Wednesday, 10 May 2023
Matters of Public Importance
It's a pleasure to speak about this matter of public importance. I made a statement in an earlier debate that, unfortunately, the government, whilst deciding to run an inflationary fiscal position, has not been prepared to be honest about that for reasons known only to the government. Perhaps there are internal reasons or perhaps they are trying to manage some noisy stakeholders, but the test that they have set for themselves is a test that we will remind them of on a regular basis, and that is not to be overly partisan but just to be honest. If you're saying that inflation is going to halve over the next 12 months, and you've written it into the budget papers, then we hope that you're right. But I'd say it's going to be a challenge to halve inflation when you are running a massively expansionary fiscal policy.
That I think is the government's own issue to resolve. Certainly we will be watching very closely what the Reserve Bank does and what the minutes say when they meet every month. The reality is that fiscal and monetary policy should be working in unison. The fact that there was a surprise interest rate rise only 10 days ago or so is a real warning that the Reserve Bank has been prepared to do what is necessary to try to rein in inflation.
The Reserve Bank governor has been unfairly pursued by the Labor Party's backbenchers just for doing his job, and his job has been made much harder. Philip Lowe's job has been made so much harder by the Labor Party over these past 10 months. And the job of Philip Lowe, as the Reserve Bank governor, was made so much harder on Tuesday night with the announcement of more spending. And sure, not all the revenue upgrades were spent, but a large proportion was spent. And it is true that in the past too much of the revenue upgrades have been spent. So the key test for a government is: can it bank all of it? I would argue that that was the most appropriate policy position to take in this inflationary environment. That is the bottom line on inflation. We will watch closely as to whether the government is able to achieve its goal which it has written into the budget.
The more immediate point, though, is that more taxation has been proposed in this budget and in the lead-up to the budget—a couple of billion dollars on super funds and the end, in some way, of dividend imputation, as well as a range of other things. Eventually some of these taxes are going to cause major problems and distortions, particularly this tax change on imputation. The reason for that is that the government is proposing a new test in the law which says you can pay a frank dividend only if you have a period where you haven't been raising capital. Now, most normal companies have to—guess what?—raise capital. It's called equity, and you need money to run a business. I would have thought that if the law says that if you raise capital you can't pay a frank dividend then people will be either less likely to raise the capital or less likely to pay tax in Australia.
I think it is going to be a major change to our capital markets if that particular proposal is adopted The reason this proposal is on the table is that the government is needing to raise taxes, which of course is a breach of a commitment the government gave before the last election, which was not to raise any new taxes. We've seen a few new taxes in the last budget, in October. We've seen a few more taxes in the lead-up to this budget, which were leaked out and put into Budget Paper 2 last night. I would guess that there will be more taxes over the next year and a half or two years of this term.
In summary, the position we have is that the government have said that they are wanting to fight inflation, but they're not quite telling the truth about that, because they're running an expansionary budget. They've said they will get inflation down to a bit above three per cent. That is a test we will hold them very closely to, and we will look at any other taxes they propose to try to fill their holes.