A moral dimension now overlays the budget. Scott Morrison wants to draw a distinction between “good” and “bad” debt. Evidently, he is not as keen to apply this same moral dimension to taxes. Let me explain first one and then the other.
Good and bad debt are stocks. They have flow counterparts called good and bad deficits. The budget papers introduced a new (good) measure of the deficit to complement the (bad) one we all focus on, which is the ‘underlying cash balance’. The new measure is the ‘net operating balance’. This new measure which everyone has ignored, presumably to Morrison’s chagrin, strips new capital expenditure from the deficit.
There is yet another measure buried deep in the budget papers. With a touch of irony this is called the ‘headline cash balance’. I can only assume that this measure of the deficit is regarded as being not just bad but really bad because it is the largest and includes equity investments that the government makes to the NBN and other loss-making entities. In fact, however, this is the most telling of the measures. It tells us how much the government has to borrow.
For a moment assume foolhardily and contrary to recent experience that the forecast deficits for 2017/18 will be close to the mark. Add $10 billion across the board for realism, if you must. Here are the predicted outcomes rounded:
- Underlying cash balance – $29 billion
- Net operating balance – $20 billion
- Headline cash balance – $48 billion
It is fairly clear why the new measure is favoured by the government. And such a measure is not out of place in the business world, where capital investments are governed by the pursuit of profit and failure punished. However, capital investments by government do not proceed under the same strictures. The NBN is a classic example of a major investment decided on a whim.
In prospect among many projects is Snowy Mountains mark 2, the Western Sydney airport, and the Melbourne to Brisbane inland railway. Maybe all of these projects will directly and indirectly return sufficient revenue to service and repay the required borrowings. I seriously doubt it. This doesn’t necessarily mean that they shouldn’t be done. It does mean that their impact on the budget deficit cannot be conjured away. The headline cash balance is therefore a better measure of the budget deficit than is either of the other two alternatives.
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It is also worth bearing in mind that ‘good’ debt so-called, may turn out to be very much worse than ‘bad’ debt. Borrowing to throw another billion-or-two dollars a year on a new entitlement program is most definitely bad debt. But how about a dud capital investment that soaks billions, year after year, on running and maintenance costs without ever turning a profit? White elephants like, say, a poorly performing hydro project, or new airport, or inland railway snaking through regional towns can ultimately cost a lot more than unproductive cash splashes.
Let’s be clear: there is no such thing as good debt. There is just debt. All debt is a burden. Losing sight of that is tantamount to giving license to madcap governments to spend willy-nilly on their pet, vote-winning, capital projects. And in case the Libs are listening, the concept of good debt is a dangerous weapon to hand future spendthrift Labor governments.
Morrison might have more sensibly applied his good and bad descriptor to taxes. I will leave aside his delusion (or disingenuousness more like) that banks pay taxes rather than their shareholders and customers and focus on the discriminatory nature of his bank levy.
Taxes should be competitively neutral. In general, they should not advantage one industry over another or one business over another. Now think of a tax that confounds this maxim and which readily wins the support of Labor and the Greens. Think of a Liberal-National government so utterly bankrupt of principle that it is willing to promote such a tax.
What you get is the bank levy. It is simply a contrivance, arbitrarily set to apply only to the four major banks and Macquarie; their customers and their shareholders. Perforce this damages the competitive position of the five banks in question.
Morrison and Bill Shorten say they will take it amiss if the banks pass the tax onto their depositors or borrowers. That would leave shareholders — poor ones as well as the rich and in-betweens — to pick up the tab. Fortunately we don’t live in a socialist state so the would-be comrades of the Coalition can’t quite yet dictate how banks run their businesses.
Are there are constitutional impediments to this kind of discriminatory tax? There should be. Otherwise the government of the day with parliamentary collusion has carte blanche to undermine and potentially destroy individual companies.
The new (bad) bank tax is the thin end of the wedge. No company is safe when the government can arbitrarily impose such discriminatory taxes. It is a small step, true. But it is nevertheless a step on the road to Venezuela. It is also one further reason not to vote for the Liberals. Left hanging is the difficult question of who to vote for so that it counts for something.