Income Tax cuts pass the Senate and a History of the Cross-Bench

As alluded to in my title the end of last week saw a win for the Federal Government with their Income Tax plan passing in full through Parliament. This was a win for the Government as the Labor Party and some key cross-benchers were trying to split the bill and only allow stage one of the tax plan. This is where the split occurred in Parliament because the Government were able to convince senators that if you don’t pass the whole bill you get nothing for low income owners and enough cross-benchers didn’t want to see that. What they have said though is that if Labor win office next year they are happy to repeal parts of the income tax plan in particular stage three of the income tax plan which is to have the majority of workers, those earning $41,001 to $200,000 on the one marginal tax rate of 32.5%. For the rest of the details of the planned Income tax plan please see my Budget blog.

This week sees the next thorn in the government’s side which is Corporate tax cuts of which the details are outlined in (1). Namely the plan is for all companies to pay 25% tax rates by 10 years time. At this stage the numbers appear to be against the government getting their company tax rates passed as key cross-benchers have spoken out against the bill. The primary concern with the bill is that companies will take the tax cuts and line those profits to executives and shareholders rather than passing it on to new jobs and higher wages. Now basic economic theory would dictate that lowering taxes would cause increased jobs and wages but basic Economic theory has not applied since the Global Financial Crisis which is why I’m more in favour of linking Corporate Tax Cuts with companies having to pay staff more and hiring more staff similar to what Japan did. (2) outlines how Japan are only going to lower Company Tax rates if companies aggressively lift wages and then invest in domestic enterprise. Another sensible suggestion comes from Derryn Hinch who proposes that companies who earn under five hundred million get the company tax cut but not businesses over that as that would then preclude the big banks who are currently facing a royal commission for bad dealings. The argument against that though is that if you start precluding companies for bad behaviour where do you draw the line on what is good or bad business behaviour. As Derryn Hinch says however it’s better to get 70% of something than 100% of nothing.

This blog however also looks to look at the composition of the cross-bench over the years particular as key legislation in the Senate will only pass if the cross-bench support. In particular this blog will focus on the cross-bench of 1998, 2008 and now. In 1998 you had a Federal Election which elected Senators that took their seat in 1999 results of which are found in (3). In the senate election 4 Democrats won seats taking the party to 9 seats, one One Nation member won a seat taking them into the Senate and Brian Harradine won his seat as an independent. To join those members in the cross-bench were Bob Brown from the Greens who won his seat in the 1996 Federal Election. After this 1998 election the Government had 35 seats including the Nationals and the Northern Territory Country Liberal Party. That left a cross-bench of 12 seats with the main party to chase being the Centrally aligned Democrats led by Meg Lees. A good history of the Democrats is given by (4) who discuss how the Australian Democrats were founded by a disgruntled ex Liberal Don Chipp who pledged to keep the Bastards honest. They were a Centrist party to begin with but gradually they became a more socialist party as people entered the party who were to the left of centre on social issues such as Same Sex Marriage, abortion and other such issues. The big issue to come after the 1998 Election was the GST bill which with the opposition of Labor, the Greens and Brian Harradine required the support of the Democrats. Now a lot of people see the eventual support of the GST by Meg Lees with the exclusion of fresh food and essential services such as Medicine as the beginning of the end of the Democrats as it caused in-fighting and opened up divides on other issues as outlined in (4). Brian Harradine was an independent Senator who was a Labor member and former trade unionist before being expelled from the party shortly before the 1975 election (5). By 1998-99 he became less useful as a result of the election because the Democrats now had the real balance of power but John Howard still counted his support on several matters as very helpful particularly to his early prime ministership in his first term. Heather Hill the one Nation Senator never got to take her seat as it was revealed she was a Londoner by birth meaning she was a dual citizen and falled afoul of section 44 of the Constitution and her seat was taken by Len Harris who had his six years in the senate with minimal accord. Bob Brown was the Greens member and he was the leader of the new wave of what would in time become the third force in Parliament namely the Greens. He was seen as a charismatic member who drew large appeal of supports due to his laid back nature, while someone who would largely vote with the Labor Party he would gradually see a shift in some Labor policy particularly on social issues to safe guard their seats in both houses from being taken by the Greens.

Fast forward ten years and you have now seen the decline of the Pauline Hanson One Nation Party as well as the fall of the Australian Democrats. You had also seen the end of John Howards 11 years in office which were wiped away by Kevin Rudd and the Labor Party. The 2007 Federal Election also saw the rise of the Australian Greens who ensured that the Government majority in the Senate which the Howard Government enjoyed in their final years was no more. July 1st saw the senate take place with the Liberals just under the magical majority of 39 seats with 37 senators once you include the 4 Nats and 1 Country Liberal Party member. The Labor Party had 32 senators and then the Cross bench was filled with 7 members namely being 5 Australian Greens and 1 Family First member from the 2004 Election as well as the eccentric election of Nick Xenophon the independent from South Australia. The election of Nick Xenophon as well as the election of Sarah Hanson Young from the Greens really saw the suppression of the major parties vote in South Australia with both major parties struggling to get much past 35% first preference vote. The rise of the Greens was also felt in the ACT where the Liberal member got a shade under 35% of the vote and was in some danger of losing their seat to a Greens member. Full results of the Senate Election are found in (6). With only one member needed between 2008-2010 the Liberal Party were always in a good position to make life difficult for the new Labor government in the Senate. The policy where that was most the case was the Emissions Trading Scheme in 2009. The Greens are normally dispositioned to vote with the Labor Party on a good majority of the Bills but as outlined in (7) the Greens were not happy with how far the ETS went with them wanting a Carbon Tax and so they voted along with Family First and Nick Xenophon against the Carbon Tax. This voting down on the bill started the cycle that saw the end of Kevin Rudd’s Prime Ministership and has continued policy paralysis to this day. I have outlined the Greens already in my last paragraph and this one but by 2008 they could act as a voting bloc and they would use that bloc in alliance with the other independents to pass legalisation. In this Parliament they didn’t have ultimate balance of power yet because if either of Nick Xenophon or Steve Fielding voted with the Liberal Party then the bill would be defeated. The Family First Party were a right of centre party that a centrist protectionist economic view while being very conservative in their social issues such as SSM, Abortion and other social issues. As a rule the Family First Party would be more inclined to vote with the Liberal side of government particularly while Howard was in government for the first half of Fielding’s term. As (8) outlines though Stephen Fielding saw the merits of the stimulus package to hard working families and so supported the Rudd stimulus package after the Global Financial Crisis hit. Nick Xenophon is a former Liberal member who grew tired of major party politics and became an Independent with a protectionist central approach to Economics and Social policies although he was in favour of prudent management of the budget which put him opposed to some of the measures that the initial Rudd government took that caused the budget to go into deficit. Indeed Nick Xenophon would initially vote against the Rudd stimulus package but would later back the measure on the provision that the Labor government took strong action on Water (9).

Fast forward another ten years and you now have a Senate that is the result of the 2016 Federal Election as well as some “minor” changes to the Senate since that 2016 Election. What made the 2016 election special for minor parties was that it had a few wrinkles that changed how cross-benches would be elected. Firstly the 2016 Election was the first election to be contested under new Senate election laws where optional preference voting was now allowed above and below the line. The above the line voting preferencing meant that rather than just voting for one party and then having the votes be allocated out by the party the voter could choose to just vote for the parties they wanted to above the line stopping preference harvesting by minor parties to try and get elected from a lower vote amount. The below the line voting change meant that rather than having to vote for all candidate below the line which had reached over 100 in some state seats the voter could just number 12 candidates below the line. This measure which was meant to make independents being elected harder was slightly offset by the election being a double dissolution election meaning all 76 Senate spots were up for grabs.

The results of the Senate Election in 2016 are outlined in (10) with twenty cross-bench members elected as you had seen the stabilisation of the Greens as the third party with 9 votes, One Nation returned to Parliament after falling away in the early 2000’s with 4 senators, Nick Xenophon adding to his own representation in the senate with an additional 2 senators and then you had smaller minor parties represented with Family First, Jacquie Lambie, Liberal Democrat’s David Leyonholm and Derryn Hinch.

