Good policy, values and politics all agree: change the tax cuts

I have no inside info on whether Anthony Albanese will stick to his oft-repeated promise to deliver the stage 3 tax cuts intact on July 1, or change them in some way because the cost-of-living crisis means all bets are off.

 I don’t even know that the measures he’ll discuss at the meeting of Labor’s caucus on Wednesday will be the last word on what we’ll see in the May budget, or on our payslips after July 1.

 I’m paid to say what I think should happen, not to predict what will. So I can tell you this: if Albanese doesn’t initiate belated changes to make the tax cuts fairer and of greater benefit to those who’ve suffered most from the cost of living, it will show he’s lost touch with good policy, Labor’s professed values and even what’s needed to protect his political hide.

 Let’s start from first principles. The longstanding view that our system of taxes and benefits should require those who can best afford it to bear more of the cost of government than those who can least afford it rests on two key policies: a largely means-tested system of government pensions and benefits, and a “progressive” scale of income tax.

 Your income is taxed in slices. The first slice is untaxed, then the rate of tax on subsequent slices gets progressively higher. When you add the slices together, the average rate of tax you pay on the whole of your income is far higher for people on very high incomes than for those on modest incomes.

 As legislated, the stage 3 tax cut would make three changes to the tax scale. It would reduce the rate of tax on the slice of income running from $45,000 a year to $120,000 a year from 32.5c in the dollar to 30c.

 Then it would reduce the rate of tax on the slice running from $120,000 to $180,000 from 37c in the dollar to 30c.

 Finally, it would cut the rate of tax on the slice of income running from $180,000 to $200,000 from 45c in the dollar to 30c. Only the last slice of income, anything above $200,000 a year, would continue to be taxed at the top rate, unchanged at 45c in the dollar.

 Do you see how this would significantly reduce the progressivity of the tax scale? That’s just what Scott Morrison, as treasurer and then prime minister, wanted: to shift the burden of taxation away from high-income earners and on to everyone lower down.

 It’s the sort of policy you might expect from a Liberal government, but one Labor has always claimed to oppose. It initially opposed stage 3, but later changed to quietly supporting it, for fear of being branded as high-taxing by its opponents.

 If Albanese doesn’t seize this chance to make the tax cuts fairer, he’ll be remembered as the prime minister who struck the greatest blow in cutting taxes for the rich. The man who did what ScoMo couldn’t.

 Albanese has claimed that stage 3 will deliver tax cuts for everyone earning more than $45,000 a year. That’s true. Someone on $50,000 will have their average rate of tax reduced by 0.25c in the dollar, yielding a saving of $2.40 a week. Wow.

 To get a weekly saving of more than $20 a week – not a lot if you’re struggling with much higher rent or mortgage interest rates – you have to be earning more than $90,000.

 Only if your income is $120,000 will your average rate of tax be cut by 1.6c in the dollar, saving you $36 a week. At $180,000 your average rate falls by 3.4c in the dollar, saving you $117 a week. Not bad.

 But if you’re struggling on $200,000, your average tax rate falls by 4.5c in the dollar, and you save almost $175 a week. 

 According to calculations prepared by the Parliamentary Budget Office for the Greens, as they stand, the stage 3 cuts will cost the budget almost $21 billion a year. Of that, people earning less than $45,000 a year get nothing, and those earning between $45,000 and $60,000 would get less than 2 per cent of the benefit.

 The large number of people earning between $120,000 and $180,000 would get about 30 per cent of the benefit, while the relatively small number earning more than $180,000 get 44 per cent.

 It’s been said by some that rejigging the tax cuts so that more of the money went to the low- and middle-income earners who’ve been hit the hardest by the cost of living – and bracket creep – would be inflationary because they’d spend more of any tax cut than would the well-off.

 True, but not a good enough reason to distort the tax system and keep beating ordinary families into the ground.

 As it stands, stage 3 hugely benefits a minority of voters, most of whom are unlikely to vote Labor. If Albo can’t convince most voters he broke his promise because they needed a break, he ought to get out of politics.

