It's a simple law of budgeting: you don't take a temporary spike in income and use it for permanent ongoing spending commitments. That's a sure-fire way of ensuring that your budget will be in deficit.
And yet, across the board that is what the Howard-Costello government did in so many instances. The mining boom was always going to end, it was only a matter of when. It's an iron law of economics that every boom does.
And yet, the Howard government made decisions that locked in permanent hits to the budget bottom line based on that temporary spike in national income, whether it was the baby bonus, the un-means tested private health insurance rebate, tax-free super in retirement for everyone regardless of income or wealth family tax benefits for high-income earners, or introducing the 50 per cent capital gains tax discount, the unsustainable commitments abounded.
That's why the IMF declared the Howard government the most profligate in our history and why, despite the headline surpluses, the Howard government actually left office with a structural deficit.
And it has fallen to the governments that have served since to reverse or reform many of those measures, in the interests of budget repair.
Dividend imputation is a proud Labor achievement.Paul Keating as Treasurer re-engineered capital formation in Australia by eliminating double taxation on company profits.Imputation is and will continue to be a vital part of our financial infrastructure.
But when Paul Keating introduced imputation, he determined that it could be used to reduce your taxable income to zero, but not to generate tax refunds beyond that.
John Howard and Peter Costello decided that wasn't generous enough and people could use their franking credits to generate tax refunds.
That single decision now costs the budget close to $6 billion each and every year, and it is projected to blow out even further.
Over the medium term, if nothing is done the cost will blow out to $8 billion every single year.
Eight billion dollars is more than the Commonwealth is spending this year on public schools, or childcare.
No wonder David Murray in his Financial Systems Inquiry found that imputation refundability "may erode one of the largest sources of revenue for the Australian government at the same time expenditure pressures are increasing".
With ongoing budget deficits, this is exactly the sort of tax concession that needs to be reformed. Reversing the Howard era decision to make dividend imputation refundable will make the budget $11 billion in the forward estimates and $59 billion over the coming decade. It will assist Labor to have a robust return to surplus pathway and also invest in pro-growth policies.
We have already announced the first dividend to flow from our decision on imputation: our Australian Investment Guarantee, a much enhanced depreciation regime that provides upfront tax relief to firms that invest in Australia.
This costs far less than the government's un-targeted corporate tax cut over the medium term The government wants to spend a $65 billion on a corporate tax cut in the hope and prayer that it will flow through to investment. Labor will provide tax relief on the condition it is invested.
Our corporate tax plan, unlike the government's is funded, targeted and effective.
Just like our reforms to negative gearing and family trusts, the government will no doubt attempt a shrill scare campaign about Labor's imputation policy. But just as with our other announcements, we will stand our ground and argue our case for good policy that is in the national interest.
