Analysis

Can Labor win? Yes it can

The Labor Party’s chances of pulling off a come-from-behind win at next year’s election took a big step forward yesterday with two expert panel reports, both of which would have been in line with the old dictum of "never have an inquiry unless you know the answer first".

One deals with the problem of mobile capital, the other deals with the problem of mobile people. Both were hurting Labor, and both have been neutralised.

Separately the government is also reported to be planning to scrap the $15 a tonne floor price on carbon emissions trading from 2015 and replace it with a link to the European ETS, where permits are currently selling for less than $10.

Can the ALP really win? Definitely. The main problems remain the morale of the ALP itself, and Julia Gillard’s lack of public authenticity, stemming partly from the broken promise on carbon tax and her opposition to gay marriage and partly from her robotic style.

Against that, the economy is travelling very well indeed and the Coalition has a very big looming problem funding handouts without the taxes (carbon tax and mining tax) that go with them. The hole is said to be $70 billion, which will have to come from spending cuts or other taxes.

Gillard and Wayne Swan believe that if they neutralise boats and company tax as issues, then the $70 billion hole will sink Tony Abbott.

Also, they hope the carbon tax will be less of an issue because a growing number of emitting companies are already making a profit out of it. That’s because the compensation for trade-exposed firms is fixed for five years based on old industry averages; many are now emitting much less greenhouse gas and are ahead on the deal. They will squawk if Abbott repeals it.

What’s more, Abbott won’t be able to repeal it before 2015 because of the need for another election to do it, by which time companies may be buying cheap European permits.

That leaves boat people and company tax.

The review of asylum seeker policy led by Angus Houston has provided cover for the re-opening of the Nauru processing centre, no doubt as intended. It ensures that new legislation for offshore processing will pass parliament with Coalition support. 

Opposition Leader Tony Abbott would have read yesterday’s Houston Report with a sinking feeling: it means “Stop The Boats” will now not be an election issue no matter how much he claims credit for it.

The Nauru/Malaysia impasse was hurting Labor the most because policy failures are always, rightly, blamed on the government of the day; the Coalition was being rewarded for intransigence.

Prime Minister Julia Gillard had to find a way to cave and Houston has provided it, as both sides of politics would have known he would. No one will remember that it was the Coalition’s policy that stopped the boats, only that government legislation re-established offshore processing, thus removing asylum seekers from the Australian legal system.

It also helps distance the ALP from its damaging partnership with the Greens, who are sticking with their opposition to offshore processing.

Meanwhile mobile capital may been neutralised as an issue by the Business Tax Working Group, led by Chris Jordon, which has dusted off the old roadmap for Australia to join the global contest for capital through lower company tax rates, by removing a lot of depreciation allowances.

The fact is that a company tax rate is easy for foreign CEOs to understand while depreciation is complicated and opaque.

The intellectual argument for reducing targeted depreciation allowances to pay for a general cut in the company tax rate includes the idea that it would even things up between tangible and intangible assets. As yesterday’s report says: “The working group is also mindful of the growing importance of intangible assets in the generation of corporate profit. Intangible assets include brands, intellectual property, customer lists, internal processes, and copyrights which are often the result of investments such as R&D and marketing.”

Anyway, by suggesting that a company tax rate cut be financed by slicing depreciation and R&D allowances, Chris Jordan’s group has turned the debate from one between the government and business to one within business – basically between miners and the rest.

Thank you Chris. Thank you Angus. Now for some acting lessons.

*This piece was originally published by Business Spectator.


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