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Replacing the misbehaving ScoMo is an easy act for Albo to follow

It is a truth (almost) universally acknowledged by Labor politicians that it’s near impossible to reform from opposition. Be too ambitious, make yourself too big a target, and the government will happily use the many advantages of incumbency to shoot you down.

That’s because all reforms have opponents, and most create losers as well as winners. That’s why, after being reminded of this truth at the 2019 election, Labor made itself as small a target as possible. Part of this was for Anthony Albanese to neutralise most of Scott Morrison’s vote-buying promises by matching them.

Back then, Morrison convinced himself that – apart from having God on his side – his miraculous win was owed to his cunning strategy of painting Labor as the party of tax-and-spend, and the Liberals as the party of lower taxes. He tried repeating the strategy this time.

The first part of his mantra was true enough. The second was bulldust. As independent economist Saul Eslake has demonstrated, in the highest-taxing stakes, the just-departed government runs second only to the Howard government.

Find that hard to believe? You’re forgetting the invisible magic of bracket creep. The loophole in Morrison’s promise not to raise taxes – which Albanese matched – is that it doesn’t include bracket creep. And now that inflation’s back, bracket creep proceeds apace.

Many of the reforms we need – fixing aged care, reversing the squeeze on universities and TAFE, making homeownership affordable, exploiting our chance to become a renewables superpower – would cost big bucks and require greater and changed taxation.

But Albanese’s problem is not just that he’s promised not to increase taxes while making a huge and blatantly unfair cut in income tax in two years’ time, or even that he’s inherited a big budget deficit and huge debt overhang.

That much you see from the budget papers. What you can’t see is the extent to which the Morrison government has been holding back the tide of higher spending by cutting public service jobs, increasing waiting times, cutting NDIS packages and finding excuses to suspend people’s dole payments.

This dam had to burst after the election. And it will do so at just the time when the econocrats are telling Labor the budget deficit must go down, not up.

What was it Paul Keating used to say about excrement sandwiches? Come on down, Albo.

But all is not lost. For a start, on expensive and controversial reforms, Albanese should follow the aforementioned Eslake’s advice and copy John Howard. He got elected in 1996 with a promise to “never, ever” introduce a goods and services tax. So he made an honourable escape by having such a tax fully developed for presentation at the next election.

It was approved – by a whisker. As Eslake reminds us, not since 1931 has any first-term federal government failed to secure a second term.

“Labor needs in its first term to lay the groundwork for a more expansive mandate for its second term,” Eslake recommends.

Next, Labor does have a mandate – both direct and indirect, via the higher votes for the Greens and teal independents – to proceed with climate action, an anti-corruption commission “with teeth”, gender equality, and commitment to the Uluru Statement from the Heart “in full”.

Except for climate action, none of these historic reforms will greatly trouble the budget accountants.

However, as Professor Mark Kenny, of the Australian National University (but formerly of this parish), has helped us see, this election was about something deeper: “The urgent need to rescue longstanding governing norms around transparency, accountability, ministerial standards, trust and honesty and, of course, the viability of the public service.”

Morrison’s approach, he says, was “divide and dither”. “Accountable government, national unity, evidence-based policy, and democratic accountability [whether voters give his performance a tick or a cross] are all on the ballot at this election.”

Let’s get personal. The biggest reason Albanese is now PM is that he’s not Scott Morrison. The biggest policy question in this election, the one almost everyone in the great majority who didn’t vote for the Coalition wholeheartedly endorsed, was: “would you like to see no more of Scotty from marketing?”

It’s simple. The surest way for Albanese to ensure his re-election is to be a better, more likeable PM than that other one.

Just be more truthful, more respectful, more humble, more answerable, more willing to admit your mistakes, more inclusive, more even-handed, more charitable towards the needy, more willing to answer the question, and more protective of Australia’s reputation abroad.

