Coalition's campaign and policy: mind the gap

May 18, 2011

THE chasm between policy and the Coalition's campaign against the carbon tax is becoming wider by the day.

Tony Abbott and his climate spokesman Greg Hunt seized on a report in yesterday's Herald citing advice to the government that a carbon price would have to rise relatively quickly to $40 a tonne to force a switch from coal-fired to gas-fired baseload electricity.

''What we now know from the secret report is it's going to require a massive increase in the cost of living before there's any impact [on emissions] at all under the Gillard model,'' Hunt said.
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In fact, views in the market differ about the price needed for an investment switch, but what we know for sure is that under the Coalition's ''Direct Action'' plan there would be no signal to any power company in the country to change anything they do in any way, except for a single brown coal-fired station, which would be paid to shut and switch to gas - at a cost to taxpayers of about $3 billion over the next decade.

A Deloitte report says that leaving investors up in the air until the end of the decade will add another $2 billion a year to the nation's power bills because of such investment uncertainty.

What we also know is that Abbott's scary numbers are almost certainly off the mark.

Abbott calculates the power price hit on his business backdrop of the day, by adding between 20 and 25 per cent to their power bills - presumably based on modelling for the Rudd government's emissions trading scheme that forecast a 19 per cent increase over the first two years.

But since 2008 massive increases in network power costs have changed the impact of a carbon price on total power bills. Preliminary Treasury modelling suggests a $25 carbon price would push up power prices by 12 per cent. The NSW Independent Pricing and Regulatory Tribunal suggests an impact of about 11.5 per cent.

And Abbott never mentions that those businesses that are not trade exposed - like the butchers and grocery stores that he has been visiting - can pass on costs to their customers, many of whom will be receiving government compensation.

Yesterday Abbott was visiting a business that is trade exposed - a Ford car plant in Geelong - where he said the carbon tax ''could add'' $84 million to the industry's costs.

That, according to the Opposition Leader, would be ''the nail in the coffin of the motor manufacturing industry in this country that spells disaster for Australia as a First World economy''.

He did not mention that in January he promised to cut $500 million from government assistance that car makers have already factored in to the budgets of their existing operations. Or what effect that would have on either the businesses or Australia's First World status.

Tough love or kindness - a taxing dilemma

May 18, 2011

Australia's strong history of means tested welfare is going through a political inversion, Ross Gittins explains.

Something very important is at stake in this year's budget and the opposition's response to it: the shape of Australia's welfare state. Will it continue to be needs-based, or will we progressively make benefits universal - available to everyone regardless of income?

Historically, people on the conservative side of politics have strongly supported means-tested benefits, whereas people on the left have been attracted to the idea of universally available benefits, thus removing the ''stigma'' attached to the receipt of benefits.

These days, however, we're witnessing a strange role reversal where the Liberals move away from needs-based benefits and Labor seeks to return to them.

Our means-tested welfare system is an inheritance from the Menzies era. The Whitlam government introduced universal health benefits in the shape of Medibank and began phasing in a non-means-tested age pension. The Fraser government was conflicted: it dismantled Medibank and restored a watered-down means test, but introduced a more generous, non-means-tested family allowance.

The Hawke-Keating government restored Medibank as Medicare, but put a lot of effort into tightening up means-testing, imposing it on the family allowance and making considerable savings to the budget.

Then came John Howard, the great disciple of Menzies, who spent all his 11 years introducing what economists have come to disparage as ''middle-class welfare''. He introduced an only lightly means-tested family tax benefit, repeatedly increasing it. He added an extra benefit for single-income families - Part B - which was means-tested only to the extent that mothers who did any paid work were rendered ineligible.

He inherited the means-tested childcare benefit but, rather than abolishing it, he added the non-means-tested 30 per cent childcare tax rebate on top. So whereas the first measure carefully excluded better-off families, the second brought them back onto the public teat.

He did something similar for the self-proclaimed ''self-funded retirees''. Older people judged too comfortably off to receive the age pension were given a special senior Australians tax rebate and a seniors health card that entitled them to pay what pensioners pay for pharmaceuticals, $5.60 a pop, rather than the $34.20 even the poorest working family pays.

Perhaps the biggest move in the direction of middle-class welfare was the decision to make superannuation payments tax-free for people 60 or older. Before, how much income tax you paid was a function of the size of your income; now it's also a function of your age. Old comfortables don't pay it, young strugglers do.

Rather than introducing paid maternity leave, Howard brought in the baby bonus, payable without means-testing to women who hadn't been in paid work as well as those who had.

He introduced a non-means-tested 30 per cent tax rebate on private health insurance and changed the formula for grants to private schools in a way that produced winners and losers, then let the losers keep the extra to which they weren't entitled.

The Rudd-Gillard government has been under continuous pressure from economists to roll back Howard's middle-class welfare. One of its first acts went the other way: fulfilling an ill-judged election promise, it increased the childcare tax rebate from 30 per cent to 50 per cent. It has also kept a promise not to change the winners-but-no-losers formula for grants to private schools. But most of its other actions have gone in the Hawke-Keating direction of tightening up means-testing. It imposed a cut-off of $150,000 a year on eligibility for the family tax benefit Parts A and B, the baby bonus, tax rebates for dependants and soon the paid parental leave payment.

The $150,000 a year sometimes applies to a couple's combined income, but often it applies just to income of the ''primary earner''. To avoid adding to the problem of high effective marginal tax rates (where the rate of gradual withdrawal of a benefit as income rises adds on to the rate of tax on the additional income), it's a ''sudden-death cut-off'': on $150,000 you get the benefit, on $150,001 you don't. Because of the sudden-death nature of the cut-off, it was set at a very high level. Even today, only about the top 17 per cent of households have pre-tax incomes of more than $150,000. And only the top 4 per cent of individuals earn more than $150,000. Arithmetically, there's no way people on these incomes can be said to be in the middle; they aren't rich as James Packer is rich, but they are undoubtedly high income-earners.

The $150,000 hasn't been indexed for inflation since it was announced in 2008 and the decision last week was to leave it unindexed until July 2014. This means the level of the cut-off is actually falling in real terms, removing more people from receiving the benefit as the years pass. The budget's other main move to reduce benefits to the comfortably off was the decision to phase out the tax rebate for dependent spouses under 40 and without children.

Tony Abbott and the Liberals have attacked these measures, condemning them as ''class warfare'' and ''the politics of envy''. Abbott has yet to say...

Another thread focussing on the Opposition leader rather than on the Government.
Tony must be doing his job.

It isn't very democratic when the leader of the minority government, and the deputy leader, both blatantly lied, and didn't allow the people to vote on it. At least when Howard lied, he gave us an election, thereby making his lie acceptable. I consider it more him changing his mind, than lying, because he had the decency to let us vote on it.

sir prince duke alevine wrote on May 19^th, 2011 at 2:16pm:


It isn't very democratic when the leader of the minority government, and the deputy leader, both blatantly lied, and didn't allow the people to vote on it. At least when Howard lied, he gave us an election, thereby making his lie acceptable. I consider it more him changing his mind, than lying, because he had the decency to let us vote on it.