Thursday, May 24, 2018

How Turnbull can back down on company tax, 'obviously'

How do you walk away from something to which you’ve committed your soul? You say things have changed, “obviously”.

It’s how marriages end in divorce, how deputies abandon their prime ministers and how Labor treasurer Wayne Swan quietly but spectacularly abandoned his absolute commitment to a budget surplus in late 2012.

He had been holding the line for half a decade, promising in his first budget “the largest surplus as a share of GDP in nearly a decade”, and then in his second, after the surplus evaporated during the financial crisis, “hard choices that chart the course back to surplus”.

In his third it was a “return to surplus in three years' time, three years ahead of schedule, and ahead of every major advanced economy”.

In his fourth it was an upgraded surplus, “back in the black by 2012‑13, on time, as promised”.

And then in his fifth, an even grander pledge: “Madam Deputy Speaker, the four years of surpluses I announce tonight are a powerful endorsement of the strength of our economy, resilience of our people, and success of our policies.

“This budget delivers a surplus this coming year, on time, as promised, and surpluses each year after that, strengthening over time. The deficit years of the global recession are behind us, the surplus years are here.”

Along the way he contorted language to avoid even conceding the possibility that he would never deliver a surplus.

“Let me hear in plain English that the budget is within a hair’s breadth of going into deficit,” the ABC’s Kerry O’Brien asked him as the financial crisis gathered pace. “It seems silly to me that anybody would bother to argue that proposition. Will you accept going into deficit, if you have to, to maintain appropriate stimulus of the economy under the threat of recession and high unemployment?”

Swan: “Kerry, it would be silly to speculate along the lines of your question.”

O’Brien: “Why?”

Swan: “Because I've made it clear. We are projecting modest growth and modest surpluses, but if the situation were to deteriorate significantly it would have an impact on our surpluses and it may well be the case that we could end up in the area that you're speculating about.

O’Brien: “Well, say it. In deficit.”

Swan: “I am not going to say it because we're projecting modest surpluses.”

Incredibly, in October 2012, a year before Labor lost office and four months into the financial year that was meant to deliver the continually forecast surplus, the mid-year budget update still penciled one in, albeit assisted by fancy accounting tricks. It was “absolutely appropriate to stick with our surplus objective”, Swan told reporters.

Until December 20, days before Christmas, at which point Swan opened a press conference expressing dismay that the October tax receipts had been well below forecasts.

“Obviously, dramatically lower tax revenue now makes it unlikely that there will be a surplus in 2012-13,” he intoned, as if he had been caught unawares. “A sledgehammer hit our revenues.”

I’ve retold that story to make it clear that even the most unlikely backdowns are easy for politicians, even after repeated declarations of undying fidelity.

All through the on-again off-again negotiations with senators over the company tax cuts, Malcolm Turnbull has maintained that he is “absolutely” committed to the remaining $35.6 billion, and, if necessary, will take them to the next election.

“The Prime Minister did not leave any wiggle room at all,” said his chief negotiator, Mathias Cormann, in February at an earlier time when it looked as if hope had been lost. “We are completely and utterly committed to our business tax cuts. They were very necessary at the last election, we took them to the last election. They will be even more important by the time of the next election. If the Senate were not to pass these very important business tax cuts, yes, we will fight for them at the next election.”

No wiggle room.

Until a moment of zen on Tuesday after Pauline Hanson had what is probably her fourth change of heart.

“We might not ever get to that point,” Cormann said when asked if the company tax cuts might ever get through the Senate. He repeated, for emphasis: “It might well be that we won’t ever get there.”

Cormann insists that he wasn’t paving the way for a last-minute backdown, but if it happened, just before the election, the lines would be delivered without shame, as were Swan’s when the economy and his government headed south. Things would have changed, “obviously”. Cormann would have $35.6 billion more to offer in real tax cuts - income tax cuts - to people who vote.

And probably much more. The Coalition won’t reveal the updated 10-year budget cost of its company tax cuts because it doesn’t want Labor to know how much it will have to offer that it can’t.

Like Labor, it could promise to revisit its company tax cuts later, when the budget and the Senate permitted.

It’d be acknowledging reality, shamefacedly, and promising more to voters now, rather than years down the track when the small and uncertain impact of uncertain company tax cuts worked its way through the system.

In The Age and Sydney Morning Herald