Of course since 2016 we have had a number of defections and suspensions from Parliament that have affected the cross-bench. From the Greens two members fell to Section 44 of the Constitution on dual citizenship and have since been replaced by Andrew Bartlett a former Democrats member and Jordon Steele-John who replaced Scott Ludlum. One Nation have had issues with Section 44 on two fronts with Bankruptcy and Dual Citizenship affecting them with Rod Culleton replaced by Peter Georgiou and Malcolm Roberts replaced by Fraser Anning. Defections have also hit One Nation with Fraser Anning becoming an Independent originally and then subsequently joined Bob Katter’s Australia Party. Brian Burston just last week stepped down from One Nation and will now be a United Australia Party member as part of Clive Palmer re foray into politics. Nick Xenophon decided to resign from Parliament after his brush with Section 44 to go back to SA Parliament where he was unsuccessful in contesting a lower house seat. He was replaced by Rex Patrick. Skye Kakoschke-Moore also ran into dual citizenship problems and was replaced by Tim Storer who subsequently chose to sit as an independent. Family First member was the first senator to really bring into highlight Section 44 of the Constitution have filed for bankruptcy and being an officer under the crown. He was replaced by Lucy Gichuhi who was not pleased at the Family First Party being disbanded and has since joined the Liberal Party. This in part offsets Corey Bernadi the founder of the Conservatives Party leaving the Liberals to start his own party. Jacquie Lambie is the last of the 2016 elected independents to fall into citizenship strife with her leaving allowing the replacement Steve Martin to take her place and when he refused to step aside for her return he defected to the Nationals Party. That means the cross-bench is now (11):Comparison of Senate numbers in the 44th and 45th Parliaments

This now means that the government need 8 out of 10 votes from the non green cross-bench to pass legislation. As a rule on most policies they can count on Pauline Hanson’s One Nation, Liberal Democrat’s, Conservatives, Katter’s Australia Party and United Australia Party which then means they just need the Centre Alliance who were the Nick Xenophon team to pass legislation. Of course a straight coalition of the Greens and the Liberal could pass legislation but this is unlikely in most cases. One example of a contentious bill passing the parliament with Coalition and Greens dual backing was the backpacker tax where the Greens backed a 15 percent rate for people doing farm work while holidaying overseas in exchange for extra funding to Landcare. Details of this package are found in (12). People are quick to criticise some of the cross-bench for doing “grubby” deals with the government to get legislation through but that ignores a few points. Firstly that government introduces almost all legislation in Parliament so in order for parties to get anything through it’s usually going to involve a deal with the governing party of the day. It also ignores that parties such as the Centre Alliance who are more Centrist in their views will often start in opposition to bills and then use their negotiation position to get laws softened to a reasonable juncture. Such examples being the Governments workplace reform and building regulations and a good chunk of social budget reforms on Childcare and Welfare provisions.

Lastly there are two things I want to touch on. Firstly what do I think of the differences in the Senate today versus twenty years ago and what will the Senate Cross-Bench look like at subsequent elections. It’s hard to deny that the Senate now is a much more difficult proposition than 20 years ago. Not because of the lack of majority in the Senate that’s a rare thing and I can’t see the Howard majority after 2004 being replicated any time soon but it’s the pure arithmetics of the senate cross-bench. In 1998 the senate had 12 members which while some people will point to not being that different to 20 it’s the amount of different parties you need to deal with. You can be dealing with an economic legislation and have finally convinced the economic conservatives you have good legislation only to find you have peeved off the protectionist independents who are now asking for extra legislation. When you are dealing with bloc’s of parties you have an easier task as well because as a rule if one person in the party is voting one way then you have the whole parties support, obviously when you deal with individual parties they can have varying views on an issue by issue basis.

So do I think going forward things will continue to be so messy, the short answer is no because while I think the trend of the major parties going from getting 80 percent in 1998 to only 65 percent in 2018 will continue the senate reforms that passed in the last election will start to kick in at future elections that are only doing half elections. I say it won’t be messy overall because I do see things being difficult for future Coalition government because my read of the senate rule changes is the main parties and the Greens will do well as will the political parties that have name recognition and the net impact will be the Greens will have the balance of power of most future Senates. (13) and Antony Green the Election Yoda agree with my take with the next election to cut the cross-bench in each state. In NSW he predicts only the Greens will get a senator of the cross-bench with the LDP and One Nation predicted to struggle. Victoria should see the Greens and Derryn Hinch back as Hinch has a strong name recognition. Queensland will likely see the Green returned but Fraser Anning will be struggling to get back as a Katter Australia member. South Australia and Tasmania are the interesting cases as while Tim Storer will be lost from SA he might be replaced by a Nick Xenophon member, meanwhile Tasmania may see Jacquie Lambie returned although I’m hesitant on that given they flopped at the Tasmanian election. A good quote to finish this blog off from Antony Green is that while Independents are at an all time high in voter appeal the vast majority of them struggle to have long term support which Nick Xenophon found in SA and One Nation seem to again to be facing 20 years on.

Thank you reading my blog.

References

(1): https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/BudgetReview201617/Corporate

(2): https://www.reuters.com/article/us-japan-economy-tax/japans-ruling-bloc-approves-big-corporate-tax-cut-to-encourage-wage-hikes-idUSKBN1E80KR

(3): https://en.wikipedia.org/wiki/Results_of_the_Australian_federal_election,_1998_(Senate)

(4): http://www.abc.net.au/news/2008-06-26/meg-lees-blames-infighting-for-democrats-downfall/2484910

(5): https://en.wikipedia.org/wiki/Brian_Harradine

(6): https://en.wikipedia.org/wiki/Results_of_the_Australian_federal_election,_2007_(Senate)

(7): https://www.smh.com.au/environment/climate-change/senate-kills-emissions-trading-scheme-bills-20090813-eiyc.html

(8): https://en.wikipedia.org/wiki/Steve_Fielding

(9): https://www.smh.com.au/business/cash-boosts-to-come-senate-passes-42b-stimulus-20090213-86ao.html

(10):  https://en.wikipedia.org/wiki/Results_of_the_Australian_federal_election,_2016_(Senate)

(11): https://www.aph.gov.au/Senators_and_Members/Senators/Senate_composition

(12): https://www.theguardian.com/australia-news/live/2016/dec/01/malcolm-turnbull-flags-security-overhaul-police-let-protestors-off-scot-free-politics-live

(13): https://www.theage.com.au/politics/federal/i-think-voters-feel-betrayed-chaos-reigns-in-a-chamber-where-one-in-five-have-disappeared-20180622-p4zn1w.html

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Deregulation – Also known as the topic to write about when it’s been a slow news month

This last week has seen the latest push against the Liberal’s promise to deregulate shopping trade hours with an anti deregulation showing up on TV. The ad basically uses a number of small business owners to target the new deregulation laws although what is missing in the ad is a detailed explanation of why the deregulation of trading hours should not take place. Awkwardly for the Liberal Party though this new ad campaign has the backing of Stephen Knoll’s dad with Stephen Knoll the State’s now Transport Minister and his dad alongside Stephen in charge of Barossa Fine Foods. In this blog I will talk about what the planned deregulation laws are and where the major parties stand along with what chances the legislation has of passing.

In terms of what shop deregulation legislation would look like the Liberals were rather explicit in their election material (1). Essentially the government want midnight to 9pm trading for all seven days of the week and public holidays excluding Christmas, Easter and Anzac Day which they want to keep as a half public holiday in the morning. In the Liberal Parties words they believe that this will give local businesses the ability to employ more staff, create more economic growth and allow them to take advantage of busier times of the year such as the lead up to Christmas where currently most stores only do extended trading for the week before Christmas. It was also be a greater advantage to customers who can have greater flexibility of when they shop and where they shop no longer having to rush to the local petrol station because they have run out of milk. The other advantage that the Liberals give in this article is that they would lift the restrictions on certain products that you currently can’t buy on Sunday or a Public Holiday such as a car. Another example which would be confusing to some is you can’t buy electrical/white goods on a public holiday (2). Some people may ask at this point why some stores such as small shops and some country stores are already open past this point and that is because the Retail Shopping Hours only covers the following businesses:
(1): Stores that are located within the Greater Adelaide Shopping region which is why Country Stores can already trade at different hours although some regions such as Millicent have chosen to keep the tighter deregulated hours to favour a particular store (3). AND they also need to be:
(2): Has more than 200m^2 of retail store or more than 400m^2 for a shopping centre or has an adjacent storage area that is at least half that or size. Some shops such as hairdressers, ten pin bowling and medical centres also fall outside of the deregulated hours.