Be less prevaricating, less divisive, less bulldozer-like, less willing to help mates and punish enemies, and less unable to let that five-letter S-word pass your lips unqualified.

I think Albanese’s already got that message. “I want to bring people together and I want to change the way that politics is conducted in this country,” he’s said. Australians have “conflict fatigue”.

Being a saintly prime minister won’t be easy. But think of it this way: conduct-wise, being ScoMo’s successor won’t be a hard act to follow.

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Labor sells its soul to fight deficit levy

If you needed any convincing Labor is a party entirely adrift from its supposed values and purpose, given over now to politicking, expedience and opportunism, just wait for its reaction to Tuesday's budget.

It will vehemently oppose Joe Hockey's deficit levy - no matter how watered down it is by then - and his intention to resume indexing the petroleum excise on the basis of no stronger argument than that they're broken promises.

These are two measures Labor should strongly support if it's sticking to its principles - one that makes the tax system fairer and one that supplements the carbon tax in fighting climate change.

If Labor were truly the social democrat, progressive party it wants us to think it is, it would advocate and fight for bigger government. Bigger not for its own sake, but because there are still many much-needed services and assistance yet to be provided, with governments best placed to provide them.

As we know, Labor can always think of new ways to spend money - the National Disability Insurance Scheme and the Gonski education reforms, for instance - but when it comes to raising sufficient revenue to cover the cost of these genuinely worthy causes, Labor's courage deserts it.

Its conservative critics accuse it of being a big-spending, big-taxing party but, in truth, it's a big-spending, low-taxing party - which can never understand why it has so much trouble balancing budgets.

Labor will carry on about Tony Abbott's ideologically driven plans to destroy the universality of Medicare, but when the scheme's cost grows strongly because the nation wants to take advantage of every new, expensive advance in medical technology, the very initiators of Medicare lack the commitment to do or even say the obvious: if you want better healthcare you have to pay more tax.

You'd think that, lacking the courage of its convictions, not having the guts to raise taxes (the proceeds from the carbon tax and the mining tax were immediately given back, mainly as lower taxes), Labor would be delighted when its opponents did have the courage to stare down the voters' disapproval.

But no, Labor's commitment to principle is now so weak it can't resist the temptation to exploit the unpopularity of an opponent implementing good policy.

By now I can hear the Laborites' plaintive cry: We're only doing what Abbott did! My point, exactly. The party that always claims the high moral ground has descended to the point where its highest claim is: we're no worse than Abbott.

Labor's further descent into political game-playing since it returned to opposition is proof that Abbott is the outstanding politician of his era. The man could not only turn his own side into a party of climate change-denying punishers of boat people and even Australian poor, he can inveigle his opponents into becoming a party than stands for nothing. Getting your own back isn't a policy that much appeals to Australian voters. Nor is opposing everything.

If Labor combines with the Greens to block Abbott's two tax measures in the Senate, it will be doing him a favour: I tried to make the budget fair, but Labor stopped me. So you won't have to vote against me after all.

By blocking a progressive tax change Labor would force the government to rely more heavily on bracket creep which, because of the strange shape of the tax scale Labor left, will now be highly regressive. Then it will be on to opposing any change in the goods and services tax because Labor is far too principled to support a regressive tax.

Speaking of the Greens, they've gone from naive purity (knocking back Kevin Rudd's original carbon pollution reduction scheme because he'd have no choice but to come back with a better one) to abject populism in opposing measures that make the tax system both fairer and more efficient.

Labor's professed outrage over Abbott's breaking of promises is utterly confected. I mean, have you ever known Labor to break a promise?

The supposed sanctity of election promises is a recipe for bad government.

No one who cares about good policy - as opposed to seeing their side get back to power - would think it smart to hold politicians to promises they should never have made, or which have been overtaken by events.

Much better to do something damaging to the economy or unfair to particular classes of people than to break a promise? Hardly.

The sensible answer isn't to insist on promises being kept come hell or high water, it's to insist politicians stop making promises they aren't certain they can keep.

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