This Week in Politics: The Government’s Economic Narrative
A frequent criticism of the government from Labor frontbenchers is that it lacks an economic narrative but one is beginning to emerge from the pre-budget announcements.
The government is aiming to stimulate the economy through corporate tax cuts and income tax cuts while, at the same time, reducing the deficit and engaging in budget repair.
The question is: will they be successful?
The Treasurer, Scott Morrison, wants to go to the next election with a simple message: the Coalition is a low taxing government whereas Labor will be a high taxing government.
To this end the government has announced that it will drop the 0.5% increase to the Medicare levy to fund the National Disability Insurance Scheme.
Mr Morrison argues that he is able to do this because the economy is stronger than forecast at the time of the mid-year economic and fiscal outlook (MYEFO) in December.
This is confirmed by the economic statistics released last week which show government revenue is $4.8 billion ahead of the MYEFO forecast at the end of February.
Scott Morrison says this means the $8 billion needed to fund the NDIS is in the bank.
It may also mean that the budget can be returned to surplus a year earlier than forecast in 2019-20, but the impact on the debt will be insignificant since it would require surpluses of $20 billion for 25 years in a row for the debt to be eliminated.
The question is whether this position is sustainable over the long term.
Disability advocates are sceptical and are calling for the reinstatement of the levy.
The Treasurer is confident that the growth in revenues will continue into the indefinite future.
“Our economy is finally shaking off the dulling effects of the downturn in the mining investment boom,” Mr Morrison told the Australian Business Economists conference last Thursday.
The government is also signalling its enhanced revenue now means that it’s better placed to offer income tax cuts.
The leaks from the government indicate that the cuts will be introduced in stages starting small and growing as the economy returns to surplus.
It’s likely that Labor, with its $200 billion taxation war chest, will offer bigger cuts than the government, at least in the initial stages.
The government is trying to counter this by drawing attention to the taxes required to pay for the cuts and their impact on economic growth.
“Labor’s plans for higher taxes will make our economy weaker, not stronger, putting at risk the benefits, the jobs, the wages, the incomes and the essential services that depend on a stronger economy,” Mr Morrison told his audience.
From now until the election the contest will be one of economic credibility.
Labor’s message is simple: it’s going to tax the big end of town and redistribute the revenue to support the low and lower middle classes.
If the public believes that this will have a negative impact on economic growth and increases in per capita income then it is likely they will lose the election.
On the other hand the government’s narrative is one of no tax increases, modest income tax cuts and stronger economic growth ensuring full employment and stronger wages growth.
At the moment the public appears to be cynical about the government’s narrative.
The budget will be the first step in demonstrating the validity of the government’s approach.
From then on it will be a question of communicating the message.