Flat White

Shorten’s mandate theory falls short

25 August 2016

1:32 PM

25 August 2016

1:32 PM

One thing about close election results is that they give rise to a lot of waffle about mandates. The Labor opposition has brought something new to this debate with what we might call the Shorten theory of the mandate, which goes something like this: if you lose the election but almost win, your entitlement is to share power with the side that won but almost lost.

One recent manifestation of Shorten’s strategy of governing from opposition is his demand that the elected government – having vehemently opposed his policies on negative gearing and capital gains tax in the election campaign – should now adopt them in exchange for his agreement to rescue some of the government’s stranded spending cuts.

Assuming the government’s bare lower house majority holds, the success or failure of Shorten’s strategy will depend not on its merits as a contribution to political science (not that I can think of any) but on how the numbers line up bill-by-bill in the Senate. Even then, the Senate can’t force the government into legislation it doesn’t want; it can only block legislation the government does want.

If there is a complete stand-off, this parliament will do very little other than pass appropriation bills, which may not be a bad thing in normal times. A parliament that passes very little legislation would make a refreshing change from the days when the success of the Gillard minority government was gauged by the number of bills passed.

However, these are not normal times. There is a gaping budget deficit that needs to be dealt with, and that requires legislation — which brings us to Labor’s tax policies. Turnbull would be nuts to fall for Shorten’s power-sharing pact. Labor’s tax policies (and the coalition’s, to a lesser extent) fit the popular narrative that says the budget deficit is all the fault of rich people and companies that don’t pay enough tax because they have too many opportunities to avoid it through negative gearing, capital gains, superannuation and multinational hamky-panky.

At this point I could write a great deal about the principles of taxation that support negative gearing, the capital gains discount and so on (in fact I have, in Right or Rort? Dissecting Australia’s Tax Concessions), but today let’s just look at how the above narrative is undermined by simple arithmetic. Rich people and companies are already paying heaps of tax. In round numbers, the top 25% earn half of all taxable income but pay two-thirds of the tax. Companies, supposedly so busy avoiding tax, paid $65 billion of it last year.

Labor’s policies, if we can believe the numbers, would add $1.4 billion in 2019-20 from the clampdown on negative gearing and the 50% hike in capital gains tax and $0.6 billion from stiffening the government’s own crack-down on multinationals. That’s $2 billion, against a deficit currently running in excess of $30 billion. Oh, and they would add another $1.6 billion by cancelling the government’s ‘tax cut for millionaires’, aka the cessation next year of the misguided ‘budget repair levy’ above $180,000.

These are significant sums but don’t pose much of a threat to the deficit monster. In any case, Labor’s grand plan was not even to use the extra money to cut the deficit, but to increase spending by that amount and then some. Reducing the deficit had to wait until after 2020. Acceptance of that proposition required an extraordinary leap of faith in governmental discipline and consistency of which history makes a mockery.

The reality is that budget repair calls not for boutique tax increases but a couple of years’ hard slog rooting out wasteful and ineffective spending. But that would require legislation to implement it, the prospects for which right now do not look good.

Robert Carling is a Senior Fellow at the Centre for Independent Studies

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