Academic journal article Social Alternatives

The Double Edged Sword: Tax Cut Politics and the 2007 Federal Election Campaign

Academic journal article Social Alternatives

The Double Edged Sword: Tax Cut Politics and the 2007 Federal Election Campaign

Article excerpt

Given the political success of the Howard government's approach to tax and fiscal policy in recent years it was not surprising that the Coalition persisted with its winning formula in the 2007 federal election campaign. Yet this article argues that by 2007 the Coalition's established brand of tax cut politics was economically inappropriate and politically counterproductive. Perhaps the most decisive moment of the 2007 election campaign was Kevin Rudd's campaign launch proclamation that he 'had no intention today of repeating Mr Howard's irresponsible spending spree'. This was significant because it represented a symbolic end to the pork barrel politics which had dominated the campaign to that point. This strategic policy shift allowed Rudd to portray himself as being a disciplined financial manager prioritising economic sustainability over electoral opportunism. So while the 2007 election campaign was devoid of significant tax policy reforms the ALP's preparedness to exercise marginally greater fiscal restraint was decisive.

The Howard government's achievements in relation to tax reform and its reputation for fiscal responsibility played an important role in underpinning the Coalition's economic management credentials and electoral success up until the 2007 election. Given the political success of the Howard government's approach to tax and fiscal policy, especially since the introduction of the controversial GST in 2000, it was not surprising that the Coalition persisted with its winning formula in the 2007 federal election campaign. Yet this article argues that by 2007 the Coalition's established brand of tax cut politics was economically inappropriate and politically counterproductive given growing inflation pressures. Perhaps the most decisive moment of the 2007 election campaign was Kevin Rudd's campaign launch proclamation that he 'had no intention today of repeating Mr Howard's irresponsible spending spree' (Rudd 2007). This was significant because it represented a symbolic end to the pork barrel politics which had dominated the campaign to that point. This strategic policy shift allowed Rudd to portray himself as being a disciplined financial manager prioritising economic sustainability over electoral opportunism. So while the 2007 election campaign was devoid of significant tax policy reforms the ALP's preparedness to exercise marginally greater fiscal restraint was decisive.

Howard's Golden Goose

The Howard Government's enviable reputation in relation to tax policy and economic management more generally was based squarely on the Coalition's record of presiding over a high growth, low inflation economy which delivered impressive employment growth, business profitability and increasing household wealth. Whilst most commentators argue that the economic growth experienced over the 'Howard decade' was as much a product of good timing as good management (for an excellent summary see Fenna 2007), politically the Coalition did manage to gain credit for presiding over the good times. The Coalition built its economic management credentials by eliminating the deficit inherited from the Keating Government, through the introduction of the GST and business tax reforms during the government's second term (1998-01) before using the revenue dividend of the strong economic growth experienced between 2001 and 2007 to retire government debt and fund personal income tax cuts and increased family benefits. While there are clear tensions between the goals of retiring public debt (or more recently investing for future needs) and cutting taxes, in practice the Howard Government balanced the competing needs of today's taxpayers and future generations through an informal policy of maintaining a budget surplus of approximately 1% of GDP (figure 1).

Having met the goal of achieving a cash surplus of approximately one percent of GDP, the Howard Government sought to return surplus revenues in the form of discretionary tax cuts or increased family tax benefits rather than introduce new expenditure programs. …

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