The moribund political duopoly is rapidly self-destructing

Why do we have so many economic problems, and why do our governments make so little progress in fixing them? Because the two main parties just play politics and by now have boxed each other in. Neither side is game to make tough decisions for fear of what the other side will do to them.

Our tax system needs repair, but neither side dares to make changes somebody somewhere might not like. So we put up with poor government services, growing waiting lists, tax avoidance by the highly paid, bracket creep and phony tax cuts.

We have a system where people with mortgages get squeezed unmercifully whenever inflation gets too high. There are fairer and less painful ways to fix the problem, but neither side has the courage to change.

When occasionally the two sides agree on some policy, it’s often a bad one. Many defence experts quietly doubt the wisdom of AUKUS. By the time the nuclear subs arrive in many years’ time – if they ever do – they’ll probably have been superseded.

But the political duopoly’s most egregious failing is its inaction on climate change. For a while, it looked like the climate wars had ended, with the Albanese government making very cautious progress towards net-zero emissions.

Now, however, Peter Dutton has come up with a new reason for delay: let’s go nuclear instead. And we don’t have to do anything unpleasant for a decade or two. It will probably never happen, but what it has done is rob commercial investors of the certainty they need to keep investing in solar and wind farms at the rapid rate we need them to. With our ageing coal-fired power stations so close to the grave, our transition to renewable energy could be very bumpy.

So, what can we do to free ourselves from the clutches of a two-party political system that’s stopped working? Well, we’re already doing it. Voters are increasingly taking the law into their own hands by opting for the minor parties and independents. We saw this at the last federal election, in 2022, where the two big parties’ combined share of first-preference votes – which has been declining since World War II – fell to 68.3 per cent, its lowest level since the Great Depression.

So, the share of first-preference votes going to minor parties and independents is now just a little short of a third. In consequence, the number of crossbenchers in the House of Representatives rose to a record 16.

It’s not difficult to judge that the duopoly’s poor performance on climate change explains much of their decline. Labor loses votes to the Greens while, for the first time, teal independents took six previously safe seats from the Liberals.

Nor is it hard to believe that Labor’s caution and the Liberals’ nuclear red herring may add to the big parties’ loss of first preferences at next year’s election.

New research by Bill Browne and Dr Richard Denniss, of the Australia Institute, finds there are now no safe seats in House of Representatives. While some Labor seats are safe from being taken by the Liberals, and some Liberal seats are safe from Labor, such seats aren’t safe from the Greens or an attractive independent candidate.

In the supposedly safe Liberal seat of Mackellar on Sydney’s northern beaches, the teal independent Dr Sophie Scamps won the seat with a two-candidate preferred swing of more than 15 per cent. A strong independent candidate’s advantage is that they can pick up the preferences of the minor parties, plus those of the other big-party candidate who was never going to win.

It’s usual for the big parties to focus on the “marginal seats” that could be won or lost if a few “swinging voters” change their votes. And it’s mainly these marginals that one big party loses to the other.

But it’s not usual for the minor parties and independents to pick up such marginal seats. No, they’re much more likely to win supposedly safe seats.

So while the big guys focus on winning or retaining the marginals, they leave themselves open to the small guys when they neglect the concerns of voters in their heartland seats. Again, climate change would be the classic concern.

The standard way of predicting the results of elections using the psephologist Malcolm Mackerras’ famous pendulum has been overtaken not just by the lack of a uniform national swing between the two majors, but by the rise of the minors and independents.

I think it will be rare for governments to be elected with big majorities in future. Wafer-thin majorities will be the norm, with “hung” parliaments common. The big guys will warn us this will lead to chaos and inaction.

Don’t you believe it! It’s never been true at the state level where, at present, only five of the eight state and territory parliaments are dominated by a majority party.

I think a move to more power for crossbenchers at the federal level could be a good way to break the big-party logjam. It’s hard to see how it could be worse than what we’ve got.

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Yes, we need tax reform, but it offers no easy answers

When we’re reminded that income tax cuts represent merely the partial return of the proceeds of earlier bracket creep, and that the process of clawing back the latest tax cut starts the same day it arrives, it’s easy to join the impassioned cry for tax reform. Sorry, it ain’t that simple.

Surely if we could end the crazy business of bracket creep, we’d pay less tax? Well, yes – but no.

Bracket creep occurs because our income tax scales ignore the reality of inflation. When our wages rise to take account of inflation, we’re no better off in real terms, but we’re often pushed into a higher tax bracket, which raises the average rate of tax we pay on the whole of our income. (If we’re not literally pushed into a higher bracket, our average tax rate still goes up because a higher proportion of our income is now taxed at a higher rate.)

So we’ve long known how to (largely) end bracket creep: do what the Americans do and increase all the bracket limits once a year, in line with the annual increase in the inflation rate. Then, it would only be rises in your real income that pushed up your average tax rate, which is fair enough.

Mission accomplished. Now we’ll all be paying less tax.

Except that the net profit the taxman makes after all the to-ing and fro-ing on bracket creep isn’t just kept in a jam jar somewhere. It’s used to help cover the ever-growing cost of all the services the government gives us, and thus to limit the size of budget deficits and government debt.

So, without the benefit of bracket creep, governments would be forced to keep making explicit increases in the rates of income tax, or to announce new taxes.

Wouldn’t that be an improvement? In principle, yes. In practice, our (politician-fed) aversion to paying higher taxes would just make politics an even bigger shoot-fight than it already is. The pollies would spend more time abusing each other and less time getting on with fixing our problems.

One thing we can be sure of is that it wouldn’t do much to slow the growth in government spending. Why not? Because our demand for more and better government services is insatiable. Because both sides of politics fight every election campaign promising more and better services – and by never showing us the tax price tag on whatever it is they are selling.

How can I be sure tax indexation would do little to slow the growth in government spending? Because that’s what happens in America. They keep running bigger budget deficits and amassing more government debt than the other rich countries (except Japan).

But they get away with it because their economy’s so big, and they’re the centre of the world financial system. A middle-level economy like ours could never pull it off.

So tax indexation isn’t high on my list of desired tax reforms. Bracket creep turns out to be just one of the dirty little tricks by which the politicians who’ve done so much to make our political system almost unworkable keep it staggering along.

It’s easy to agree on the need for tax reform, but its advocates want to reform differing things and have differing motives. “Reform” is a lovely, positive word, but you need to beware of people whose idea of reform is: I pay less, you pay more.

All the alleged reform advocated by the (big) Business Council, for instance, takes that form. They want a lower rate of company tax and a lower top rate of personal income tax – all paid for by a higher goods and services tax.

Spruikers for the highly paid make a big fuss about the government’s heavy reliance on income tax – which they exaggerate – and always claim discourages them from working and investing.

But economic theory doesn’t support these claims, and the empirical evidence – which would be more persuasive – doesn’t either. The people whose behaviour is influenced by the rate of tax on additional earnings are “secondary earners”, who have more ability to increase or decrease the hours they work because they have part-time jobs. But the nation’s executives don’t worry much about them.

No, the tax reform I think we need is higher tax on capital gains, less concessional tax on the superannuation of people such as me, a decent tax on highly profitable mining companies and, probably, a tax on big inheritances.

But don’t hold your breath waiting for that to happen.

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Despite what we're led to believe, tax cuts are no free lunch

Isn’t it wonderful that the Albanese government – like all its predecessors – has been willing to spend so many of our taxpayers’ dollars on advertising intended to ensure no adult in the land hasn’t been reminded, repeatedly, about the income tax cuts that took effect on Monday, first day of the new financial year?

But believe me, if you rely only on advertising to tell you what the government’s up to with the taxes you pay – or anything else, for that matter – you won’t be terribly well-informed. The sad truth is there’s a lot of illusion in the impressions the pollies want to leave us with when it comes to tax and tax cuts.

For instance, none of those ads mentioned the eternal truth that, when we have income tax scales that aren’t indexed annually to take account of inflation, the taxman gradually claws back any and every tax cut the pollies deign to give us. And this slow clawback process – known somewhat misleadingly as “bracket creep” – begins on the same day the tax cuts begin.

So readers of this august organ are indebted to my eagle-eyed colleague Shane Wright, who asked economists at the Australian National University to estimate how long it would take these tax cuts to be fully clawed back, using plausible assumptions about future increases in prices and wages.

A tax cut reduces the average rate of income tax we pay on the whole of our taxable income. A middle-income earner’s average tax rate will fall from 16.9 cents in every dollar to 15.5¢. The economists calculate it will take only two or three years for inflation to have lifted most taxpayers’ average tax rate back up to where it was last Sunday.

So that’s the terrible truth the pollies rarely mention. But don’t let that make you too cynical about the tax-cut game. Just because this week’s tax cut will have evaporated in a few years’ time doesn’t mean it’s worthless today. Actually, as tax cuts go, this is quite a big one. Someone earning $50,000 a year is getting a cut worth almost $18 a week. At $100,000 a year, it’s worth almost $42 a week. And on $190,000 and above, it’s worth $72 a week.

Is that enough to completely fix your cost-of-living problem? No, of course not. But if you think it’s hardly worth having, please feel free to send your saving my way. I’m not too proud to take another $18 no one wants.

Remember, too, that had Anthony Albanese not broken his promise in January and fiddled with the stage 3 tax cuts he inherited from Scott Morrison, most people’s saving would have been a lot smaller, even non-existent.

Everyone earning less than $150,000 a year got more, while those of us struggling to make ends meet on incomes above that got a lot less. In my case, about half what I’d been led to expect.

But the politicians’ illusions are built on our self-delusions. Our biggest delusion is that government works quite differently to normal commercial life. We know that when you walk into a shop you have to pay for anything you want. If you want the better model, you pay more.

Somehow, however, we delude ourselves that governments work completely differently. That the cost of the services we demand from the government need to bear no relationship to the tax we have to pay.

The politicians actively encourage this delusion in every election campaign by promising us this or that new or better service without any mention that we might have to pay more tax to cover the cost of the improvement.

Any party foolish enough to mention higher taxes gets monstered – first by the other side and then by the voters. No one wants to admit that what we get can never be too far away from what we pay.

For the near-decade of the Liberals’ time in government, they drew many votes by branding Labor as “the party of tax and spend” while claiming they could deliver us the services we want while keeping taxes low.

This was always a delusion. So they squared the circle by using various tricks they hoped we wouldn’t notice, such as underspending on aged care, allowing waiting lists to build up and secretly ending the low- and middle-income tax offset, thus giving many people an invisible tax increase of up to $1500 a year.

But the main trick they relied on was the pollies’ old favourite: bracket creep.

Get it? When we delude ourselves that we can have the free lunch of new and better services without having to pay more tax, they resort to the illusion that income tax isn’t increasing by letting inflation imperceptibly increase our average tax rate.

This is the tax-cut game. As an economist would say, our “revealed preference” is for no explicit tax increases, but for tax to be increased in ways we don’t really notice and for tax cuts to be only temporary.

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It's time to dig deep - but not deeper than the taxman expects

I have a request to make of all Australian taxpayers: please give more to charity because you’re making me look bad. Like a cheat, in fact. I’ll explain shortly, but first, a self-interested public service announcement. Hurry, hurry, hurry. You have only the rest of this week to make a tax-deductible donation if you want to get some of it back in your next tax refund.

June 30, the biggest day of the year for the nation’s accountants, is fast approaching. It’s also the most important time of year for the nation’s charities. If you’ve ever made a donation to any of them, I bet they sent you a letter in the last few weeks reminding you how good it would be if you did so again ASAP.

But, as we were reminded by a strategically placed story last week, this is likely to be a bad year for charities. Why? Because in a cost-of-living crisis many of us decide that charity begins at home.

According to polling by academics at the University of Queensland, 78 per cent of people have reduced their donations because of the crisis facing their own budgets.

This is particularly bad timing for those charities that help people having trouble affording food and other necessities, such as the Salvos. The demand for their services has jumped for the same reason people are finding it harder to give. (Yes, the Salvos have “reached out” to me lately. And as I did myself in my uniformed youth, they waved a collection box under my nose.)

Perhaps it’s the accountant in me that makes me particularly attracted to donations that are tax-deductible. As everyone soon learns, you can’t make a profit out of tax deductibility. You can only reduce a cost.

But I like it because it lets me send a bit of taxpayers’ money in a direction chosen by me, not the politicians. The pollies mightn’t give a stuff about the wellbeing of refugees and asylum seekers, but I do. And to some small extent, I can make them kick the tin.

Also last week, purely by chance, I’m sure, we were reminded that, though Australians like to think of themselves as generous, we’re actually tighter than people in other English-speaking countries. Even the Kiwis are more giving than we are.

Which brings me to my beef about donations. Now, I’ve long been a defender of the Tax Office. It does an important job in making sure we pay as much tax as we should. One reason I got out of accounting was because I decided the only interesting part of it was giving tax advice, but I didn’t want to spend my life helping the well-off avoid doing their duty to the community.

But a few weeks ago, I got a letter from the Tax Office, via the myGov website, naturally, that was the strangest I’ve ever had from them. And it really pee’d me off.

The standard form letter said they’d happened to notice that my claim for donations was a lot higher than other people’s, and they were just wondering whether I might possibly have made some mistake.

They hoped I knew you could only claim for donations to outfits that had been awarded tax deductibility. And they hoped I knew I shouldn’t be claiming for any donation for which I couldn’t produce a receipt.

If, on reflection, I realised I had made some terrible “mistake”, I was free to amend my return and thereby, they hinted without saying, avoid possible further investigation and penalty.

But, failing that, there was no suggestion I do anything about their veiled accusation, except, presumably, sit there shivering, waiting for the taxman’s knock on the door.

It may be true, as coppers always say, that if you’ve done nothing wrong you’ve got nothing to fear, but that doesn’t stop you resenting an unwarranted insinuation that you’re dishonest.

What gets me is that, knowing my claim was large, I would have happily included a detailed list with my return, but the taxman made no provision for me to do so. Nor, when he sent his accusatory letter, did he invite me to explain or substantiate my claim.

And I get the feeling that the taxman’s algorithm just found an outsized number and dispatched a letter without further consideration. Did he know that I always make a big claim? Did he allow for the likelihood that people on high incomes can afford to be more generous? Did he note that I’d been a tax agent for many years and so didn’t need reminding of the rules?

Well, I know the taxman doesn’t want to be burdened by any extra information from me, but I’ll give him a heads-up anyway. My claim for this financial year won’t be as big as last year’s, but the one for next year will be a whopper. I’m thinking of setting up a charity of my own. All above board, naturally.

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The pollies have twigged that our crazy housing game can't go on

Last week, a fairly ordinary place in our street, similar to ours, sold for $4.7 million. I suppose I should be congratulating myself on how well I’ve done in the capitalist game. And it’s only fair since I’ve “worked hard all my life”. In truth, all we’ve done is pay the exorbitant price of $180,000 for our place, then hung around for 40 years. This makes sense? Surely, this crazy game can’t keep going onward and upward forever.

It’s now been two weeks since Treasurer Jim Chalmers delivered his budget, but I’ve only just realised its main content is not the one-year $300 electricity bill rebate we’ve obsessed over, it’s the evidence the government has finally accepted our housing system is dysfunctional and must be fixed. The budget papers include a long statement spelling out what’s wrong with housing with a candour I’ve not seen before.

The hard truth is that, until now, the pollies on both sides have only pretended to care about how hard the young were finding it to afford a home of their own. Why? Because the number of voters who own a home – whether outright or still with a mortgage – greatly exceeds the number who’d merely like to become a homeowner. As John Howard used to say, he’d never heard any homeowner complain about the rising value of their property.

All the things pollies do in the name of helping first-home buyers – such as cutting stamp duty on the purchase price – don’t actually help, and probably aren’t intended to. When they claim to be helping you afford the high price, they’re really helping to keep it high. If they helped you and no one else you’d be advantaged. But when they also help the people you’re bidding against, it’s actually the seller who benefits.

It’s the same with the Bank of Mum and Dad. The more parents help their kids afford the high prices – as I have – the higher those prices will stay. Again, the sellers benefit.

When the value of the oldies’ homes just keeps going up, this constitutes a transfer of wealth from the younger to the older generation. The Bank of Mum and Dad transfers some of the wealth back to the youngsters. The losers, however, are those kids who didn’t have the sense to pick well-off parents.

But what makes me think the Albanese government has seen the light?

Well, for a start, it makes more political sense than it used to. Not only are younger people having trouble affording their first home, they’re being hit with big jumps in rent thanks to an acute shortage of rental accommodation.

The budget statement admits that the median price of dwellings in the eight capital cities has more than doubled since the mid-noughties. So have advertised rents. It now takes more than 11 years to save a 20 per cent deposit on a house.

Politicians have been favouring the old at the expense of the young for decades, but the young are getting restive. Labor has more than its share of the votes of young adults. It risks losing those votes if it doesn’t start delivering for the younger generation.

Labor sees that house prices and rents are rising because the supply of homes has failed to keep up with growth in the population. Part of the reason for this is what the statement admits has been a “long-term, chronic under-investment in social housing”.

Why all these frank admissions? Because the Albanese government has decided to do something big to ease the problem. The budget announced new measures worth $6 billion which, added to those already announced, amount to a $32 billion plan to deliver 1.2 million new, well-located homes in the five years to June 2029. This would be equivalent to a city the size of Brisbane.

As with so many of our problems, the feds have most of the money needed to fix the nation’s housing, but the actual responsibility for housing rests with the states and even local government. The plan’s attraction is that it’s been agreed with the states and includes monetary incentives for them to co-operate.

The words “well-located homes” are code for many of them involving medium and high-density housing in the capital cities’ “missing middle”. It requires the states to take on their local government NIMBYs (see monetary incentives above).

It would be wrong, however, to see this plan as the simple solution to a housing system that’s been performing poorly for decades. It will be some years before it makes much difference, and experts have questioned whether so many new homes can be built in just five years.

It’s an advance to see the new emphasis on improving the system’s ability to supply more houses, but the vexed question of fixing the distortions to demand caused by misguided tax concessions remains to be faced.

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Budget will make us better off now, but worse off later

It’s said you can tell a government’s true priorities from what it does in its budget. If so, the top priority of Anthony Albanese’s government is not to have any priorities.

Rather than focusing on fixing the most pressing of our many problems, his preference is to be seen doing a little to alleviate all of them. In this budget, (almost) every voter wins a prize.

Certainly, every powerful interest group gets something to placate it. Of course, when you’re handing out so many prizes, most of them aren’t all that big.

Unfortunately, it’s a strategy that works better politically – where every vote counts – than economically, where sticking to what you’re good at brings better returns.

Fortunately, however, this budget has been “back-end loaded”. Most of what’s likely to be wasteful spending will come sometime in the next 10 years. Most of the budgetary cost of the sensible decisions starts from the first day of the new financial year, in just seven weeks’ time.

So let’s start with the good half of the budget, and leave the bad stuff for later.

By far the greatest political pressure on the government is to ease the intense cost-of-living pressure that so many people are feeling. Since most of the pressure has been caused by rapidly rising prices, this is also the government’s most immediate economic problem.

The trouble for Treasurer Jim Chalmers is that the standard remedy for rapid inflation involves making the pressure worse to make it better. You use higher interest rates and a bigger tax bite out of people’s pay rises to make it harder for households to keep spending, which stops businesses from raising their prices as much.

This explains Chalmers’ repeated but contradictory statement that he wants to ease the cost of living without weakening the efforts – by the Reserve Bank and his own budget surpluses – to get inflation down.

But this is where Albanese’s predilection for the each-way bet actually makes sense. Chalmers has found a way to do the seemingly impossible: ease living pressures a bit, while weakening the inflation fight only a bit.

He’s done this, first, by introducing a $300 power-bill rebate for all households, increasing the rent allowance paid to people receiving welfare benefits, and freezing the cost of prescriptions for two years.

This not only helps those people; it also reduces the rise in the consumer price index somewhat. And this, in turn, brings closer the day when the Reserve Bank starts cutting interest rates.

But second, by his rejig of the stage 3 tax cuts. This may be old news, but it’s by far the biggest measure in the budget. Most wage earners will realise how big it is – and how much it helps – when it increases their take-home pay at the start of July.

Albanese and Chalmers took a tax cut the previous government had intended to be of real benefit only to those on incomes well above the average, and changed it to ensure all taxpayers got something.