So having now set out the Liberal Parties view on the issue I think it is now worth detailing the Labor Parties view on the policy as well as the Greens and SA Best because they will need to be convinced if this policy is to pass the Upper House where the Liberal Party don’t have a majority. Also of interest is the view of big business and small business who as I outlined at the start are opposed to this change. With Labor saying after they lost the election that they would look to changing some of their policy positions after losing the election some thought this was a sign that they might soften their stance on the  Deregulation of Shopping Trade Hours but per (4) New Labor leader Peter Malinauskas was quick to denounce the policy move saying that after talking to small and independent businesses they would be opposing the move saying that while the Liberals were getting into bed with the big guys like Coles Labor would be standing up for the little guy. For me this comes as no real shock because Peter’s old role was to be the leader of the Retail and Fast Food Union SDA who are heavily opposed to deregulation. SDA’s reasoning for opposing deregulation make some sense as outlined in (5) as they believe it will hurt family time as people will have to work public holidays rather than spend it with families, that it won’t create as many jobs as is claimed because small businesses won’t do enough trade in the extra hours of business to hire more staff and so that extra open time might come at a loss not allowing extra people to be employed.The last two points are that if Bigger markets are open longer it then brings them in bigger competition with the smaller markets and that may cause them to close which then hurts competition if the bigger companies can create a bigger monopoly. As I said these claims are reasonable although I don’t think people can have it both ways, either we have stores open longer to satisfy customers needs to have any time access to products or we have family time still for the workers, we can’t satisfy both and more often than not it’s the same group complaining about both of these issues. I think the extra competition to the smaller markets who do currently trade could be harmful to them staying open longer term but that is already happening without the changes to deregulation. I think somewhere in the middle where shops can open say 6am to 7 or 8pm on weekends and Public Holiday’s would be a reasonable negotiation because midnight to me does sound a bit extreme.

SA Best going into the election were pretty clear on their opposition to deregulation really leaning on their stance to stand up for the little guy. Their explanation for their opposition is given in (6). The Greens appear to be against deregulation from their general stance on economic matters but I could not find anything specific on their website to suggest their current stance on the issue which probably tells you where this issue stands on their importance level. Given they like the Labor Party have strong ties with the Union though it’s hard to see them favouring this legislation. To me the key for the Liberal’s in passing this legislation is to get the Independent John Darley on board who appears more conservative in his Economic views than his former SA Best ties and to get the SA Best team to change their mind now that Nick Xenophon who was the big voice on policy is no longer directly involved in the running of the party.

As I said earlier the Businesses are divided on this issue based on whether they are a big business or a smaller/ independent business. Big Business such as Gerry Harvey look at other states that have deregulated shopping hours and the crowds of shoppers they get on public holidays and Sunday’s for tv cameras versus the ghost towns that you see from stores in Adelaide on the same day. (7) has a good article on his views on deregulation and from his standpoint I can see his views. Certainly I think it is strange that some items in a store can be sold on a day but in the same store other items can’t be sold. The opposition as small businesses put it are similar to the arguments made by the SDA Union that I outlined above. I think it is a dangerous move for the Liberal Party who as a rule tend to be the party that support the enterprise and innovation of Small Businesses and therefore probably receive more votes and monetary support from said businesses when it comes to election time. (8) gives another example of how small businesses use current trading hours to be able to offer a point of difference to bigger companies who can’t open as long to survive where they may be more expensive to purchase items from in order to survive. In a market that is increasingly facing increased competition from Aldi and the Internet they see this as one advantage to keep them open. I would argue if they continue to offer better customer service then they can survive this move as they have the advantage of having already been open longer for a longer period of time but shopping loyalty is something that continues to erode so again I can understand the concerns.

This is a smaller issue but is an interesting topic to discuss. For the Liberal Party in South Australia this is a big part of their policy platform and they promised to deliver this policy in 100 days. This has led Labor to goad the Government now saying deliver up but as I have outlined above the Upper House would appear to currently be opposed to this measure and so the Liberal Party have trepidation about seeing such a big policy be rejected so early into this term of government. Indeed after a month of Silence the Labor Party have now settled nicely into opposition and are using the lack of government control in the Upper House to frustrate progress on the government’s two signature policy reforms on both this measure and rate capping. On the move itself the other weird thing is the divide between the public and businesses. The Liberal Party who would tend to be more associated with business are really backing in the general public and customers who are in favour of this bill rather than small business who are heavily opposed to this measure. If this government can’t get this legislation through people will start asking rightly or wrongly what is the point of voting in a new government who can’t pass signature policy.

I have struggled to come up with blog topics recently hence the gap since writing my last blog but one future idea I have pondered is a write up of the major parties history since when I was born in 1990. If nothing of importance occurs before next week my next blog will detail the Liberal Party over the last 28 years.

References:
(1): https://www.stevenmarshall.com.au/shop_trading_hours

(2): https://www.theaustralian.com.au/national-affairs/state-politics/outmoded-law-means-black-day-for-white-goods-in-south-australia/news-story/53053f74c6151f09303f9035c3ae9728

(3): http://www.abc.net.au/news/2017-04-12/millicent-overwhelmingly-votes-to-keep-restrictive-trading-hours/8436264

(4): https://indaily.com.au/news/local/2018/04/12/libs-face-uphill-battle-shop-trading-reform/

(5): https://www.sda.com.au/deregulated-trading-hours-hurt-south-australians/

(6): https://sabest.org.au/state-policies/retail-shopping-hours/

(7): http://www.afr.com/news/politics/national/gerry-harvey-backs-deregulation-of-sa-bricks-and-mortar-retail-trading-hours-20180311-h0xc3g

Budget Reply Summary

Last night Bill Shorten gave his budget in reply speech following the Treasurers Budget Tuesday night. If the polls are to be believed and there has been some tightening of the polls then this will be the last budget reply speech that Bill Shorten has to give before he becomes Prime Minister after the next election. This blog will summarise the budget in reply speech and give my opinion on some of the measures announced.

This was an important speech by Bill Shorten because a day earlier he had suffered the embarrassment of having his pledge that no Labor members would fall over because of the citizenship issue unravel as 4 Labor MPs/ Senators were ruled out over section 44 after already losing David Feeney the member for Batman in February to the same issue. A lot of the material in the budget reply speech last night was old news as and I will give Labor credit here they have done a lot of policy work in their time as opposition even if the merits of some of those proposals are flawed. Examples of this was a refocus on the changes to negative gearing to make houses cheaper for first home buyers and changing the way franking credits can be claimed which meant that along with opposing the company tax handout as they call it the Labor Party had a large war chest to play with last night. From that point of view the Labor Party took a pretty economically prudent approach to their budget reply last night with their only big policy being to one up the Liberals on their tax cut for people up to 87,000 dollars getting 928 dollars a year in tax relief (1). That dollar amount is 400 dollars more than the Liberal Party which Labor would hope would take away some of the Liberal Party sting that Labor are just the party of big taxing. It wasn’t spelled out last night but it’s pretty clear to assume that Labor will oppose the bracket creep avoidance measure of raising the second tax rate to 90,000 dollars as well as the eventual removal of the third tax rate to have everyone between 41,001 and 200k paying the same rate of tax. Now the language that Bill Shorten and other socialists have been using since the budget is that somehow that would mean that people on the low end and the high end would be paying the same amount of tax which is bogus because 32.5% of 41,001 is not close to equalling 32.5% of 200k. I do however worry about the budget impact of removing a whole tax rate and so I’m not completely against the Labor Party opposing this measure I am opposed however to this continual obsession by Labor to just class everything as giving things away to the big end of town and that if you succeed well in life that’s what is keeping people at the bottom end of our cycle from succeeding in life.

