On tax, Morrison, Treasurer Josh Frydenberg and Finance Minister Mathias Cormann say there will be no increase to the tax burden and possibly no tax increases at all.
The government has ruled out raising the rate or broadening the base of the GST, or introducing any coronavirus levy.
They have ruled out raising the rate or broadening the base of the GST, or introducing any coronavirus levy.
Indeed, the government intends to proceed with almost $200 billion in legislated income tax cuts – stage two to begin on July 1, 2022, and stage three to begin two years later.
‘That would be the wrong thing to do’
Morrison said higher taxes were an impediment to growth, and growth is what will lift the economy out of the slump by generating jobs and tax income.
Moreover, Cormann said the government needed to disabuse the public of the notion that there were higher taxes to come because that would only further deflate confidence.
“We’re not considering increases in taxes. That would be the wrong thing to do at a time we want to ensure a strong rebound on the other side,” he said.
No policy decisions have been made, but tax options include cutting the company tax rate (which would be an election promise breach) and maintaining or boosting the turbocharged accelerated depreciation scheme announced in the initial $17.6 billion stimulus package.
Under that, business with turnovers capped at $500 million could deduct an additional 50 per cent of the cost of an asset in the year of purchase up to June 30, 2021.
This could be extended or turned into a full-blown investment allowance by removing or lifting the $500 million turnover cap.
All tax options are expensive.
The government will either offset the cost by claiming a growth dividend, or find the money elsewhere while ensuring no overall increase to the tax burden. Either way, any business tax relief or incentives will not be funded by higher income taxes or a bigger GST, the government insists.
The deregulation agenda will focus on “streamlining” approvals, especially environmental approvals, and making inroads into industrial relations.
Morrison promised before the election no significant changes to industrial relations, saying any policy changes this term would have to be evidence-based, not ideological.
The Business Council of Australia has urged the political parties to embrace the need for reform with the same cooperative spirit with which they have dealt with coronavirus.
“Business has played a crucial role alongside government to support the community, jobs and the economy at this incredibly difficult time,” she said.
“Our banks, supermarkets, miners and every angle of the business community has kept society functioning.”
Clearly the community hopes that goodwill will be reciprocated, but the deregulation and IR agendas will be more politically vexed than any tax changes.
“If the government’s response post this crisis is to further undermine our unions and to attack wages and conditions of working people, then that will not help the recovery, it will not help growth,” Labor leader Anthony Albanese warned.
As for the stage-three tax cuts which will cost $137 billion by the end of the decade and be skewed towards those on higher incomes, expect Labor to promise to revoke those going into the next election.
“During the tax debate, Labor warned that it was premature and a triumph of hope over experience to say that the government could know what the economy would look like in 2023-2024 and to legislate tax cuts then,” Albanese said.
“It was unwise, it certainly wasn’t prudent, and I think that Labor’s comments at that time have stood the test of time.”
In terms of the recovery, KPMG chief economist Brendan Rynne tends to agree with the low tax and growth strategy over one of high taxes and austerity.
“There will come a time where we need to sharpen our focus on our tax mix and how it can be better designed to rise to the fiscal challenge. That time is not now,” he said.
“Similarly, we will need to confront difficult decisions about how to raise the revenue and reduce costs to bring the budget and debt levels back to sustainable levels. Again, the time for this is not now.
“What we can focus on right now is the positive message that the faster we can grow the economy, the less we will need to consider difficult decisions relating to increases in taxes and reductions in government spending.
“Productivity will be the key to restoring Australia’s prosperity. Let us be clear – without this we are accepting as a nation a permanently lower standard of living as the economic legacy of the coronavirus.”
The fact that anyone is talking about the road out in the middle of April, just weeks after being told to bunker down for six months, is testament to how well Australia has managed to suppress the virus outbreak.
It was only a month ago that the ABC’s resident medical expert and government critic Dr Norman Swan tweeted Australia was following the same path as Italy and would hit up to 80,000 cases within weeks. “No magic fairy will bring that down. Believe in maths, not magic,” he said.
This week Swan’s tone was markedly different.
“In the scheme of things, Australia is becoming a bit of a poster child for how to handle the coronavirus pandemic,” his podcast said.
After peaking at about 450 on March 23, the daily rate of new cases in Australia has fallen steadily for nearly four weeks, while the percentage change in infections has been flattening since bans on gatherings of more than two people were introduced on March 28.
Suppression strategy is working
The unprecedented closure of Australia’s international borders, a hardening of social distancing requirements and the decision to force all overseas arrivals to undergo 14-days mandatory hotel quarantine have all contributed to the flattening, part of what Chief Medical Officer Brendan Murphy describes as a “very aggressive suppression strategy”.
Compared with New Zealand, which is pursuing an eradication strategy, Australia’s management of COVID-19 holds up well – as shown by a lower infection rate per million people in the population.
Professor Murphy said this week that Australia could come close to achieving total elimination of the virus, but it would be difficult to maintain over the long term, including as the nation starts its “road out” of the virus shutdown.
A fortnight ago Australia had 5350 confirmed cases and a daily growth rate of about 4 per cent. That rate halved over the subsequent week, as confirmed cases edged past 6000.
By the end of this week, the daily growth rate was below 0.5 per cent.
Time for optimism
Thursday’s press conference was notable not just for the business announcement but for the fact it was the most optimistic update yet. Morrison said Australia could start lifting restrictions in four weeks so long as three medical safeguards were in place: a more extensive virus testing regime so asymptomatic people could be tested; a robust-enough health system to ensure any outbreak could be corralled; and contact tracing needed to be lifted to “an industrial capability”.
The latter requires people to download an app that will be ready in a fortnight and will enable the Health Department to track movements and immediately contact anyone who has been in close proximity to a coronavirus case.
The PM’s confidence was underscored by a plan to have Parliament sit next month, a full three months earlier than scheduled, to get the schools back and for elective surgery bans to be lifted to give the empty hospitals something to do.
Any complacency, Morrison warned, could still cause a severe outbreak and massive economic damage. Otherwise, Australia was in a far better position than envisaged just a month ago.
While its instincts have been solid, the government is the first concede it made some mistakes early in the piece, but that was a product of the overwhelming scale and speed at which the crisis had unfolded.
“It took a while to find the bottom,” said senior source. “We think we’ve found the bottom now.”
– with Tom McIlroy