Wednesday, June 29, 2016

Parties' similarities and differences on economics

I get criticised by rusted-on supporters of both sides of politics when I say this, but that doesn't stop it being true: there are differences between the two sides' policies, but they're not as great as they want us to believe (and their supporters do believe).

So let's identify the main points of agreement and disagreement. Most argument in election campaigns is about economic issues, with much less disagreement on other issues.

On economic management the parties are agreed on the issue which, though it's rarely acknowledged by either side, is by far the most significant: that the day-to-day management of the economy be left to the Reserve Bank, acting independently of the elected government.

That just leaves the government in control of its budget, which does have effects on the economy in the short and longer term but, because it's all the pollies have left to argue over, gets more attention than it deserves.

On getting the budget back into surplus – and so getting the level of public debt falling rather than continuing to rise – there's little to choose from. The Coalition isn't in any hurry, and nor is Labor.

Malcolm Turnbull says his policies won't have the budget back to surplus until 2020-21, after which the surplus will stay tiny.

Bill Shorten's plans say he will get back to surplus in the same year, though he'd spend an extra $16.5 billion over the four years, but then add an extra $27 billion to the surplus in the following years to 2026-27.

(You can say who knows what will happen in four years' time, let alone 10. True. But remember this applies equally to both sides' figuring. All we can do is focus on the estimated effects of the measures each side promises to take.)

The main differences between Labor and the Coalition occur because Labor would not proceed with the government's planned cuts to spending on education and health while, on the other hand, it would continue the 2 per cent "deficit levy" on income above $180,000 a year but wouldn't proceed with the government's planned cut in company tax.

It's because the cost of the company tax cut grows strongly in the later years, as do the savings from Labor's plan to "grandfather" its limits on negative gearing and the capital gains tax discount, that Labor's budget plan would take so long to improve the budget balance.

It's clear from this that when the Liberals accuse Labor of being into "spending and taxing" it is guilty as charged.

The harder question is whether government spending and taxes would be all that much lower under the Coalition. If so, it won't be by as much as it would have us believe.

It's not clear, for instance, that the Coalition will have the political courage to press on with the cuts in grants to the states for public hospitals and schools that are built into its budget figures.

The main difference is likely to be in the categories of spending that grow faster or slower under each side, and in the types of taxes and tax concessions that are cut or increased.

For instance, it's clear to me that the high cost of cutting the rate of company tax will have to be covered by more bracket creep and fewer income tax cuts.

On particular tax promises, though both sides are promising cuts to superannuation tax concessions, the Coalition's plans are clearly superior, whereas Labor's plan on negative gearing is far more attractive to young would-be home buyers.

The public's conviction that the Coalition is the better manager of the economy seems to roll on regardless of evidence. In truth, it's not supported by the record. Both sides have had their achievements and their stuff-ups.

Economic threats don't come bigger than climate change. Here, both sides' plans fall short. The Coalition has announced no credible plan to achieve the commitments it made in Paris which, in any event, were inadequate.

Labor is braver, but not by much. It plans a hugely ambitious target for growth in renewable energy, but doesn't show how it will be achieved. It plans a quite innocuous emissions trading scheme.

Both sides descend to dishonest scare campaigns. Both sides have previously supported policies they now vociferously oppose. Both may oppose policies simply because the other side supports them.

In some cases their disagreement is greater than they want to admit (penalty rates, for instance), whereas in others they disagree more in words than deeds (foreign aid; the national broadband network).

One rule-of-thumb that still works is that, in their decisions about spending and taxing, the Coalition will tend to favour business and higher income-earners, whereas Labor will tend to favour "middle-class and working-class Australians". Take your pick.