From the Budget reply (2) there are a few other issues that Bill Shorten brought up that are worth discussing. He continued to pedal what I think is misleading in that he will reverse the governments cuts to Hospitals, Schools and Universities. Now the reason I say that is misleading is because the government either agreed to a different rise in spending than the Opposition which means the Opposition are planning to spend more not that the Government is cutting anything! Or in the case of Schools the government is using a new Gonski funding that delivers less money than what the Labor Party are promising but they are targeting more in need schools rather than Labor who suddenly care about private and independent schools which is not a normal practice. He also has stated that pensioners will regain their energy supplement while of course neglecting to say that it is kept by current pensioners and that it was brought in to supplement the Carbon Tax which does not exist anymore. Now I think with energy bills still high and energy policy not settled yet the supplement is probably still needed but calling this measure a cut is not telling the whole story, Just as saying the removal of a debt levy that Labor said should be only temporary is not a handout to the big end of town. The Labor Party have also committed to more money for Tafe with free education for 100,000 students and ensuring that apprenticeships at least are half filled by Australian workers which will play well in the base. I think the biggest praise I can give for the speech last night though is that the speech did not try and buy the election from the public last night and should allow for better budget repair to be done by the Labor Party. Again the question is how much of that buffer will still be there come election night as much like the government you’d imagine more promises will come out in the election.

The big thing missing from the budget reply last night was the lack of a commitment to increasing Newstart (3). Indeed Bill’s response to Leigh Sales was I am not going to announce spending of billions of dollars on your program which suggests to me that while Labor want to sound compassionate to the poor they also realise that a balance needs to be made between making welfare affordable and not wanting to make welfare become something that people just stay on with no incentive to get off. Now I think welfare is too low but you do have the bad eggs who do abuse welfare and they unfortunately tarnish life for the rest of us on government payments. I think the Labor party are relying a lot on their planned inquiry into Newstart and that might end up endorsing Newstart but I again repeat my concern that this is only a good thing if it does suggest raising Newstart at the expense of lowering/ flattening the other welfare payments that are higher than Newstart.

The government response was consistent with the Kill Bill strategy that has long been part of their plan to turn their electoral fortunes around. Mathias Cormann focussed on the higher taxes overall that Labor would have under a Shorten Prime Ministership (4) while Christopher Pyne attacked the lack of defence (5) mentioned in the budget reply which in fairness is not a typical budget reply topic.The first polls were done today post the budget in three marginal seats, two Liberal and one Labor and they show relatively good news for the government (6). In Robertson Liberals are ahead 52-48 which is a slight improvement on the federal election, Chisholm is 50 apiece which is a slight deterioration from the federal election for the LNP and Herbert in Queensland which see the Labor incumbent behind 51-49. Now I would say that the government would be heartened by those results but single seat polls can be misleading as seats can swing wildly from seat to seat and also One Nation is polling quite highly which I question and I question whether One Nation will run candidates in Victoria which is not a known hunting ground for them.

 

References

(1): http://www.abc.net.au/news/2018-05-10/bill-shorten-delivers-his-2018-budget-reply/9748926

(2): https://www.businessinsider.com.au/we-can-do-better-than-this-bill-shortens-budget-reply-speech-2018-5

(3): http://www.news.com.au/finance/economy/federal-budget/leigh-sales-quizzes-bill-shorten-on-lack-of-newstart-rise-in-budget-reply-why-is-labor-hiding/news-story/d4c4a5443c4201961d3e9befa3eb13a8

(4): https://twitter.com/MathiasCormann/status/994519626045255680?ref_src=twsrc%5Etfw&ref_url=https%3A%2F%2Fwww.theguardian.com%2Faustralia-news%2Flive%2F2018%2Fmay%2F10%2Ffederal-budget-tax-turnbull-defends-tax-plan-as-shorten-prepares-response-byelection-politics-live&tfw_creator=amyremeikis&tfw_site=guardian

(5): https://twitter.com/cpyne?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Eauthor

(6): https://www.pollbludger.net/2018/05/11/yougov-galaxy-budget-polling-robertson-chisholm-herbert/

Budget 2018 and Citizenship Fiasco part 9000

Originally this post was just going to be discussing the budget last night but that changed today when Katy Gallagher was found to be ineligible to stand in Parliament due to being a dual citizen which then caused the resignations of 4 other MPs. In this blog I’ll start by discussing the budget and then finish with the citizenship issue.

Last night Scott Morrison delivered his third budget which will almost certainly be his last one before the next Federal Election. As such this budget drew a lot of attention as to what sweeteners Morrison would include for the public particularly with the Government anywhere between 51-49 to 53-47 in the polls. In that sense I don’t think the budget was a big spendathon with the tax cuts that the government plan to implement for income earners not kicking in until the next financial year post the next Federal Election.

The budget website (1) has a good overview on the budget measures from last night. On the numbers itself the government will have a debt of 14.5 billion dollars in 2018-2019 which is down from 18.2 billion in the current financial year.The following year would finally bring the long awaited surplus that we have been waiting for of 2.2 billion dollars and then increasing to 16.2 billion by the 2021-2022 financial year. The net debt of total gross income would peak at 18.6% of GDP and would decrease from that point on. On spending and taxing the government has set limits to what they can spend and tax with spending around 25 percent of GDP and tax at 23.9 percent of GDP which is the level it was at in the last year of the Howard/ Costello government and before the global financial crisis which obviously involved increased spending and decreased taxation by governments. On the budget numbers last night Economists thought the numbers were not bad but they had a few caveats. Firstly the Government were lucky last night with an extra 34 billion dollars in revenue and they only spent 18 billion dollars of those last night which is prudent based on us coming into an election campaign, obviously if the government spend more money on election promises then that surplus will shrink. Also there is an assumption that wages will increase by 3.5 percent which it is currently at 2.2 percent and unemployment is staying stubbornly at 5.5 percent and the USA have only just seen wage growth at this 3.5 percent rate after 2 year with unemployment at 4.9 percent. Lastly is the China risk and if China’s Economy slows then that will slow our economy and lower GDP growth means less revenue coming through and that will also put a dent on the impact of a return to surplus.

(2) has a good table explaining the biggest measure of the tax changes which is the smoothing of the tax rate to ensure less people face bracket creep from working more and suddenly have to pay more tax.

So what is happening is from 2018 People in the 32.5% tax bracket won’t have to pay 37 percent tax until they are earning $90,000 a year rather than the 87k currently. Then from 2022 the 19 percent lowest tax rate will apply to those earning 41k a year rather 37k a year and then the second tax rate will only apply to from 120,001 dollars to 180k. Lastly from 2024 the plan is to only have three tax rates that would simplify the tax system with only people above 200,000 dollars a year paying the 45 percent tax rate. This has is on top of a one off payment of between 200 to 530 dollars a year for low and middle income earners that will be made as a one off “Harvey Norman” payment at the end of the year which would then be usually spent on one off payments rather than possibly be saved if the money came in the 10.30 a week saving on tax in a pay cheque that is the usual way to implement tax cuts. This measure has been criticised by those in the Union movement and the Australian Council of Social Services as well as by some of the cross bench for being a move away from the progressive tax system. This is because it seems unfair to some that someone on 41,000 is now paying the same tax rate as someone who is earning close to 200k a year, my argument to that is that it will still be progressive to a degree because the more you earn the more money that 32.5 percent of tax will cut into. I have more of an issue with the long term nature of this bill in that it takes until 2024 for the full policy to be implemented and so the cost of this measure is minimal in the budgeted forecast but will blow out to 140 billion dollars by full roll out which may then lead to other measure needing to be rolled out to offset those measures. I also think that when paired with the company taxes this tax cut does look like another good outcome for the big players while Newstart continues to be low for non workers and John Howard added his voice to those who called for Newstart to increase this afternoon (3). My worry for increasing Newstart in the past is that people have called for Newstart to increase at the expense of the Disability Support Pension for instance and that’s wrong because Newstart is meant to be just a temporary support until someone returns to work, the DSP is a much more permanent support mechanism and as such should remain higher than the Newstart rate. I predict that for the government to get action on either of the two tax increases there will need to be movement on Newstart.

