The federal budget takes long-avoided steps to curb housing tax concessions, rein in spending growth and reduce intergenerational unfairness – despite the political risks.
Much as it pains me to say anything nice about politicians, this is a good budget. Translation: there’s a lot in it you’re not gonna like, and not much you will.
The budget’s far from perfect, of course. We’re talking about politicians, after all. But it’s good because it gets on with doing what needs to be done – not something you can say about every budget.
You were hoping there might be a big tax cut? Sorry, your timing’s out. The first rule of budgets is that they follow a cycle. If the budget comes before an election, guess what? It’s about time we had a tax cut.
But if the budget comes after an election, it’s time for some spring cleaning. Get the budget deficit heading down, not up. Stop that wasteful spending over there. End that special tax break you’re giving someone who doesn’t particularly need it.
The area where government spending has really broken out is on the National Disability Insurance Scheme. Some of it’s going to people who probably didn’t need it, so let’s stop their payments. Doing so will save more than half the net savings of $64 billion over four years the government claims it’s making.
Well, maybe. It wouldn’t be the first time a government fell short of its savings goal. Not quite as tough-guy as they’d hoped to be.
For years pollies have talked about abolishing the tax breaks that allow people to borrow heavily and get a big discount on the capital gains tax when they sell a rental property, and now they’ve finally decided to do it.
They’ve talked for decades about stopping the well-off using family trusts to minimise their taxes, but this time they’re actually doing something.
Why the sudden interest in tax lurks? Because it’s finally dawned on the Labor government that these tax breaks are part of what’s causing the price of homes to have risen so fast for so long, thus making it so hard for young people to buy one.
Treasurer Jim Chalmers says this is the budget that will finally do something to correct this “intergenerational unfairness”. In which case, it gets a big tick from me.
Trouble is, at last year’s federal election, Anthony Albanese promised not to fiddle with negative gearing and the discount on capital gains. And, to some people, such a promise is sacred.
Sorry, I’m not buying that argument. There are evils and greater evils. Promises should not be broken, but there are some promises that should never have been made in the first place.
This is a promise to protect the privileges of the better-off Baby Boomers at the expense of young people who risk being unable to afford a home of their own. And keeping such an evil promise would be an act of great virtue, would it? Of course not.
A more subtle criticism of Albo & Co. is the caution with which he’s doing the right thing. His measures will take ages to have their full effect. Those already engaged in negative gearing or already siting on a capital gain won’t be affected. This ‘grandfathering’ will keep the budget’s savings small in the early years.
This is not ideal, but I’m inclined to let Albo off the hook. When you introduce such a measure, those who put up the greatest resistance are those who are immediately affected. Those who may be affected sometime in the future will be much less vocal.
In which case, resorting to grandfathering will greatly reduce opposition to the reform.
Younger people, focused on the initial modest savings, will wonder why you bothered. But one of the advantages of old age is you know from experience that, soon enough, the short run becomes the long run. As Keynes should have said, in the long run we’re not all dead.
As I say, if we’re going to have big tax cuts in the budgets before elections, it’s incumbent upon us to be more abstemious in the other budgets. All noses to the budget deficit grindstone.
What a bore. Well, yes. But remember this: if we’re going to be more conscious of intergenerational unfairness, what could be more unfair than our generation leaving a monster debt for the next?
To tell the truth, the courage Albanese has shown in proposing a budget as reforming as this one has surprised me. Until just a week or two ago, I was convinced he lacked the resolve to make anything more than the most urgent and unavoidable changes.
As for Jim Chalmers’ opposite number, Tim Wilson, he deserves great praise for the honesty of his position. As the Liberals’ Treasury spokesman, he is implacably opposed to any weakening of the negative gearing and the capital gains discount going mainly to well-off older men.
And then the Libs wonder why so few young people vote Liberal.
Republished from the Sydney Morning Herald
Ross Gittins is the Economics Editor of The Sydney Morning Herald.