Coalition governments have been big taxers and big spenders. And now the present government’s post-pandemic sugar hit on the economy is running out.
To kick off the third week of the election campaign, Prime Minister Morrison on Sunday released his Lower Tax Guarantee. The problem is his own budget papers confirm a re-elected Morrison government would challenge the Howard government as the highest-taxing government in Australia’s history.
Through the operation of bracket creep – where workers’ tax liabilities rise as inflation takes them into higher tax brackets even when their real wages don’t increase – the budget will increase tax on workers.
With Scott Morrison, it’s best to take notice not of what he says but of what he does.
A McKell Institute analysis of the budget papers examines the performance of every government since the Whitlam government on three indicators: tax receipts, government spending and government debt, all as a percentage of GDP.
To be more than fair to the Coalition, the analysis excludes the period of the Morrison government’s exceptionally high spending during the COVID-19 pandemic but includes the period of spending of the previous Labor government in response to the Global Financial Crisis.
It might surprise that the Howard government is the highest-taxing government in Australia’s history, averaging 23.4 per cent of GDP. But the budget’s historical statistics don’t lie. Howard’s tax take was far above the tax receipts of the Rudd and Gillard governments, which averaged 21.3 per cent of GDP.
If the Morrison government is re-elected, its own budget papers forecast its taxes to collect 22.7 per cent of GDP, nudging the Howard government’s 23.4 per cent of GDP for the gold medal of taxation.
If re-elected, the Morrison government will need the extra tax take to pay for its record spending, which is forecast to reach 26.8 per cent of GDP – making it by far the biggest spending government in Australia’s history.
And a re-elected Morrison government’s net Commonwealth debt – at 33.1 per cent of GDP – would be three times the size of the previous Labor government’s debt level, which the Coalition described as a disaster.
Of course, the pandemic funding has triggered a lot of debt. But the Morrison government had almost doubled net debt even before COVID-19 struck.
In a campaign advertisement that went to air on Sunday the Morrison government claims the Liberals have delivered 11 balanced budgets in the last 30 years. It fails to mention that they were all delivered by the Howard government.
Talk about riding on the coat tails of your predecessors.
Lest it be argued that the extra spending will be funded by a growing economy, these numbers are expressed as a percentage of GDP. If they rise, they are rising faster than GDP, so that excuse doesn’t hold.
Indeed, the Morrison government has been chortling about the economic recovery now underway, claiming it’s among the strongest recoveries in the world.
Yet its own budget papers contradict this claim. A table of international economic growth forecasts puts Australia’s GDP growth in 2023, just months away, at a paltry 2 per cent. In comparison, the global economy is forecast to grow at almost twice that rate and our major trading partners at more than double the Australian growth rate.
These forecasts tell a tale of sugar. In response to the pandemic, the Morrison government pumped hundreds of billions of dollars into the economy through massive budget deficits.
But the sugar is running out and the Morrison government has undertaken no economic reforms.
Moreover, the budget papers forecast a decline in real wages that won’t be arrested until 2025.
When the sugar runs out the economy will slump. Australians will be left with record debt, higher taxes and falling real wages.
The Coalition can release all the guarantees of lower taxes and a stronger economy it likes, but its own budget forecasts tell an entirely different and much bleaker story.
Craig Emerson is managing director of Emerson Economics. He is director of the APEC Study Centre at RMIT University, visiting fellow at the ANU and adjunct professor at Victoria University’s College of Business.