Some of the other measure in the budget is nicely summarised in the “winners and losers” ABC summary (4). Other than the tax rates two of the bigger spending measures comes from Infrastructure spending of 24.5 billion dollars on various road and rail projects in Australia although some of these measures are re-anouncements of old projects and also aged care spending who will now be able to work more without it cutting their pension amount, they will be able to mortgage their homes to access government fortnightly payments and there will be more home care plans available allowing more older Australians to stay in homes rather than moving into retirement homes or nursing care. That second aged care initiative will be a kick in a gut to first home owners who will now see less homes be sold by elderly members to open up property along with their being no real initiatives listed for them this year with the government defending their half hearted initiatives for housing last year. Health is also a winner for this years budget with new drugs being added to the PBS scheme, more money listed for health care research and added money for various mental health schemes particularly those for the elderly who have the highest suicide rates in our population. Most of the other initiatives are smaller impacts and can be found in the reference I listed above.

As with all budgets there are losers as well as winners and for the most part as with last years budgets I think the government have done a good job of isolating those losers to a voter base that is either unpopular or unlikely to vote Liberal anyway. The big savings come from chasing the so called black economy to target cash payments in particular that are not being taxed at all or are being underreported for tax purposes. The government is therefore stopping cash payments of over 10k for good and services for businesses, this would particularly be helpful to stop undisclosed cash payments made by terrorists or drug dealers. The government hopes this raises 5.3 billion dollars a year. On top of no moves to Newstart the government is also hoping to catch more fraudulent welfare reporting with increased data matching with the ATO, they also plan to make migrants wait an extra year to access government services. I for one think it’s ironic that the government penalise people making honest mistakes of not reporting income correctly but when Centrelink make an error that can lead to underpayment or no payment for weeks if not months on end then they see no penalty. From (5) the government is also cracking down on illicit tobacco companies and Tech giants not paying adequate tax hoping to claw back 10.6 billion dollars in revenue. On the technology giants Scott Morrison is about to release a white paper on taxing the big companies who pay no tax on the profits earned in a particular country by combining with other G20 countries to come up with a united effort to fight these companies paying no tax.

The Bill Shorten response came by twitter to say this was another budget which prioritised the big end of town over fairness and so his response on Thursday night will be interesting to see how much he mirrors on what he still calls a terrible budget. I thought Chris Bowen was much more measured focussing instead on the Government’s small budget surplus that he said was not suitable to facing any international headwinds and he says some of the measures are not coming into place until too long into the future which is an inadequate commitment as they could be well out of office by then. I think that last line is ironic given that Labor long planned to move to a 10 year budget outline.

The other big news to come out today which almost overshadowed the government’s budget was the Citizenship issue rearing it’s ugly head again. It started with the high court ruling ACT Senator Katy Gallagher was ineligible to stand as a member of Parliament at the last election as she was a British Dual Citizen at the close of nomination. This was seen as a surprising decision to some because Katy Gallagher made an effort to start the process of renouncing her citizenship before the close of nomination which she thought applied for the part of the constitution that states that reasonable efforts need to be made to renounce citizenship. It is clear from this High Court Decision that reasonable effort only means that you are safe if you try to renounce dual citizenship but then that country denies you doing so which is the case for former senator Sam Dastyari and his Iranian Citizenship. The High Court also said it was not good enough to not allow time for the Embassy to process citizenship renouncements because you could follow the paperwork up or renounce in person at a embassy which some politicians have done previously. (6) now sets out what I now have long been advocating which is that there will a super Saturday of By Elections as 4 other MPs had used Katy’s court case as a test case to see if they were eligible to stand. The 4 other MPs to resign today because they are in the same or immaterially different case is Justine Keay, Josh Wilson and Susan Lamb the Labor members for Braddon, Fremantle and Longman and Rebekha Sharkie the Centre Alliance and former Nick Xenophon member for Mayo. The seat of Perth would also be up for an election following the shock resignation of Tim Hammond who recently was named only behind Julie Bishop as person most likely to be next PM from Western Australia. Now Labor would feel confident of holding Perth, Braddon and Fremantle but Longman will be interesting as Pauline Hanson recommended preferences against Wyatt Roy and the Liberal Party at the last federal election which resulted in their preferences going 60-40 percent in favour of Labor which is against the grain of preferencing flows from One Nation to Liberal post election. The seat of Mayo will also be intriguing because Rebekha Sharkie in part won the seat of Mayo at the last election because of the unpopularity of Jamie Briggs who had had some scandals plague his candidature. The other thing that this citizenship fiasco reopening today has brought up is the possibility of a referendum to amend Section 44 of the Constitution to allow dual citizens to run for this parliament. My problem with this measure is still that I can’t see the public supporting making life easier for politicians even though I now concede it is not practical to stop such a large amount of people from running for Parliament. I have noted Bill Shorten now sounds more in favour of a referendum after having egg on his face today following his pronouncement that Labor had better vetting processes and would not be caught up in this fiasco.

Keep an eye out on Friday for my Summary of the Budget in Reply speech of Bill Shorten summary.

 

References

(1): https://www.budget.gov.au/2018-19/content/overview.html

(2): budget-new-personal-tax-rates.jpg

(3): https://www.smh.com.au/politics/federal/freeze-has-gone-on-too-long-john-howard-calls-for-a-dole-increase-20180509-p4ze83.html

(4): http://www.abc.net.au/news/2018-05-08/federal-budget-2018-winners-losers/9738982

(5): http://www.news.com.au/finance/economy/federal-budget/hidden-cuts-and-surprise-spending-in-budget/news-story/42936118b10710f7f41ccb7fabfa351f

(6): https://www.smh.com.au/politics/federal/four-dual-citizen-mps-resign-in-wake-of-high-court-ruling-sparking-byelections-20180509-p4ze89.html

Banking Royal Commission

This week marks the second week into the current Banking Royal Commission sitting with the focus on financial advice given from the major banks. This follows a damning amount of evidence given in week one which gave examples of banks continuing to charge dead people for services and charging people for giving no advice at all.In this blog I plan on detailing the history of the process leading to the royal commission, the major parties evolution of position on the commission, what this royal commission will do and some of the outcomes so far.

I think it is worth stating from the start that while banks have always been viewed with some suspicion there was a time when banks were one of the most trusted institutes in Australia. I think the tide turned again banks in a big way post the financial crisis when it was shown that banks became too complacent and started handing out loans to people who could not pay those loans back. When the financial crisis hit the banks came after people for those loans and when people could not repay their debts made them sell their homes back to the bank. That led to the public rightfully being angry that banks could get away with giving loans to people who couldn’t afford them in the first place and when you add to that the advice that some people taking other loans are given that is purely to line banks back pockets it’s easy to understand the anger the public have towards the banks. I would say though that while on the whole I’m in favour of the Banking Royal Commission because I think shining the light on the banks bad behaviour will cause a shift in behaviour that will hopefully mean we can have higher trust in banks again. There are negatives which I will elaborate on more later but this scandal will lower the values of bank shares to which a lot of people’s superannuation have some link to and also we need strong banks and if this causes people to lose trust in the banks to the point they don’t want to invest in banks we could risk a bank going under which could lead to a run on the bank as people rush to transfer their money out of a bank going under.

(1) has a good summary of the history leading into the Royal Commission. As with a lot of Australia’s recent royal commissions the starting place was a ABC 4 Corners episode looking at the behaviour of Commonwealth Bank in light of the missteps taken by Wells Fargo a US bank which some people will know from their connection with the Philadelphia 76ers having their basketball arena. named after them. In the light of the misdeeds of the American bank and Commonwealth Bank the scrutiny then went to the other main 4 banks who each had financial lending crimes that they had covered up. Two examples of this that stick in my mind are Commonwealth Bank money laundering money for drug cartels and financing terrorist organisations. (2) has two such case studies that fit into the activities I detailed above. The issue then became dormant for a couple of years before Bill Shorten raised it as an election issue by saying that a Labor elected government would implement a Banking Royal Commission a smart move that was popular with the Labor base and played into his fairness message. What was less reported at the time but became more vital later was Warren Entsch a National’s backbencher also said he would back a royal commission although he wanted the government to call said commission not the opposition as that would cause the government embarrassment of losing a vote off someone crossing the floor. Fast forward to 2017 and with the government struggling in the polls the Government tried to release a budget that would reset the books on some of the legacy measure of Tony Abbott and also announced a bank levy on banks with liabilities of 100 billion dollars or more. It was hoped that that measure to target the big banks with a new tax would quieten down the calls for a royal commission but it didn’t. Around that time two issues occurred that ensure the Government would eventually cave on the implementation of a royal commission. First the Citizenship issue struck that caused two government MPs to have to face by elections which caused the government to lose their majority and the SSM plebiscite was held and the government didn’t listen to some of the more conservative National members on allowing their amendments be debated in parliament. As a result the group of Nats said they would move legislation on the issue itself and so the government caved and announced a Royal Commission into the banks. Now some would accuse the Nats of mischief making and sure to a degree that is the case but I think they genuinely had issues with the banks that stem from dodgy financial advice being more impactful on rural constituents who have less networks to fall back on if they get into trouble. George Christiensen who is a known maverick on issues that matter to him launched a website that explained his positioning behind supporting a royal commission (3).

I have detailed above the basic outline of the parties history on this issue but I thought it is worth elaborating the policy history of the parties on this issue particularly as parties are now trying to paint themselves into certain corners on this issue given how the Royal Commission has played out so far. The Greens have long been in favour of a banking royal commission which makes sense given they also wished to bring an extra levy on the big banks on top of the levy the government introduced in the budget which is outlined in (4). The Labor Party have also had a consistent approach on the issue of having a royal banking commission since they came to it in 2016, although I’m slightly suspicious of them coming to that decision on the eve of the election. Some in the government have criticised the Labor government for not calling a commission when they were in government but I think as I outlined earlier the Labor government were mindful of not wanting to badly erode the confidence in banks which is an important point to consider. I also think the government’s message that Labor is anti bank is unfair because when the Global Financial crisis hit one of the first acts of then Treasurer Wayne Swan was to guarantee bank deposits which avoided any risk of a run on the bank of worried customers trying to get their money in cash form. The government’s position on the royal commission has certainly evolved over time. Taken from the government’s response to the Labor announcing of the royal commission is as followed “Australia already have the regulatory bodies to deal with any bad behaviour from banks” (5). That was a position that was fought hard in parliament for a year along with the added argument that a Royal Commission would just be a waste of taxpayers money that could be spent on beefing up regulatory bodies such as APRA and ASIC which is the prudential regulatory body that oversees financial bodies and the securities and investment committee that regulates corporations. As I said earlier the eventual backflip of Malcolm Turnbull and Scott Morrison to have royal commission was political and there is no other explanation for the move as I outlined above the Nats were going to move it on the government which would have resulted in an embarrassing crossing of the floor. Even more incredibly last Friday the government now tried to credit for the Banking Royal Commission saying their considered response to the problem meant the inquiry was now working more efficiently and would have greater outcomes. The government also announced there would be tougher penalties for companies who broke the law on bad financial advice in the future. I must say while I understand the governments initial reluctance to call a banking royal commission as time went on it appeared more to be a stubbornness of the government to not want to admit they are wrong and that was evidenced in Kelly O’Dwyers cringeworthy interview on Insiders on the weekend (6).

So as I said at the top of this blog this is currently the second week of the second round of hearings of the royal commission. The first round of hearings occurred in March and focussed on the lending practices of banks. (7) has another good summary of the topics covered in that section of the hearing. So round 1 looked at stories of residential mortgages, car loans, credit card fees and unnecessary increases,  the attempt to on-sell extra insurance packages on top of home loans, inappropriate offering of credit to people who could afford their level of credit and administration errors. I think the big take away and the reason some of the financial regulatory businesses are not doing their job is because they can’t as they are being lied to repeatedly by the big banks. (8) provides some examples of the bad practices that were revealed in the opening two weeks of the royal commission.

Round 2 of the Royal Commission is focussed on the financial planning and wealth management system. The big news to come from the first week of this second round of hearings was the resignation of the AMP boss for charging customers for financial advice that was never provided and then misleading ASIC about those practices occurring. Again as with the link above (9) provides a good summary of the topics that will be covered in this second round of hearings.So in round 2 the commission will look at fees for no service which I alluded to above, Investment platform fees which is an online tool that manages your investments and allows you to review your current portfolio, Inappropriate financial advice which is advisers giving false or misleading advice on what loan or investment portfolio you should take on, improper conduct by financial advisers which lends from the previous point and the punishments and disciplinary regime for financial advice profession because too often financial advisers are getting a slap on the wrist and then being allowed to carry on giving dodgy advice to the next customer. I’m particularly interested in that topic as while being admonished for dodgy behaviour will have some impact on the reputation of the banks if that is the only punishment they receive then I am pessimistic on what impact this Royal Commission will have on banking behaviour. It seems from (10) that the stories from this round of hearings might be worse than round 1 with 75 percent of financial advice audited shown to be against the consumers interests.

I think in conclusion as I said above the Banking Royal Commission is a good idea but I suspect that it will only have a limited impact on future behaviour. Indeed I think consumers will probably indirectly suffer for this royal commission as share prices of the banks will fall which will impact anyone with shares in the banks or superannuation linked which is a large proportion of the society. I would hope that the embarrassment of having their dodgy practices would impact the banks to change their behaviour would change attitudes but that has a mixed history of working. Any financial penalties to banks would also have a limited impact on changing behaviour as banks would only pass those costs down to customers with higher interest rates.

References

(1): https://en.wikipedia.org/wiki/Royal_Commission_into_Misconduct_in_the_Banking,_Superannuation_and_Financial_Services_Industry

(2): https://www.theaustralian.com.au/news/inquirer/austrac-uncovers-unreported-money-laundering-at-commonwealth-bank/news-story/66e21b2a59faf2cf3fad10acc013be8c

(3): https://www.bankinquiry.com.au

(4): https://www.adambandt.com/160810

(5): https://www.smh.com.au/business/banking-and-finance/labor-calls-for-royal-commission-into-finance-20160408-go1dnr.html

(6): http://www.abc.net.au/news/2018-04-23/kelly-odwyer-royal-commission-compensation-for-victims/9687110

(7): https://financialservices.royalcommission.gov.au/public-hearings/Pages/round-1-hearings.aspx

(8): https://mozo.com.au/bank-accounts/articles/icymi-banking-royal-commission-first-round-of-public-hearings-wraps-up

(9): https://financialservices.royalcommission.gov.au/public-hearings/Pages/round-2-hearings.aspx

(10): https://www.theguardian.com/australia-news/2018/jan/24/asic-accuses-banks-financial-advisers-of-working-against-customers-interests

 

Electoral Redistribution

The Australian Electoral Commission (AEC) on Friday published their draft redistribution  for South Australia to apply for the next Federal Election. This followed their draft redistributions the previous week for Victoria and the ACT and some earlier work done in the states of Queensland, Northern Territory and Tasmania although those changes were largely immaterial and so I won’t spend too much time on them in this blog. What I will focus on are the changes to the seats in Victoria and ACT where rapid population has caused an extra seat to be created and the slower population growth in South Australia. I will also begin with an explanation as to some of the reasons the Electoral Commission choose to redistribute seats.

From the AEC website they list three reasons that may cause an electoral redistribution (1). The first reason is that the number of people in a state or territory changes to the point where the state or territory is now entitled to another member which is the case in South Australia, Victoria and ACT. The number of electors in more than one third of the seats of the state or one of the two territories seats varies by more than 10 percent from the average number of electors in that area for two straight months. I.E SA now have 10 seats and say the average number of electors in the state is 160,000 then a redistribution would occur if three seats suddenly had more than 176,000 or 144,000 members for two straight months. The last cause for a redistribution which is the case in Queensland, NT and Tasmania is that there have been seven years since the last redistribution which makes sense as in seven years some areas will have experienced population growth due to many houses being built, so take Northern Adelaide or North of Melbourne or people have moved out due to a closure of jobs, take a major industry closing their doors and causing a mass loss of jobs.

