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Thursday, May 05, 2016

The more I look at Turnbull's budget, the more I like it

Malcolm Turnbull and Scott Morrison seem to have been guided by evidence. Tony Abbott and Joe Hockey cut back access to unemployment benefits and brought in work for the dole. Turnbull and Morrison have introduced "real work for the dole" and boosted payments to job seekers training for work.

Abbott and Hockey insisted that the wealthiest 1 per cent of Australians had the right to keep extraordinarily generous superannuation tax concessions that couldn't possibly be needed to encourage them to save, and that any attempt to wind them back would be retrospective. Turnbull and Morrison sought advice from experts and concluded that the very wealthy don't need assistance to save, and that there's nothing retrospective about imposing a tax rate of greater than zero on their returns from here on.

"You get to keep all your own money. It's your money, you earned it, good for you, congratulations," Morrison told the National Press Club in Canberra on Wednesday. "If you have more than $1.6 million in a superannuation account, you are in the top 1 per cent and you've worked hard to get there, that's fabulous.

"But $1.6 million is the limit, if you like, like a means test, on where you can access tax-free earnings in your retirement. From July 1 next year, there will be no more $5 million retirement income accounts receiving tax-free status. But it's their money, they earned it, they can put it wherever they like."

Turnbull and Morrison have taken ideas from the Henry tax review, the Murray committee of inquiry into the Australian tax system, the Grattan Institute, the Committee for Economic Development of Australia and just about every other inquiry into superannuation. And tested them.

Insiders report that Turnbull and Morrison's expenditure review process was different from Abbott and Hockey's. Whereas Abbott and Hockey latched on to ideas and went for them, the new team asked questions and tested answers.

For super the question was "what is its purpose?" The next question was "how do we most cheaply ensure that it does that and no more?" When an answer came back, it was rigorously tested and sent away for refinement in a process that seemed to go on forever. There weren't >many more Expenditure Review Committee meetings than for Abbott and Hockey's budgets, but they were conducted differently. It wasn't so much about "how can we pursue our agenda?" or "what can we get away with?" as "what's the best way of achieving these policy goals?" It made the process more difficult, and harder on the officials endlessly remodelling scenarios.

Like Labor, the government will cut the threshold at which high earners have to pay the Higher Income Superannuation Charge. It'll slip from $300,000 to $250,000. Like Labor, it'll tax the earnings of retirees with accounts worth more than $1.5 million ($1.6 million in its case). It's an incredibly light tax (15 per cent) and it'll hit the earnings of only part of the accounts of the top 1 per cent of retirees.

But it has established an important principle. As the Treasurer told the Press Club, "there's got to be a limit". The days of Peter Costello's pledge of tax-free earnings for all retirees are over.

The government has also gone further than Labor. It has imposed a $25,000 limit on the amount that anyone can have their employer pay into super each year, something that hurt only the top 3 per cent of earners, enjoying a salary more than large enough to enable them to save outside of super. And it will impose a very tight lifetime cap of $500,000 on the amounts that anyone can contribute to super over and above what their employers pay in.

Until now the cap has been $180,000 per year. That's not bad if you are excessively wealthy and want to lock away obscene amounts which will be taxed at a mere 15 per cent a year or zero in retirement. Labor had no plan to wind it back. The Coalition, in particular Scott Morrison, listened to the evidence and went where it led.

On work for the dole, it was the Treasurer and the Employment Minister Michaelia Cash who led the investigation: if the aim was to get young people into jobs, what was the most effective way of achieving it?

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The decision to cut the company tax rate came out of the same sort of process: if the aim was to boost economic growth, what would be the most certain way to achieve it?

Treasury modelling came up with a cut in company tax. Outside modellers, led by Janine Dixon and Jason Nassios of Victoria University, came up with new work which concluded that a cut in company tax would indeed boost the size of the economy, but it would shrink national income by sending money overseas.

The Treasury then responded, came up with its own estimates of the effect on national income (in the very long term it would boost it) and convinced the Expenditure Review Committee.

The point here isn't whether the Treasury or Victoria University was right. It's that the government sought and then re-sought evidence. Dixon says she is thrilled that the Treasury addressed her findings, even if it came to a different conclusion.

On international tax avoidance the committee shamelessly adopted the British government's plan, announced just weeks ago in its budget. It went further by giving Australia's poacher turned gamekeeper, Tax Commissioner Chris Jordan, an extra 1000 staff. They will be bright, expensive people with degrees in economics and data analytics. As with the commissioner, many will be poached from within the heart of the tax avoidance industry. It's legitimate to question how much avoided tax the measures will bring back home, but it's pretty clear that the government sought and adopted best-practice.

It's something I've seen rarely in all my time covering the Howard, Rudd, Gillard and Abbott budgets.

In The Age and Sydney Morning Herald