Peter Costello's five most 'profligate' decisions as treasurer cost the budget $56bn a year
According to the IMF, the Howard/Costello government were the in Australia for the last 50 years. Indeed, while the mining boom was gathering pace they cut taxes so far and so fast that they forced the Reserve Bank of Australia to rates.
While countries like Norway took the benefits of resource price booms and banked them in their Peter Costello chose to cut taxes for the wealthy instead. He knew at the time that his populist generosity to the highest income earners would force future treasurers to choose between budget deficits or cutting spending on the sick, the poor and elderly. No prizes for guessing which our former treasurer prefers.
The only thing Peter Costello hates more than budget deficits is collecting the revenue needed to fix them. Just as his government did nothing about the long term challenge of climate change, his government did nothing to set up Australia's long term public finances.
In 2007 Mr Costello reduced taxation on income earned from superannuation to zero for Australians over the age of 60. At the same time he removed the superannuation surcharge.
The superannuation surcharge acknowledged that the benefit of superannuation tax concessions flowed mainly to high income earners. It meant that those on high incomes paid a higher concessional tax rate on their super contributions and earnings. Mr Costello abolished it in 2005 which meant that high income earners paid a flat 15 per cent tax rate on all superannuation contributions and earnings.
At the time these super changes were estimated to cost the by 2009-10. With the rapid growth in superannuation tax concessions (they are currently growing at about 12 per cent) they would be worth much more today.
When companies pay dividends to Australia shareholders out of after-tax profit, shareholders also receive 'franking credits' which are a credit against their own tax obligation and based on the tax paid by the company. This system, known as 'dividend imputation' is unusual and only 4 other countries in the world use it.
However, in 2000 Mr Costello made the system even more generous to shareholders by allowing them to get a cash refund if they receive more in 'franking credits' than they actually owe in tax. Because income from superannuation is tax free for people over 60, high income retirees can use franking credits to get a cash gift of over 40 cents for every dollar they receive in dividends.
These five changes are worth $56 billion per annum. This is likely to be a very conservative estimate since some of these costs were for earlier years. The total is likely to be much more.
A growing number of organisations including The Australia Institute are making suggestions on how the government might repair the budget by making changes that would allow more revenue to be raised. Of course Peter Costello dismisses these suggestions and describes them as coming from ‘lefties’. Presumably he thinks the IMF is a front for global socialism as well.
It was the IMF who called out the Howard/Costello government as the most profligate in Australia in the last 50 years.
Economist Richard Denniss is executive director of The Australia Institute.