEU and the other construction unions to try to reduce the excessive cost of building infrastructure in Australia, whereas Shorten and Labor have squibbed the issue. One can only assume it is because those unions are a significant source of Labor’s funding.

But the cost of paying grossly excessive wages and conditions to the construction workforce is that buildings and infrastructure don’t get built – because we can’t afford them. The CFMEU is the reincarnation of Norm Gallagher’s old Builders Labourers Federation, which operated in similarly destructive style and was eventually shut down by a Labor prime minister, Bob Hawke, and a Labor premier of Victoria, John Cain. We need Labor leaders with the same courage and principle now that the BLF has been reborn.

Scare campaigns often fail. In 2013 the Daily Telegraph spent a lot of ink on words and illustrations to attack Labor on its front page day after day in crude propagandist style. The campaign was a flop; the paper’s heartland of western Sydney saw the smallest swings to the Coalition anywhere in Australia, because its readers recognised the bias. Similarly in Melbourne, readers of the Herald Sun ignored its screaming front-page attacks on Labor leader Daniel Andrews – “Don’t Trust Him!” – to elect him as premier. The Courier-Mail had no more success in scaring Queenslanders into re-electing Campbell Newman.

Scare campaigns suited Tony Abbott's warrior mentality, but they don’t fit with Malcolm Turnbull. While Australians will take more notice of the election as it draws closer, you might wonder why he is campaigning this way – and whether Mencken’s cynical quip in 1926 still holds true ninety years later. •

Read next

3502 words

Britain’s Brexit blues

3 June 2016

The duel over Britain’s place in Europe is a feast of acrimony, says David Hayes in London

Right:

Contrasts: British prime minister David Cameron (right) with London’s Labour mayor Sadiq Khan at the launch of the Remain campaign’s battle bus at the University of Roehampton in London on 30 May. Facundo Arrizabalaga/EPA/Pool

Contrasts: British prime minister David Cameron (right) with London’s Labour mayor Sadiq Khan at the launch of the Remain campaign’s battle bus at the University of Roehampton in London on 30 May. Facundo Arrizabalaga/EPA/Pool