Earlier I mentioned that states and territories are entitled to a certain amount of seats and (2) has a very good table that sets out how many seats each area should get. So the table takes the total population for a state and territory, calculate a population quota and divide the two to get a seat entitlement amount. The population quota is calculated by taking the whole population of the six states of Australia divided by twice the number of senators which is 144. Now there are a few exceptions down the bottom for the lesser populated states. Tasmania under the constitution is guaranteed five seats, Northern Territory and ACT are given members of some of the smaller islands that don’t qualify for their own seat. As you can see from the below table the redistribution changes mean that there will be 151 seats in Parliament rather than 150. The last time the Australian Parliament had anything other than 150 seats was in 1998 (3).

State/territory Total population Population quota Result Members Change
New South Wales 7,797,791 164,788.61806 47.31996 47
Victoria 6,244,227 164,788.61806 37.89234 38 +1
Queensland 4,883,739 164,788.61806 29.63639 30
Western Australia 2,567,788 164,788.61806 15.58231 16
South Australia 1,716,966 164,788.61806 10.41920 10 -1
Tasmania 6 519,050 164,788.61806 3.14979 5
Australian Capital Territory 7 419,256 164,788.61806 2.54420 3 +1
Northern Territory 8 247,512 164,788.61806 1.50200 2
Total number of members of the House of Representatives 151 +1
 So as I mentioned above I will mainly focus on the three states that changed seat numbers but as part of the seven year rule Tasmania, ACT and Northern Territory also had a redistribution. As Election Yoda states (4) the changes in these seats were minor with Northern Territory having a slight move to reflect population growth in Darwin being faster than the rest of the territory, Queensland mainly stays the same with at most .1 or .2 knocked off some margins of seats and Tasmania mainly stays the same with the exception of a name change in Denison from Denison to Clark. A good read on the background of Andrew Clark the person inspiring the name change is here which details his career as an established engineer, politician and lawyer (5).
Friday last week the first draft redistribution came out for ACT and Victoria and both the Government and the Greens would be left filthy at the changes. I must say from looking at the changes I don’t see how the Greens would be too upset as the margins for the Greens stay roughly the same but they believe Wills and Batman become more Labor inclined with Melbourne made more Green. (6) provides a good summary of the changes to the seat which I will detail below. The main change to the latest Census showing that the population of Victoria had grown enough to create a new seat in the western suburbs of Melbourne called Fraser which is an obvious nod to former Liberal Prime Minister Malcolm Fraser, ironically this seat will be a safe Labor seat. Elsewhere a number of marginal Liberal seats have become slightly more Liberal inclined and some Labor Seats have become more Liberal inclined. This however is offset by Dunkley becoming a Notional Labor seat and Corangamite to become a 0.03% seat although Corangamite will soon become known as Cox which the member didn’t like as she didn’t want the member for Cox needing to withdraw anything (the childlike sense of humour of some of our politicians is bewildering!). Three other seats are changing names with Murray to become named Nicholls, Melbourne Ports to become McNamara and McMillian to become Monash. The seat of Bruce also grabbed my eye in the redistribution as it goes from a 4.1% seat to a 14.9% seat. One thing that was raised this morning on Insiders (7) was as a result of the redistribution Bill Shorten would seek to vacate his seat of Maribyrnong  for the new safer seat of Fraser. In the ACT apart from the creation of the new seat of Bean the changes are mostly immaterial with the two remaining seats staying safe Labor and the new seat also being a safe Labor seat (8).
My home state of South Australia also went through some changes which despite seeing the loss of a Labor seat wouldn’t upset them a great deal. (9) provides a good table below of the new margins for the affected seats. So Port Adelaide is abolished which leaves Shadow Environment Minister and Labor President homeless. Nick Champion’s seat of Wakefield becomes named Spence in honour of “Great Aussie Women” Catherine Helen Spence who amongst other things was an Author, Teacher, Politician and Woman Rights champion (see (10) for further details about her incredible life). Adelaide becomes safer Labor as it takes in some of the western parts of Port Adelaide that were abolished. Hindmarsh is the big winner for Labor as it takes in most of Port Adelaide that was absolved which turns a line-ball seat into a safe one. Grey and Barker are significantly under the allowed variance for a seat enrolment total and so they get bumped up by taking in the more Liberal inclined parts of Spence which has the flow on effect of turning Spence into a safer Labor seat. Kingston is the only seat which has a positive flow to the Liberals as it gives up the Labor inclined area of Aldinga Beach to Mayo but if you looked at the 2PP value for the Libs under this new boundary Labor will still be inclined to hold that seat. What this suggests to me in SA is that it is going to be hard to flip seats from election to election in SA with Boothby the obvious target to fall in SA at the next election. I for am also surprised that Port Adelaide was dumped as it has been a seat at State or Federal level since 1851. Now as I said above the loss of Port Adelaide leaves Mark Butler homeless and as he is such a significant player he needs to be re homed. The obvious solution would be to give the seat of Adelaide to him as Kate Ellis the long serving member is retiring however that is a right aligned seat and they would be loather to give such a prized seat up to the left particularly as they just forfeited the number one senate spot in the 2016 election to Penny Wong over Don Farrell. The alternative solutions as outlined by (11) have their issues, he could enter the senate but that would limit his progression as a possible future Labor leader which I think would not be beyond him even if he’s not my cup of tea as a politician. I think the more likely option is that one of the left aligned members of Hindmarsh in Steve Georganis or Makin member Tony Zappia would be tapped on the shoulder to stand aside for Mark Butler. An outside option would be for him to go to Spence in the north which is the safest seat for Labor under these new boundaries and then Nick Champion moves to Makin pushing aside Tony Zappia. My money is on Butler moving into Hindmarsh.
Lib Change ALP Change Xen Change LIB 2pp vs ALP
Adelaide 34.4% -2.1% 42.8% 6.9% 12.5% -0.3% 41.1% -4.3%
Barker 47.3% 0.8% 15.9% 0.7% 29.0% -0.1% 64.4% -0.8%
Boothby 44.4% 3.2% 27.7% 3.2% 18.3% -2.4% 52.8% -0.7%
Grey 44.7% 1.9% 22.4% 0.8% 27.2% -0.6% 58.6% -0.1%
Hindmarsh 33.5% -6.8% 43.4% 9.4% 16.4% 1.4% 41.8% -7.6%
Kingston 27.2% 3.9% 50.0% 0.6% 17.7% 0.5% 36.5% 3.5%
Makin 28.6% 0.0% 46.3% 4.5% 16.2% -0.4% 39.2% -1.2%
Mayo 37.7% -0.1% 16.4% 2.9% 33.8% -1.1% 53.3% -2.1%
Port Adelaide Abolished
Spence/Wakefield 20.4% -6.0% 49.4% 9.6% 20.1% -0.4% 32.1% -6.9%
Sturt 47.4% 3.0% 23.5% 1.3% 19.7% -1.4% 55.7% -0.1%

This Redistribution has certainly got some coverage but not as much as I think it should given it’s impact. The reason this redistribution is so important is because it means Malcolm Turnbull goes into the next election on boundaries that place him in minority government. The new numbers are Liberal 75 Labor 71 and 5 others which is one short of the 76 needed in the 151 seat parliament. That is why I think the Citizenship Issue is so key, if Katy Gallagher is wiped out of Parliament then it means 3 Labor MPs and Rebekah Sharkie the Nick Xenophon independent from South Australia would fall foul of the constitution under the same test of reasonable steps not meaning just starting the process of removing dual citizenship before the writs of the election were issued. If the Liberals could win one of those seats and I think they are a chance in Longman and Mayo then that would mean they regain their majority going into the new boundaries of the next election and it could create much needed momentum to show they still have some favourability in the electorate.

