Fact check: Labor blocking $5 billion of its own savings measures

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Three months after the May budget, the Coalition is still struggling to sell its economic strategy to the public - and to Senate crossbenchers. Senior ministers are trying to pressure Labor to cooperate with the Coalition in getting key budget legislation through the Senate.

Finance Minister Mathias Cormann told ABC's Insiders on August 24: "Labor is opposing savings - $5 billion in savings that were initiated by Labor in government - Bill Shorten is now opposing them".

ABC Fact Check looks at whether Labor really is blocking its own measures.

The claim: Mathias Cormann says Labor is opposing $5 billion in savings that it initiated when it was in government.

Mathias Cormann says Labor is opposing $5 billion in savings that it initiated when it was in government. The verdict: Labor is blocking three measures which would save the budget more than $5 billion and which it initiated when in government.

What measures is Labor blocking?

Treasurer Joe Hockey said on December 17, 2013 that Labor was opposing "$5 billion of their own savings that they promised the Australian people at the last election".

He said this comprised $1.1 billion of research and development tax changes, $2.3 billion of higher education savings, $1.5 billion from the cancellation of tax cuts linked to the carbon tax scheduled for 2015-16 and $106 million from extending a pause in indexation of the child care rebate for a further three years.

The child care rebate change was passed into law on June 23.

ABC Fact Check asked Senator Cormann whether those figures were still part of his $5 billion claim.

A spokeswoman for the Finance Minister confirmed that the child care rebate was no longer part of the claim. She also noted that the size of the blocked savings had increased. They are now:

What had Labor initiated?

Research and development tax changes

In February 2013, then prime minister Julia Gillard announced that research and development (R&D) tax incentives for companies with an annual turnover above $20 billion would be cut, as part of a move to reallocate R&D concessions to smaller firms. The benefit, which was equivalent to a 133 per cent tax deduction, would have been stripped from about 15 or 20 Australian companies.

The bill introducing that measure lapsed before the September 2013 election.

In August 2013, the Coalition released its Policy to Boost the Competitiveness of Australian Manufacturing, which said Labor's "punitive move in 2013 to completely disqualify a range of large companies from receiving any incentive to invest in Australian R&D was widely condemned and represented the first decision of its type anywhere in the world".

It also said that if elected, the Coalition would "review access to R&D tax support for many businesses that have been barred from possible access under a series of retrograde cost savings made by Labor".

However, after the election Mr Hockey announced on November 6 that the Coalition would proceed with the change Labor had proposed as one of "92 announced but unlegislated tax and superannuation measures".

On November 14, the Coalition introduced a bill to amend the R&D tax laws by cutting tax concessions previously available to companies with more than $20 billion annual turnover. The Parliamentary Secretary to the Treasurer, Steven Ciobo, told Parliament that the measure "reduces waste by ensuring that government incentives for R&D are applied in a more effective way".

The explanatory memorandum published by Mr Hockey repeats the wording of the explanatory memorandum previously published by his predecessor Wayne Swan.

Both documents say the change "better targets the R&D tax incentive to businesses that are more likely to increase their R&D spending in response to government incentives, delivering a greater return for taxpayers".

Both say that restricting the tax concessions to companies with under $20 billion annual turnover would save the Government $1.1 billion over four years.

However, Mr Hockey's memorandum does not repeat the following paragraph in Mr Swan's memorandum under the heading 'Context of amendments': "Part of the savings from this measure will be used to fund other Government priorities, including reforms announced in the Government's Industry and Innovation Statement, 'A Plan for Australian Jobs'."

Three weeks later, Labor MP Tony Zappia told Parliament that there were "major differences" between the Labor and Coalition proposal to reduce R&D tax concessions which meant Labor would not support it.

"The proposition from the previous government was tied to a whole host of job-creating initiatives that would have been directly funded as a result of the savings made...This legislation does not do that. It simply makes the cuts, and I assume the funds go into general revenue," he said.

After a Senate committee inquiry, a dissenting report by Labor senators published on March 17 said:

"It is true that this proposal stems from a measure put forward by the Labor Government in February 2013. That measure, however, must be understood in context. It was not an isolated savings measure, but the means of funding an ambitious package focussed on innovation policy, A Plan for Australian Jobs, centred on strategic industry-led Innovation Partnerships. These Partnerships would have the scale to attract major global investments in Australian firms and research institutions. They were, in other words, a new means to the same end: working with business to build jobs for Australians. That rationale is gone. The Abbott Government has made no commitment to the job-building measures the previous Labor Government tied to the changes to the R&D Tax Incentive. Nor has it earmarked the savings from this measure for the vital task of lifting R&D investment. It is simply ripping support from innovators in business."

The majority Coalition report acknowledges similar criticism in industry submissions. "Telstra wrote that it 'is regrettable that this taxation change appears to have been taken as a savings measure in isolation of any broader policy package to promote innovation, including R&D activities'," it said. "Some of the submissions which questioned the merits of the policy, however, acknowledged the government's difficult budgetary circumstances."

The bill was passed by the House of Representatives in December, but it has not been debated in the Senate.

Higher education savings

Former tertiary education minister Craig Emerson announced in April 2013 that Labor would take $2.3 billion from the university sector in order to pay for school funding reforms recommended in the review headed by businessman David Gonski.

Dr Emerson said the Government would:

Implement an efficiency dividend of 2 per cent in 2014 and 1.25 per cent in 2015;

Scrap the 10 per cent discount for upfront payment of HECS fees; and

Require repayment of the $2,000 'Student Start Up' scholarships.

The Gillard government's Gonski school reform legislation was passed in June 2013, however legislation to achieve the higher education savings intended to fund the school changes was never introduced. The savings from that proposal were, however, accounted for in the 2013-14 budget. The budget said the efficiency dividend would save $903 million by 2016-17, scrapping the fee discount would save $228 million and changing the 'Student Start Up' scholarships would save $1.2 billion.

Between August and December 2013, the Coalition oscillated on its position about whether to keep the Gonski reforms.

Eventually Education Minister Christopher Pyne announced on December 2 that the Coalition would ultimately exceed Labor's level of funding for schools for the four years of the forward estimates, with $2.8 billion budgeted, compared to Labor's $1.6 billion which was outlined in the Pre-Election Fiscal and Economic Outlook. Labor's funding did not include Queensland, Western Australia or the Northern Territory, because they refused to guarantee not to cut their own school funding. The Coalition's $2.8 billion included $1.2 billion for those three.

The Government introduced legislation on November 21 to implement two of Dr Emerson's higher education savings measures. In his explanatory memorandum, Mr Pyne said: "The bill includes savings measures that were announced on 13 April 2013 by the then minister and included in the 2013–14 budget." The memorandum cited exactly the same anticipated savings as the Labor budget for the efficiency dividend and scrapping the HECS discount. It was due to begin on January 1, 2014.

Repayment of the 'Student Start Up' scholarships was included in separate social services legislation introduced to Parliament on November 20. The explanatory memorandum said the measure would save $1.214 billion over five years, comparable to the $1.186 billion in Labor's budget. A bills digest prepared by the Parliamentary Library said the measure was proposed by the Gillard government in April 2013.

On December 3, 2013, Opposition higher education spokesman Kim Carr said the ALP would not support "the Coalition's cynical move to go ahead with $2.3 billion in savings from higher education" because the savings were not being used to fund the full six-year Gonski reform program, as the ALP had intended.

Senator Carr also said the Government had "handed the states a blank cheque to do with as they wish, with no checks and no guarantee that they won't continue the cuts to education budgets we have seen over the last few years".

"Under Abbott's plan the Commonwealth will pour money in from the top only to have it come running out the other end with no assurances that students will benefit," he said.

After opposition from Labor and the Greens in the Senate, the scholarships measure was removed from the social services bill before it passed both houses in March 2014. After a Senate committee inquiry, a dissenting Labor report published on December 11 said:

"The $2.3 billion package of savings measures introduced by Labor were put forward to help fund $11.5 billion of once in a lifetime changes to our school system that are now no longer going ahead under the Coalition government and the 44th Parliament. The Bradley Review, which developed the proposal, had been instructed that the changes had to be budget neutral. This amendment creates a budget saving that is not offset with education investment and instead contributes to the Government's bottom line."

The majority Coalition report did not refute this claim. It said: "The fact that these measures were introduced by the previous government and the savings foreshadowed in the 2013-14 budget documents is strong evidence that savings to the budget as a whole, while ensuring a strong and viable further education sector, is crucial in maintaining world class higher education in Australia."

The scholarships savings measure was reintroduced in replacement legislation on July 17, 2014. It has not been debated.

The legislation for the other two measures was passed by the House of Representatives in December, but has not been debated in the Senate.

Tax cuts linked to the carbon tax

A week before Labor's 2013-14 budget was due to be released, word leaked that a $60 billion to $80 billion revenue shortfall should be expected, in part because of lower than forecast revenue from the sale of carbon permits. There was speculation that this would affect tax cuts introduced in 2011 as compensation for the impact on households of the carbon price.

The 2011 legislation, which principally involved lifting the tax-free threshold, provided for cuts in two stages. The first, increasing the threshold to $18,200, took effect in July 2012. The second, increasing it again to $19,400, was to take effect from July 2015.

On May 8, 2013 former climate change minister Greg Combet confirmed the rumours, but emphasised the second stage of the tax cuts were only being deferred, not dumped. "Because there will be no additional anticipated increase in costs to households in 2015-16 with a lower carbon price forecast, the budget will defer an anticipated further round of additional related tax cuts," Mr Combet said.

The 2013-14 budget states that the tax cuts would be deferred, resulting in "a gain to revenue of $1.5 billion over the forward estimates period" ($820 million in 2015-16 and $670 million in 2016-17). Labor did not introduce a draft bill to implement those changes before it lost office in September 2013. The budget indicated Labor would reintroduce the tax cuts once the carbon tax hit $25.40 a tonne, which it forecast to occur in the 2018-19 financial year.

On October 15, 2013, the Coalition promised to repeal the carbon tax, as well as related measures. In late November, the Government introduced legislation to implement the reversal of the 2015-16 income tax breaks. The bill was was one of 11 packaged together to abolish Labor's carbon pricing mechanism.

The Senate rejected that package of bills on March 20, 2014.

The Government made a second attempt to repeal the carbon tax with legislation introduced on July 14, 2014. The second package contained only eight bills, and the income tax bill was not among them.

Instead, the Government reintroduced it on July 16 as stand-alone legislation specifically entitled "Labor 2013-14 Budget Savings (Measures No.1) Bill". Senator Cormann said the bill would "implement the savings that Labor announced and booked but never legislated".

"Labor booked $1.5 billion in savings over the then forward estimates period to the budget bottom line [in May 2013], but did not seek to introduce legislation to reverse the personal income tax changes which they had legislated," he said. "The Coalition has always been clear that we would support this Labor saving."

The Coalition's estimate of the impact of the change has increased since the May budget, when the 2017-18 financial year was included in the four years of the forward estimates. The explanatory memorandum to the 2014 bill says keeping the current plans for personal income tax cuts from 2015 will cost the budget about $2.2 billion over the forward estimates - the $1.5 billion forecast by Labor for 2015-16 and 2016-17, plus $675 million in 2017-18.

The new bill has not been debated.

Labor's response

An Opposition spokesman told Fact Check Labor opposes the R&D tax incentive and higher education savings because they were "measures initiated by Labor in government to invest in the Plan for Australian Jobs package and the Gonski education reforms."

"On coming to Government the Coalition slashed funding from the Plan for Australian Jobs... They also broke their promise to honour Labor's Gonski education reforms. In doing so they removed the fundamental reason for the savings being made in R&D and higher education," the spokesman said.

The Opposition will not support changes to the tax cuts associated with the carbon tax because: "Labor budgeted to defer the tax cuts until 2018-19, not cut them permanently."

"The bill introduced by Joe Hockey that purports to be a Labor savings measure keeps the tax free threshold at $18,200 permanently," he said.

The bottom line

Senator Cormann says three measures originally proposed by Labor are now being blocked.

The Government's legislation to pursue changes to R&D concessions is identical to changes introduced in draft legislation by the ALP in 2013.

Its legislation to abandon tax cuts linked to the carbon tax mirrors Labor's 2011 law introducing those cuts, which Labor said in 2013 it intended to defer.

Savings proposed from changes to the higher education package reflect those identified in Labor's last budget.

The Opposition says it refuses to support the R&D savings and the higher education changes because the resulting savings will not be used by the Coalition as Labor had originally intended. However, the Government's measures remain the same. Labor, in two Senate committee reports, admits as much.

Labor says the legislation reversing income tax cuts originally intended to offset the impact of the carbon tax is not the same as the Coalition's legislation, because Labor's deferral was always temporary, whereas the Coalition's legislation makes the reversal permanent. Given the Coalition has repealed the carbon tax, the carbon price will never reach $25.40 a tonne. So there is no reason to defer the tax cuts rather than abandon them.

The verdict

While Labor says it has good reason for blocking the legislation, each of the three areas had been identified by it as an appropriate way to find savings, regardless of how the savings would be applied.

In any event, Senator Cormann is not making a claim about why Labor is blocking legislative changes that it proposed first, only that it is.

The measures that Labor is opposing would save the budget more than $5 billion.

Senator Cormann is correct.

Sources

Topics: federal-government, budget, education, business-economics-and-finance, tax, liberals, government-and-politics, australia