Opinion
After Labor won government in 2022, a shout went up from various left-wing groups. When, they asked, would Labor come to its senses and realise it needed to break its promise to deliver Scott Morrison’s stage 3 tax cuts?
After all, they said, think of what that money could be spent on. Free dental care, tackling poverty by boosting JobSeeker, universal childcare, public housing, superannuation on paid parental leave – the list went on. Of course, not all of these could be funded by this one change. Nonetheless, Labor’s failure to change the tax cuts became a proxy for everything it had not yet done.
In the second year of their first term, Anthony Albanese and Jim Chalmers broke the promise and killed Morrison’s plan off. A handful of those spending demands have by now been met, such as superannuation on paid parental leave. Most of that wishlist, though, remains unfulfilled. There are two broad reasons. The first is that spending pressures on government these days are immense, a fact underlined – yet again – by the recent release of the federal government’s Intergenerational Report, with its focus on our ageing population.
The second is that Labor didn’t just scrap those tax cuts, immensely generous to the rich. It restructured them. There were still tax cuts, only they were weighted more towards the other end of the income spectrum. That meant the cost was roughly the same – with no money left over for the wishlist.
Naturally, demand for those other plans hasn’t stopped. Instead, advocates found a new proxy: if only Labor would do something about negative gearing and the capital gains tax discount it would have all this lovely money. Then Labor acted on those too, but with much the same result. There was no money left over, at least not in the immediate future, because it had been returned to workers and businesses through – you guessed it – tax cuts.
Enter the newest proxy: a gas tax. Last week, new Greens leader David Shoebridge explained he would not support the government’s proposed savings on private health insurance rebates for older people: “It is plain offensive to see Labor looking for over a billion dollars in savings from cutting rebates to pensioners when they refuse to even consider taxing record gas export profits. We have a simple message for Labor today: tax gas multinationals, not pensioners, then you will get Greens support.”
Given the history of these things, as well as reports Labor was considering it before the fuel crisis made it politically unfeasible, you would expect this, too, will become law one day, though probably not soon. But whenever it does happen, it is unlikely the left’s wishlist will suddenly be granted.
In part, that will be because Labor will have to pay for its next round of income tax cuts – which have been hinted at ever since the budget. In that budget, Labor announced a new type of tax cut, a Working Australians Tax Offset, designed specifically for workers rather than those who earn income from assets. Just after the budget, Chalmers said, “I would intend to make the most of that at some future point.”
Two weeks later, journalist Phillip Coorey asked if he should have been more open about specific tax cuts at the next election: “Chalmers acknowledged there would be scope to announce an increase” to the offset. He has continued to speak of creating room in the budget for future tax cuts, including to journalist Samantha Maiden last week.
Those future tax cuts are an interesting – and largely missing – aspect of this year’s budget debate. While there has been broad support for the government’s changes to housing taxes (if not the overall package), there has sometimes been an impression given in commentary that a chance at wider structural reform was missed. This was always a little unfair: there is no reason ending tax breaks that destructively distort the economy, as this country’s housing tax breaks have for over two decades, should not count as significant reform.
But it also skipped over the likelihood of the government reducing income tax before the next election, which would allow us to see the budget changes within a different context.
That skipping was entirely reasonable: none of us can simply assume the government will do something it has not explicitly promised. Which raises the question Coorey pointed to, of whether the government should have announced such tax cuts around the budget. Probably not, for two reasons. The first is that they would have been inflationary, destroying any chance Labor had of convincing voters it was not to blame for ongoing price problems. The second is that, politically, Labor would benefit more from their impact closer to the election.
In a speech last week, Chalmers pointed out just how much had changed since last year, when house prices were “surging” and interest rates had been cut. He is right: the shift has been dramatic. And he looked a year ahead, with expected changes equally dramatic: inflation moderating, rates coming down again and real incomes rising.
Presumably, this was both a public message and an internal one. With Labor MPs obviously nervous right now – and increasingly speaking to the media about their concerns – there is good reason for Chalmers to remind his colleagues that things may feel very different in a year.
It is not only that the political atmospherics might have changed. If inflation does moderate – and last week’s unemployment numbers offer some suggestion that process has begun – then Labor might be able to pledge or deliver tax cuts without the terror of feeding into prices. Which may make things feel a different, too.
Those tax cuts may crowd out the other items on the left’s wishlist again. Still, advocates should not give up all hope. Between now and the end of next year lie 12 months – a long period that can only partly be filled by speculation about tax cuts that may or may not happen.
Labor will need to convince voters it is doing worthwhile things in the meantime. And Albanese and Chalmers will need to convince their colleagues, too.
Sean Kelly is a regular columnist. He was an adviser to former prime ministers Julia Gillard and Kevin Rudd.
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