References

(1): https://www.aec.gov.au/Electorates/Redistributions/index.htm

(2): https://www.aec.gov.au/Electorates/Redistributions/calculating-entitlements.htm

(3): https://en.wikipedia.org/wiki/Australian_federal_election,_1998

(4): http://www.abc.net.au/news/elections/federal-redistribution-2018/

(5): http://adb.anu.edu.au/biography/clark-andrew-inglis-3211

(6): http://www.abc.net.au/news/elections/federal-redistribution-2018/vic/

(7): http://www.abc.net.au/insiders/sunday-15-april-full-program/9660530

(8): http://www.abc.net.au/news/elections/federal-redistribution-2018/act/

(9): https://www.pollbludger.net/2018/04/13/south-australian-draft-federal-redistribution/#comments

(10): https://en.wikipedia.org/wiki/Catherine_Helen_Spence

(11): http://www.abc.net.au/news/2018-04-13/mark-butler-waits-seat-new-electoral-boundaries-south-australia/9655748

Taxes – the sexy side of Australian Politics

This week was a shortened Parliament sitting week with Parliamentarians only sitting from Monday to Wednesday. Despite the shorter week Parliament was still busy with both the Senate and the Lower House focussed on two taxes one the lowering of company tax rates for medium and big businesses and the Labor move to end refunds for investors who have excess imputation credits. I’ll give more information on the two tax credits but this week the Liberals have again shelved the tax cuts for medium and big companies as they could not convince Independents Deryn Hinch and Tim Storer to support the changes with Labor, the Greens and Nick Xenephon’s two senators already against the changes. On the imputation credits following a large backlash by retirees and other related interest groups Labor have now said they will grandfather the changes to the imputation credits to avoid affecting people on welfare (1).

Focussing in a bit further on the Labor policy to end cash refunds for excess imputation credits I think it is first worth noting what a imputation credit is. (2) gives a good explanation on what a franking credit is and essentially the goal is to stop the double taxation of the companies profits which allows the tax a company pays to be passed onto shareholders. The example below shows a company who pays 30% of tax on 100 dollars of profit which then leaves the company with a 70 dollar profit after tax, in this case the shareholder receives 70 dollars in dividends and is also available to a 30 dollar franking credit for the tax that the company paid. If the shareholders marginal tax rate is lower than 30 percent then they can receive the franking credit back as a refund and in indeed would get all of the money back if they have a marginal tax rate of 0 percent.

Labor in principal don’t have a problem with the original franking credit by Paul Keating in 1987 to stop the double taxation of companies and shareholders both paying tax on company profit. The problem they have is the John Howard and Peter Costello amendment in 2000 (3) to assist self funded retirees and low income retirees to lessen the regulatory and tax burdens of associated super funds. For the Liberal Party this is bread and butter stuff and is an example of people who have worked and saved hard in their life then being able to self fund or help supplement people’s retirement welfare and Labor’s changes is essentially stealing money from those who have worked hard to live more comfortably in retirement. Given Labor’s current push to attack the rich to help the poor Jeremy Corbyn Bernie Sanders push their policy announcement to end this credit fits form but has not necessarily been received well by older people or swing Liberal voters. With that in mind Labor’s original policy is detailed here (4). Labor have not been exact with costings however their plan to end the refund of franking credits who pay no marginal tax is worth 59 billion dollars. The revamped plan of Labor in the last week is the same as before but as I outlined above plans to grandfather the policy for anyone on pensions like Disability Support Pension or the Aged Pension. This policy flip would cost the policy $700 million which Labor says shows this policy is mainly going to hit the super wealthy rather than those who are poor. The Liberal Party would argue that the policy being grandfathered means that people who invest in funds from now on will not get a refund and that people who are getting the refund now may be paying little tax but this shouldn’t be a problem because they have payed a large amount of tax when they were younger so that makes up for it now. I think the Liberal have also focussed on taxable income but while that is low for a lot of the retirees that figure is misleading as most people’s main form of income in retirement is from Superannuation which is not taxed. The following article is used by Labor in their defence of their policy change (5).

Dividend & Franking Credit Cash Flow

 

(2)

 

 

 

 

 

 

 

 

Onto the company tax and this the second phase of the Government’s company tax reform push after the tax rate was lowered to 27.5% for companies earning under $10 million (6). As I outlined above the government was unsuccessful in cutting company tax for companies with a turnover up to 50 million dollars. The Government have continued to argue that such a tax cut would allow big businesses to spend the saving in tax on investing more in their company to make it more profitable and with those increased profits they could hire more staff and pay that staff more money. From a theoretical Economic point of view that makes sense as when a company makes more money and pays less tax they should then be able to spend more money on staff hire and better staff wages. In practice however companies tend to either pocket that money or spend that money on giving money to shareholders. Now I would argue that shareholders can also be general taxpayers not necessarily on large money but for some reason shareholders have also entered the realm of people to be despised. What makes the government’s argument a bit harder to prosecute is a leaked survey showing most businesses would not pass on tax cuts to staff wages (7). Indeed the headline figure from the linked survey is that only 16 percent of surveyed businesses would pass on tax cuts to increased employment and wages.

The Labor response to this company tax is at a time when company profits are rising at record levels (this is disputed by the government and ABS figures) companies do not need a 65 million dollar handout. They instead point to an apparent cut in funding for schools or hospitals by the Government as the more appropriate use for these budget amounts. Ironically the Labor Party also said this money is needed from the Imputation Franking Credits so I have a trouble with Labor scaring people that every government spend is impossible because otherwise Schools and Hospital Funding will be cut. They also disgracefully try and link the Big Company Tax to an increase in the Medicare Levy which was done by the Government to fully fund the NDIS as the Labor Party did not fully fund it. I also suggest it’s duplicitous of the Labor Party to say that money into Hospitals and Schooling is being cut, it is increasing just not at the level that the Labor Party would see it increased by. Again I think it’s worth debating on whether more money should go into Hospitals and Schools but a difference in money being invested into schools and Hospitals does not equal a cut. As a result of all this it is hardly surprising that the Labor Party plan to repeal the policy if it does eventually pass the Parliament.

On the bill I think the company tax is worth passing but I would have a similar setup to Japan who recently cut company tax and I would link the company tax cuts only if they guarantee a rise in employment numbers and wages for employees as wages growth has been too flat. (8) has a great article on what Japan have done. I think the government will keep trying to introduce this bill until the next election which I think will be held early next year and I don’t think the company tax is going to pass before the next election which will make this issue an election issue. This is particularly because Tim Storer the new SA Independent Senator and former Nick Xenophon Team member needs convincing of the merits of the company tax cut without wider reform to tax policy which with this government behind in the polls I don’t they have the stomach to tackle (9). In terms of Company Tax cuts as an election issue I don’t think the Government are ahead on this issue as it’s hard to excite the population on helping big banks out. They also do not see the economic benefits of increased company investment because Capitalism and trickle down economics is copping a hiding in the general population at the moment. In that sense invoking Donald Trump lowering company taxes in America as a good measure for why we should lower company taxes is questionable because Donald Trump is not popular and for some he represents the worst of Capitalism.

References

(1): https://www.theguardian.com/australia-news/2018/mar/27/labor-offers-pensioner-guarantee-as-tax-policy-divides-voters-guardian-essential-poll

(2): http://frankingcredits.com.au

(3): https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/bd/Bd9900/2000bd118

(4): http://www.abc.net.au/news/2018-03-13/labor-plan-scrap-5-billion-year-shareholder-refund-policy/9541016

(5): https://grattan.edu.au/news/the-real-story-of-labors-dividend-imputation-reforms/

(6): http://budget.gov.au/2017-18/content/glossies/jobs-growth/html/jobs-growth-00.htm

(7): https://www.businessinsider.com.au/tax-cuts-australian-business-secret-survey-employment-2018-3

(8): https://www.reuters.com/article/us-japan-economy-tax/japans-ruling-bloc-approves-big-corporate-tax-cut-to-encourage-wage-hikes-idUSKBN1E80KR

(9): https://www.theguardian.com/australia-news/2018/mar/29/tim-storer-insists-he-wont-horse-trade-but-flags-boost-to-newstart-as-top-goal