In our high-cost, slow-growth economy, the litmus test for the second Abbott budget is its laying out a credible plan for fiscal repair without relying on tax increases.
For much of this year the Abbott government appears to have engaged in vigorous retreat over the need to alleviate quickly the core budget overspending problem. The fiscal consequences of reversing previous decisions to reduce spending are significant.
Late last year, the government's Mid-Year Economic and Fiscal Outlook statement indicated, somewhat darkly, that the impact of Senate refusal to allow the passage of measures to consolidate the budget would cost at least $10 billion over a four-year period.
The Intergenerational Report released in March provided something of a longer term picture of the cost of the Abbott government's political retreat from budgetary repair, with a budget deficit under a "policies currently legislated" scenario stretching as far as present generations will live.
Backing down on the Medicare co-payment proposal; reversing the previous decision for a lower rate of Defence Force pay increases; and even continuing subsidies to an economically retreating automotive industry are some cases in point.
What this has meant, politically, is that the likes of "bust the budget" protesters and a recalcitrant Senate appear to have prevailed over the government, and now every interest group in the country possesses the magic formula to retain their treasured policy or program.
And that formula is to cry out, for long enough, that specific fiscal consolidation measures are unfair, with the expectation that government will back down later.
The policy capitulation has also been evident with regard to the taxing side of the fiscal equation, with several new and increased taxes already having been implemented, and still more envisaged in the forthcoming Budget.
In its first Budget the Abbott government reintroduced fuel indexation and imposed a "deficit levy" income tax surcharge, estimated to collectively raise about $7.1 billion over four years.
Before that, the government announced it would also keep the additional revenues pick-pocketed out of the wallets of smokers, in the guise of increasing rates of tobacco excise.
Since its decision of late last year to remove barnacles from its political hull, the federal government has floated an astonishing array of new and increased taxes so as to ensure that revenue takings further increase to already overinflated expenditure levels.
High on the speculative agenda include suggestions to further increase the burden of our already uncompetitive direct taxation system, including the winnowing of superannuation tax concessions, an end to corporate tax dividend imputation arrangements, eliminating negative gearing provisions, and the further repression of savings through a bank deposits tax.
Many of those interest groups opposing expenditure reductions are voicing their support for tax rises with equal vigour, wagering that their supporters will likely be spared the brunt of additional taxation especially if they are targeted toward those with relatively greater incomes or assets.
What the proponents of such plans for even greater taxation ignore is that existing arrangements are, more often than not, in place to avoid the incidence of "double taxation" for example if a company paid tax on profits yet dividends to shareholders were also taxed.
To invite double taxation in our fiscal affairs would be a strategy rather conducive to economic penury in the long run, not least because of the great injury that such punitive tax impositions upon incomes, investments, and savings would cause to productive activity.
Some figures within the government have rationalised the pro-taxation strategy as an integral part of a so-called "balanced approach" to fiscal consolidation.
This approach effectively treats tax increases and expenditure reductions as symmetrical in a public sector financing accounting sense, but ignores the differing effects of these approaches to fiscal contraction upon economic performance.
As the works of economist Alberto Alesina have illustrated, expenditure reductions can help achieve the desired budget recovery outcomes with the least adverse economic effects, particularly if spending cuts are targeted to areas in which unproductive expenditures are being undertaken.
Alesina suggests that expenditure-based fiscal adjustments are associated with smaller economic downturns, if at all, than tax-based adjustments, and that spending cuts especially when combined with deregulation have, in some circumstances, supported economic growth.
Reinforcing the basic findings, based on studies of fiscal consolidation episodes in advanced countries, an emphasis upon tax increases has strong and negative effects on investments, thus dragging down economic growth rates.
As it stands, Australia is far from a low-taxing economy, certainly when taking into account policies, such as compulsory superannuation, that exude financial impositions for similar policy purposes found elsewhere in the OECD.
From this perspective, additional taxation increases run the risk of further knee-capping the robust economic growth required to furnish the public treasury with sufficient "growth dividend" revenue to help abate our budget emergency.
Incidentally, slower growth rates will also keep aggregate government spending higher than it could otherwise be, including due to higher rates of welfare dependency.
The sour reactions by sections of the community to even printed suggestions of very modest spending reductions, at least in aggregate terms, indicates that there are constituencies that swiftly organise in a quest to validate past spending decisions, irrespective of their economic and social consequences.
Calls for a heavier taxation burden should be viewed in this vein, being ambit claims to financially ratify often poor-value governmental expenditures, thus entrenching larger government as a fact of life.
A great tragedy of Australian politics is that centre-right politicians all too often fall spellbound to the pro-taxation agenda of their adversaries, in an erroneous application of the noble act of fixing the financial messes centre-left governments leave behind.
The recent past has demonstrated centre-right governments have, also, been most amenable to tax system changes rendering it easier for the public sector to collect more revenue, in the name of "efficiency" which, incidentally, constitutes the abuse of the very term itself.
The federal budget, much like the Australian economy more generally, is at a crossroads.
With spending galloping away at an exorbitant rate, to collect even an additional dollar through discretionary increases in the tax burden would represent a dereliction of economic policy of the highest order.
There is only one way to fix our budget emergency, and that is through expenditure reduction, and this will serve as the ultimate litmus test for credible fiscal consolidation.
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