In an unofficial election campaign where we have so far seen very few concrete policy proposals, Peter Dutton’s announcement that the LNP will offer a $20,000 annual tax deduction for small business to claim food and entertainment at clubs, pubs and restaurants comes as something of a surprise.
It should go without saying that this is appalling public policy. Of all the things small businesses can spend money on, business lunches are the least likely to improve productivity or business viability. To the extent that they are fringe benefits passed off as working meetings, they may actively detract from productivity.
If the LNP believes the budget can afford more tax relief for the small business sector, there are much better options available. The most efficient, almost certainly, would be a reduction in the rate of company tax. Alternatively, Dutton’s proposal to expand the already generous instant tax-write off provisions for investment could be made even more generous.
The other side of the proposal is the benefit it will provide to the restaurant and cafe sector, described in the announcement as “like so many businesses at the moment, hurting under Labor”. It’s certainly true that running a cafe or restaurant is a challenging business with a high rate of failure.
But if even a small fraction of the money spent at cafes and restaurants was eligible for a tax write-off, the cost to the budget would run into billions of dollars. And the existence of the write-off would provide a strong incentive to turn everyday lunches into tax-deductible business meetings.
The proposal will doubtless receive near-universal condemnation from economists. More seriously, the Australian Financial Review, the leading advocate of economic rationalism, has bagged the proposal as “not serious”. It would be uncharitable to observe that the AFR is primarily the voice of big business, which will not benefit from this handout. But this is not a time to be charitable.
The bigger problem for Dutton is that this is the opposite of a “small target” policy. Even the dullest of Labor campaign managers should be able to make hay with the point that the LNP is appearing to hand out favours to mates. This will do a fair bit to neutralise Dutton’s attacks on Labor’s reliance on support from unions.
But even more than Labor, a campaign in which the major parties engage in this kind of mutual mudslinging will be a boon to community independents campaigning against this kind of “to the victor go the spoils” politics.
Why, then, has Dutton taken this risk? One possible explanation is that he is confident enough of a victory that he can afford to reward his base. The opinion polls don’t support such optimism, suggesting that his best hope is to form a minority government, but perhaps Dutton is looking at different information.
A second explanation is that the LNP doesn’t have much in the way of economic policy to announce. The Morrison tax cuts, as amended by Albanese, are hugely expensive and will constrain budget policy for the next couple of terms of government. Having accepted those cuts, there isn’t much room to do more.
More broadly, the LNP has abandoned the program of neoliberal economic reform that once defined it. The idea that “letting the market work” will promote productivity growth and produce better economic outcomes has been abandoned, most obviously with the pledge to invest in government-owned nuclear power stations.
Finally, Dutton may be calculating that voters no longer care about good government and have accepted that the spoils system is here to stay. Australian politics has become a vehicle for personal enrichment in a way that would have been considered shocking last century, when a long-serving prime minister like Menzies could retire in such straitened circumstances that a group of personal supporters had to club together to buy him a house to live in, according to standard accounts of his life.
Even more striking is the blatant cronyism and self-dealing now on show in the US, where what is politely described as “transactional” politics is now unchallenged. Has Dutton seen the electoral success of Trump as providing a model to be followed in Australia?
It remains to be seen whether such an approach will work here. Perhaps the next election will be another bidding war, with carefully targeted goodies being handed out to favoured groups. Or perhaps revulsion at this kind of politics will lead to further breakdown of the two-party system that has produced it. We will find out soon enough.
John Quiggin is a professor at the University of Queensland’s school of economics
