A fistful of dollars

19 Oct 2007

The Coalition's tax cuts will entrench private affluence and deepen public squalor, argues GEOFFREY BARKER.

IT didn’t take him long. John Howard opened his 2007 federal election campaign with the reliable old fistful of dollars gambit that worked so well for him and Malcolm Fraser back in 1977.

The prime minister’s first-day $34 billion tax cuts package bore a striking family resemblance those late 1977 TV ads showing a hand holding out a wad of banknotes with the message “Liberals give.” The Liberals gave all right - until Treasurer Howard in his first budget the following year took it all back in the face of an economic downturn, thereby earning the ironic nickname Honest John.

Still, the fistful of dollars campaign did the trick for Fraser and Howard. It got them back into office at the first re-election campaign following the dismissal of the Whitlam government. And getting back into office this November is what has motivated Howard’s latest largesse.

Standing with Howard, supporting the tax cut package, was Treasurer Peter Costello, who not long ago was questioning the fiscal responsibility and sustainability of some of Howard’s spending decisions. “I have to foot the bill and that worries me,” Costello told Wayne Errington and Peter Van Onselen, authors of the recently published John Winston Howard: The Biography (Melbourne University Press).

“I start thinking about not just footing the bill today but if we keep building in all these things, footing the bill in five and ten and 15 years, and you know I do worry about the sustainability of all these things,” Costello said. As Errington and Van Onselen commented: “Plenty of money has been spent, but often only as a bandage between elections, rarely as part of a considered plan.”

Opening the election campaign Costello had no qualms about giving voters a $34 billion bandage to keep them happy. It remains to be seen, if the coalition is re-elected, whether Costello as treasurer will earn the nickname Honest Pete.

Of course the tax cut package was politically clever. It will be popular with voters and it puts pressure on Labor over tax policy - pressure so far resisted by Kevin Rudd, who has refused to rush out Labor’s tax policy. But Howard’s hand-out also represents the triumph of short-term political advantage over long-term economic responsibility. Howard and Costello did not say what $34 billion in tax cuts means in, say, foregone school, hospital, road and port projects, and relatively few political players seem to be asking. Yet as any student of economics 101 knows, you can only spend a dollar once and any spending decision has opportunity costs.

There is no question that Australia at present is an extremely wealthy country. Fuelled by the minerals boom, government coffers are overflowing. The money is there to undertake unprecedented improvements in schools, universities, hospitals, ports, roads and other vital infrastructures. Significant measures to reduce greenhouse gas emissions could be funded.

Instead the likely consequence of the Howard tax cut policy will be to further entrench private affluence and to deepen public squalor. The strong likelihood is that the tax cuts will be spent on things like large-screen plasma TV sets by Australian consumers whose dominant interests are watching young men who kick, hit and chase balls around sporting arenas. Those same Australians, driven by their desire for instant gratification, will be the first complain when hospitals cannot deliver fast and optimum care to their children and schools try to teach their children in crowded and ill-equipped class-rooms.

Voters are not necessarily better off with a few extra dollars in their pockets if their schools, hospitals and other social and industrial infrastructures are degrading. Voters have to decide whether they want to maximise the short-term utility of extra cash to spend or the long-term utility of better schools and hospitals

How Labor will repond to the Howard tax cuts is still unclear. But given the similarity between Labor and government policies these days it is a safe bet that Labor will do something similar. The money might be differently distributed, but the quantum will not be much different. Rudd Labor does not seem much inclined to focus on broader economic and social implications.

Now that John Howard has put $34 billion on the election auction block, Kevin Rudd has little choice but to match him or even up the ante. It’s just a matter of timing and presentation before Labor joins the bidding game - especially as the opinion polls are starting to suggest that the Coalition’s prospects of victory are starting to improve.

• Geoffrey Barker is senior defence and foreign affairs writer for the Australian Financial Review and a contributor to APO.


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