The deficit first has to be brought under control so the arithmetic of debt reduction can allow economic growth to outpace the negligible cost of money.
At some point, all the borrowing from the future is going to need to be replaced by supply-side initiatives to drive unemployment “comfortably” under 6 per cent so budget repair can start.
Bring-forward measures to revive growth now, such as the 100 per cent business investment tax allowance, will leave a hole in a few years that will need to be filled.
Avoiding a political fight over the tax package will get the money flowing into taxpayers’ pockets before Christmas.
Labor will pass the business investment allowance because it allows it to claim victory over the Coalition in the proxy war over cutting Australia’s internationally uncompetitive 30 per cent company tax rate.
Opposing the 100 per cent instant write-off for brought-forward business investment would have required Labor to vote against the omnibus tax package bill – and along with it the fast-tracking of the stage two personal income tax cuts Labor had called for.
This would have meant Labor voting against tax relief to middle Australia weighted to lower-income earners, and effectively voting for Green leader Adam Bandt’s undergraduate class war rhetoric about tax cuts for millionaires.
Still, the temporary business investment tax break panders to Labor’s capital xenophobia because, unlike cutting company tax, it keeps money onshore as a fiscal stimulus to help boost jobs, investment and growth, rather than sending it off to foreign investors.
Like the line of political least resistance decision not to bring forward the stage three flattening of tax scales that Labor opposes, this reflects the Prime Minister’s non-ideological approach to fighting the COVID-19 recession, and determination to govern safely from the centre.
Avoiding a political fight over the tax package will get the money flowing into taxpayers’ pockets, and the business investment plans being cooked up, before Christmas. The cost of this political pragmatism is to give up the opportunity to improve work and earning incentives immediately by ensuring 95 per cent of taxpayers pay no more than a 30 per cent marginal personal tax rate.
The government has also brought its own brand of anti-business populism to the budget. Imposing an arbitrary $5 billion turnover cap on business eligibility for the investment allowance excludes about 50 of the nation’s most important and most successful companies including the big miners, big banks, and big supermarkets.
It provides yet another arbitrary cap, such as the $50 million turnover for small businesses to get the lower 27.5 per cent company tax rate. The double whammy for the big banks, whose Team Australia shock absorber loan holidays have saved businesses and households, is also to be singled out as the sole category of business excluded from the JobMaker hiring subsidy.
This may all be part of political optics of the budget. But not extending the same special incentives to invest, hire, and grow across the whole economy detracts from the budget’s overall pro-business focus on tax cuts and a private sector investment-led recovery.
This further underscores the need for a self-sustaining recovery, and for urgent action on the supply-side reforms to tax and industrial relations that will permanently make Australia a great place for business, big or small, to invest, hire, and grow, without needing any special incentives.