Economics and finance, Government and governance, Trade and industry | Australia

6 May 2016

What should Australian voters expect ahead of the 2 July poll? Hopefully a coherent approach to policy, rather than more sound bites and slogans, Quentin Grafton writes.

Australia is in election mode. The 3 May Budget has set out how the Coalition government wants to spend its money, pundits are telling us who are the winners and losers, and political parties are ramping up their rhetoric on jobs, growth, fairness and the environment. The ALP has already outlined its ‘Positive Policies’ and the Greens are ‘Standing up for What Matters’ while the 2016-17 Budget, in the words of the Prime Minister, represents the Coalition’s ‘Economic Plan’.

Among the mixed messages and policy confusion about what each party has promised, it is worth considering policy coherence and whether the individual policy announcements make up a sensible whole. Policy coherence means, for example, that innovation policy should connect in meaningful ways to education policy and funding, to tax reform and to a productivity agenda. Similarly, policy coherence in tax reform means accounting for the interlinkages between negative gearing, superannuation, income tax, the GST, and company taxes.

During the coming election campaign, we need to think through the unintended consequences of different policies. The too-hard-to-resist temptation for any politician is to go for ‘sound bites’ and the ‘quick fix’. Unfortunately, the biggest losers of such an approach and political expediency are all of us who have a stake in Australia’s long-term future and who need bridges to tomorrow rather than short-term slogans.

To illustrate why we need policy coherence, consider the announced superannuation changes on Budget night. Some of these policies were borrowed by the Coalition from the ALP and include: a lower lifetime non-concessional contributions of $500,000 backdated to 1 July 2007; a reduced annual cap from 1 July 2017 of $25,000/year for beneficially taxed contributions; a cap of $1.6 million for all retirees from which earnings are tax free (amounts above this threshold will be taxed at 15 per cent); and those earning less than $37,000/year will receive a tax offset so that the tax paid on their super contributions is no more than their marginal income tax rate.

More on this: Stop the slogans | John Hewson

While the superannuation changes have been praised by some and the extra revenues are no doubt welcome for a Treasury desperate to reduce the almost $40 billion budget deficit, it is worth thinking about the unintended consequences and their policy coherence. First, the changes will likely mean – especially for younger Australians, and even those on high incomes – that almost no one will be able to save a sufficient amount in their super to be fully independent from the old-age pension under current benefit rules. In other words, the dependence on the Age Pension will increase, not decrease, into the future, which can only controlled by further restrictions on who can access the Age Pension.

Second, given what appears to be now an annual change to super, high-income Australians, and the very people who the government would like to be independent of the Age Pension, will be looking to do their utmost to tax minimise outside of super. Given that negative gearing and the capital gains tax remains unchanged, this will encourage riskier retirement investments and even greater debt loads for future retirees. Third, as a result of tax avoidance and tax minimisation with substitution of after-tax contributions out of super and into negatively-geared property and shares, and elsewhere, where there are substantial tax advantages, tax revenues will be reduced and offset the expected tax gains from announced changes to super.

So what do the super changes mean, in the long-run, for the budget bottom line? You will not find the answer in the Budget documents. What you will find, however, is that the current budget will spend in assistance to the aged $63 billion in 2016-17, an amount larger than any other single budget item and more than twice what we will spend on defence. Expect this amount to get much, much bigger in the years ahead if political expediency trumps policy coherence.

The key issue here is not the negative consequences of the just-announced super changes, or this budget, or indeed the current government’s ‘Economic Plan’. The issue is about ‘business as usual’ in Australian public policy. This is a critique of all political stripes – red, blue and green – and ourselves as voters for not holding our politicians to account for their decisions on our behalf.

We need to do better and ask more of ourselves and also our leaders. This is not a time to be timid. The Reserve Bank of Australia dropped its cash rate on 3 May to a record low 1.75 per cent so as to fight deflation and we have an economy that, while still growing, the real net national disposable income actually fell by 1.1 per cent over the year to December 2015. We also face other risks because we have a very high household debt levels (a debt-to-income ratio of 185 per cent and one of the highest in the world) and fragile economic prospects for our largest trading partner, China, which is increasingly linked to us by way of trade and capital inflows.

Should a storm come our way, and one day it will, we will find ourselves ill-prepared if we don’t ask the right questions between now and 2 July.  In the coming weeks, and beyond the election, we must insist that our leaders focus on policy coherence that builds bridges to the future rather than business as usual.

Quentin Grafton will be one of the speakers at the first of the weekly ANU & Policy Forum election events on Tuesday 10 May at Crawford School, ‘Policy, politics, and predictions’.

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Grafton, Q. (2016). Bridges to tomorrow, not sound bites and slogans - Policy Forum. [online] Policy Forum. Available at: