Put a fork in him, he’s done

After the fiasco over alcopops, there’s only one reason Brendan Nelson can survive as Opposition leader. All the potential alternative leaders, with the apparent exception of Julie Bishop, have made just as big fools of themselves as Nelson has.

The decision to tax premixed spirit drinks on the same basis as spirits in general was announced weeks ago, without a peep from the Opposition. There are two justifications for the decision, either one of which is entirely sufficient.

First, it closes an obvious loophole in the revenue system. Since most spirits are consumed in mixed drinks of one kind or another, it makes no sense to exempt premixed drinks from the general tax on spirits. If the Opposition thinks spirits in general should be taxed at a lower rate, they haven’t said so, and of course they had 11 years to make the case from the government benches.

Second, the government has made the case that these drinks encourage excessive drinking among young people, particularly young women. AFAIK, no-one has refuted this, and certainly the Opposition has made no attempt to do so. (updatedin fact, tonight’s ABC news has footage of Nelson making precisely this claim in Parliament back in 1996)

Instead, we have quibbles about the fact that the Budget papers predict an increase in consumption of these drinks even with the tax. This is a weak argument, to say the least, and the government has promptly demolished it.

Turning from the policy to the politics, this shapes up to be a disaster for the Opposition. A backdown now would be disastrous for Nelson, given the general view that he should be given a chance to respond to the Budget before being dumped as a failure. But the alternatives are even worse. The Opposition could fight on the issue until the new Senate takes over in July, then be rolled over. Alternatively, they might somehow persuade Nick Xenophon to take the suicidal step of joining them and handing Rudd a double dissolution trigger with which to take complete control of the Senate.

But of course, there’s more. Having put the richest man in Parliament in as Shadow Treasurer they now intend to fight the government on the issue of a tax on luxury cars. It’s not a great policy (removing the FBT exemption would have been much better) but it’s a political minefield for the Libs.

I’d guess a backdown, followed by Nelson’s rapid departure is the most likely outcome. But perhaps the fact that Turnbull, Abbott and Hockey are all equally implicated may give him a bit of breathing space.

45 thoughts on “Put a fork in him, he’s done

  1. As some have already said, proposing to cut the fuel excise makes no sense on policy grounds, but it might just make sense on political grounds.

    It’s pretty simple why it’s bad policy:

    1. Cutting the fuel excise by 5c/litre won’t decrease the price of fuel by the full 5c/litre, as it’s clear that the producers/refiners won’t allow the full savings to be passed through to consumers. So a policy that will cost the Government billions probably won’t do much more good at the bowser than the Fuel Watch scheme, which will cost significantly less.
    2. It’s pretty clear going forward that if the Government is serious about climate change, a tax increase on fuel is probably necessary to bring the price of fuel closer to the true costs to society of burning it. Such a move, while easily justifiable on economic grounds, would probably be akin to political suicide (as can be attested to by the reaction of US consumers to calls for an increase in the US fuel tax). The only likely way for it to slide past the Australian public would be to reindex it in some way. So given all this, it makes no sense to cut the tax on policy grounds, as this will only make a future necessary increase in the tax all the more difficult.

    Which gives rise to why it’s probably not a bad idea politically for the Opposition:

    1. To the majority of the (somewhat economically illiterate) Australian public it will probably make the Opposition look pretty good; “acting” desicisvely to reduce the costs of petrol, rather than just talking about it, and arguing that such a move might reduce inflation.
    2. The Opposition has cornered the Rudd Government somewhat by “challenging” them to match the proposed policy. It won’t look so good for the Government to deny the people a (apparently) lower fuel price, in the face of an Opposition who is promising to do so. In fact it looks as though the Rudd Government is already looking at ways of achieving these kind of reductions, albeit through slightly different means.
    3. The Opposition doesn’t have to worry about the implementation of the policy, and won’t bare any of the difficulty associated with having to raise the excise by even more (as a result of the proposed reduction) in the years to come.

    Whether it all pans out this way is another matter altogether. But on the surface, while it is ludicrous in policy terms, it might not be such a bad move politically by boxing the Government into a politically unpalatable position.


  2. Steve,

    1. Cutting the excise will have the same effect as cutting the cost of crude. It is a myth that refiners have any sustained market power.

    2. I doubt 5c will make a tremendous amount of difference either way, other than on government revenue. If you don’t believe me, look at how consumers have reacted to recent prices increases at the pump.

    1. Preferring lower prices doesn’t make people economically illiterate, it makes them economically rational.

    2. —

    3. That’s one of the few joys of being in opposition.

  3. SJ, The very low rates on low alcohol beer are for barrel containers for pubs. Beer is taxed art around $34/litre alcohol and spirits around $60 so, as I said, spirits cops a hiding. Wine is taxed at 29% of its wholesale value and as it has much higher alcohol content than beer the effective tax rate will be lower than beer.

    I don’t know if this is approximately volumetric or not. The main gap seems to be cheap cask wine which has low effective tax tates though quite high alcohol content.

  4. Why, why, why did the government increase tax on “luxury� cars but not fix the tax breaks for 4WDs?

    Because we elected a Labor government not a Green government.

    Clearly the ALP decision makers don’t have sustainability issues front and centre when they make policy, they’re thinking more about good old class warfare.

    I expected better from Lindsay Tanner.

  5. Joseph Clark,

    1. Cutting the excise will have the same effect as cutting the cost of crude. It is a myth that refiners have any sustained market power.

    Are you suggesting that a cut in excise would be fully passed through to consumers, or that the oil producers would absorb some part of the cut?

    1. Preferring lower prices doesn’t make people economically illiterate, it makes them economically rational.

    I’m not suggesting that the majority of the Australian public is economically illiterate because they like lower prices. I’m suggesting that they may be somewhat economically illiterate in that they may not, in general reasonably grasp the necessary knowledge to fully comprehend the mechanics of economic policy. For example, they might be likely to perceive that the cut in excise would mean a reduction in the price of fuel by the full amount of the cut, even though this is unlikely to be the case. The implication of this is that this kind of populist proposal by the Opposition might be able to “slide by” the “average Joe” as it looks OK on the surface, even though in reality it’s pretty poor policy.


    PS. That Preview button is a godsend, nice work JQ.

  6. If Lindsay Tanner hadn’t hairy-chestedly leaked the abolition of carers’ and oldies’ bonuses a couple of months ago, so forcing Rudd to rule them out, they would have had $1.7bn per annum (a bit more than the alcopop thingee, which is over four years) to play with.

    One hopes Mr Tanner has learned his lesson.


    How f***ing dare anyone out there make fun of Brendan, after all he’s been through…

    All you people care about is making fun of him…

    He’s a human!!!

    Leave Brendan alone…please…

    Anyone who has a problem you him – you deal with me!!! Because he’s not well right now.

    Leave him alone.

    [Head shot of Jack’s contorted face, helplessly wracked by sobs.]

  8. Am I the only one tired of these middle class tossers whining about how tough they have it on 150k combined income per year?

    And the whining about the means test is vomit inducing. What these self righteous tossers are really saying that only poor people should be means tested for their welfare, and they shouldn’t.

    I don’t blame Howard for everything bad that has happened under the sun (Like some people do). However, I do blame him for this enormous growth in middle class welfare and the sense of entitlement its given some people.

    It’s a joke that the Liberals are still pandering to these tossers.

  9. By the way, does anybody really care about the alcopop thing? It seems to me as a lot of media and opposition windbaggery. Nobody I know seems to care all that much.

  10. Harry, there’s not much in your last comment that I would disagree with, and I agree that the tax should be based on volume of alcohol contained within the product, rather than on total volume of product or value of the product.

    John @10: OK. Sorry.

  11. Interesting as these little storms in teacups are, there was one big potential storm you all missed with the Budget and that was because it was cleverly released to do exactly that. However, when you place emotion above rational policy, you may find not even economists can calm the impending tsunami you’ve brought upon yourself. Did you all spot the early tsunami warning signal?
    and then here-
    Talk about sticking a bloody great fork into yourself.

  12. Carbonsink:

    Because we elected a Labor government not a Green government.

    Not really, the ALP had less votes (43.38%) than the Coalition (47.3%), it was the Green prefs (7.79%) that pushed them over the line. Without those Green prefs JH would have held Bennelong, by the slimmest of margins.

    Greens hate 4WDS (except Subarus)

  13. Rog is comparing Labor’s primary vote with the Coalition’s two party preferred one.

    He should go into politics!

  14. if he whinged about the solar rebate he would have obtained more traction plus have the greens onside.
    wouldn’t that be a turn up for the books.

    double the solar rebate and means test to $250,000 pa?

  15. I have to say that the most disappointing aspect of the reply was the mythologising of conservative economic prowess. It seems like Dr Nelson is caught in a different century and hasn’t yet realised that the arguments have moved on. To phrase it as James Carville did: It’s the environment too, stupid.

  16. I have to say that the most disappointing aspect of the reply was the mythologising of conservative economic prowess. It seems like Dr Nelson is caught in a different century and hasn’t yet realised that the arguments have moved on.

  17. I know this is a bit late, but I would just like to say that I think the claims about alcopops and teenage drinking need to be taken with a pinch of salt. There is one obvious practical reason why they can’t encourage teenage drinking: they have an extremely high cost of alcohol per milliletre compared to the binge-drinkers drink of choice, cask wine, or even beer. But secondly, as far as I’m aware young people’s preference for these drinks hasn’t been researched effectively, at least in Australia.

    As a perfect example, check out a vodka mudshake. These things are ludicrously overpriced and contain a tiny amount of alcohol – maybe 2%. It’s just silly to think kiddies who drink to get drunk are going to pay the exorbitant amounts they have to pay to get drunk on these things.

  18. SG – that’s the first time I’ve heard anyone but me run that line. These things were ALWAYS grotesquely overpriced, and I have no idea how the average “young person” was meant to be binging on them.

    Also, they taste horrid.

    I see two main consequences flowing from this, one dreadful, one great, and neither intended:

    1) An increase in drink-spiking (actual, as opposed to ad-hoc excuse for either taking drugs or getting too drunk to control yourself in various ways)

    2) An improvement in the drink-mixing skills of our youth, preparing them for a lifetime of enjoyment and/or employment.

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