The Turnbull Government can keep Australia’s AAA credit rating or it can keep its $50 billion big business tax cut – but it can’t keep both, writes Shadow Finance Minister Jim Chalmers.
Wilful ignorance is a powerful state of mind that triggers some pretty absurd behaviour.
It stops someone with worrying symptoms from visiting a doctor; it allows a shopaholic drowning in credit card debt to justify buying a new outfit; it makes a cash-strapped uni student ignore the worrying rattling sound coming from their overworked and underserviced 1974 Datsun 180B.
Wilful ignorance could even see a Federal Treasurer like Scott Morrison blame Labor for the worst set of economic data since the Global Financial Crisis: an economy shrinking; full-time jobs disappearing; and a deteriorating national bottom line.
It could even cause him to stick with a $50 billion ram raid on his Budget – a gift to big multinational corporations with little economic upside – when his country’s prized AAA credit rating is at risk.
Morrison knows a credit rating downgrade is a real chance. But whether it’s wilful ignorance, or stubbornness, or just garden variety incompetence, he insists a $50 billion tax cut for big banks and multinationals is affordable.
That’s despite ratings agency Standard & Poor’s warning in July of a possible downgrade if the Government doesn’t address its Budget mess.
Given the Coalition’s fiscal record, it’s no wonder S&P is circling and other agencies have voiced concerns.
Net debt has blown out by over $100 billion since the 2013 election and is rising.
This year’s projected deficit has tripled since the Government’s disastrous 2014 Budget, while last financial year’s deficit is a whopping eight times higher than when the Coalition took office.
Deloitte Access Economics, in its recent Budget Monitor, expects accumulated deficits to blow out by a further $24 billion over the forward estimates.
If the Government does stick to its projected surplus in 2020-21 it shouldn’t expect plaudits for it; not when dramatically improving coal and iron ore prices are pushing up the terms or trade and taking away the Coalition’s usual excuses.
Already the Government has presided over just the fourth negative quarter of growth in 25 years – and the first explained by incompetence rather than an identifiable cause like the introduction of the GST (2000); the GFC (2008); or the Queensland floods (2011).
If nothing else, the consequences of losing our hard-won credit rating should make Morrison, Malcolm Turnbull and Mathias Cormann sit up and take notice.
PwC recently warned that, beyond an initial $1.1 billion direct economic impact, a potential cascading effect would trigger a far more damaging collapse in consumer and business confidence.
Confidence is already at worrying levels, the economy is shrinking, and more Australians than ever can’t get enough hours at work.
But probably most concerning is how hard family budgets would be smashed.
Economists, including NAB’s Alan Oster, predict wholesale funding costs could rise by up to 20 basis points, which would push up mortgage repayments.
As a general rule of thumb, a 20 basis point increase on an average home loan of $360,000 would see interest payments rise by about $720 a year.
That’s a high price to pay for the Coalition’s incompetence.
Instead of listening to the blaring warning sirens, Turnbull and his ministers are covering their ears and looking for someone – anyone – else to blame.
But if our AAA credit rating is lost, it will be their fault. They are choosing to push on with their $50 billion tax gift to multinationals – the single biggest hit to the Budget from the last election campaign – when they know it jeopardises our credit rating.
That big tax cut is something Australia can’t afford, especially when it risks things we can’t afford to lose, like Medicare, needs-based school funding, a decent social safety net and the AAA.
It’s frustrating to see this pigheadedness play out, given how hard Labor worked in office to secure the top-notch rating from all three major international ratings agencies for the first time ever and during the sharpest synchronized global downturn since the Great Depression.
We’ve demonstrated our bona fides when it comes to the AAA credit rating and, for that matter, on Budget repair. We’ve led the way in things like securing fair savings measures in Parliament, superannuation, the tobacco excise and VET FEE-HELP.
If the Turnbull Government was serious about protecting our AAA rating, it would adopt sensible tax measures Labor has proposed – like changes to negative gearing, which even the NSW Liberal Government supports – and capital gains.
Australia needs growth that is inclusive; work that is rewarded and a safety net for those left behind. Budgets are crucial in delivering the things we value as a nation.
In next week’s mid-year update, the Treasurer should admit he’s failed on jobs and growth, ditch his big business tax cut, and protect the AAA credit rating.
This opinion piece was first published by the Chifley Research Centre on Tuesday, 13 December 2016.