See? Everyone gets a prize. Everyone on incomes below about $150,000 a year gets more; everyone above that gets less than first intended. As a measure to ease living costs, it’s now far more effective.

Why won’t this $23 billion-a-year tax cut weaken the inflation fight? Because it has been government policy since 2018. It’s likely effect on households’ spending has been built into the Reserve Bank’s decisions to raise interest rates 13 times. Good stuff.

But it’s when we turn to the longer-term Future Made in Australia plans that you see the folly of Albanese’s efforts to stay friends with every interest group on every side.

By far the most important task Albanese must accomplish to secure our economic future is to achieve a smooth transition from fossil fuels to renewables – most of it done by 2030 – without blackouts and avoidable jumps in the cost of electricity.

But, more than that, he must ensure our continuing income from exports by establishing new green, further-processing industries exploiting our new-found strength of being among the world’s cheapest producers of renewable energy. This can be what will keep us prosperous when the world stops buying our fossil fuels.

The government spending needed to get these green industries started is included in the Future Made in Australia project. Trouble is, so is money for a lot of crazy ideas, such as setting up in competition with China as a producer of solar panels.

Albanese’s problem is he wants to say yes to everyone and everything, not just stick to the main chance. He’s saying he can turn us into a renewable energy superpower with one hand while, with the other, he lets the gas industry steam on to 2050 and beyond.

This does not fill me with confidence in the Albanese government’s capability. Quite the reverse.

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The budget is rent-seekers central

Last week we got a reminder that, among its many functions, the federal budget is the repository of all the successful rent-seeking by the nation’s many business and other special interest groups. Unfortunately, it added to the evidence that the Albanese government knows what it should do to manage the economy better, but lacks the courage to do more than a little.

Rent-seeking involves industries and others lobbying the government for special treatment in the form of grants, tax breaks or regulatory arrangements that make it hard for new businesses to enter their market or protect them from competition in other ways.

Whenever that rent-seeking involves grants or tax concessions it weighs on the budget. Decades of continuous rent-seeking weigh hugely on every year’s budget, limiting the government’s ability to ensure every dollar of taxpayers’ money is spent to great effect in benefiting all Australians.

For example, a big lump of the feds’ spending on education is devoted to achieving the Howard government’s goal of enhancing parents’ choice of which school to send their kids to. When the callithumpians decide to build their own schools, so their children can be educated without contamination by people of other religions, the federal taxpayer coughs up.

That all this spending on choice leaves the great majority of kids attending public schools that aren’t adequately funded is just an unfortunate occurrence, which we may get around to fixing if we ever have any spare dollars looking for a home.

What you certainly couldn’t do is cut back the money you’re giving the callithumpians. They’d kick up the devil of a fuss and start telling their followers not to vote for you.

When rent-seeking leads governments to make grants to special interest groups, the details of this spending are there to be found in the bowels of the budget papers. Where it leads to some activities getting special tax breaks, Treasury attempts to keep track of these “tax expenditures” in an annual statement.

When it comes to extracting rents from governments, few industries or occupations are better at it than the medical specialists. (That’s not true of the GPs, however. Their Medicare rebates were frozen for years, as part of the former Coalition government’s pretence that it could cut taxes while in no way harming the provision of essential public services.)

Some years ago, a Labor government decided to cut back the Medicare rebate for cataract surgery because advances in technology now meant a surgeon could perform far more operations in a day.

The rest of the medical profession knew what a rort it had become but, under the ethical principle of dog doesn’t eat dog – or maybe, honour among thieves – they stood silent while their eye-surgeon brethren fought dirty to protect their swollen incomes.

They pretended the sky was falling, telling their elderly patients the wicked government had left them no alternative to charging them thousands more in out-of-pocket payments. If their elderly patient didn’t think this was fair, perhaps they might like to have a word with their local federal member, saying how terrible it was to have their lovely doctor treated so badly.

Predictably, the government backed off and the rorting continued.

Last week it was the turn of the chemists. Few industries are so heavily regulated by state and federal governments, all with a view to protecting pharmacists’ incomes. There are limits on how many chemists may set up within an area and, in particular, prohibitions on supermarkets having pharmaceutical sections.

Anthony Albanese and his government have made much of the way their introduction of 60-day medicine prescriptions – as recommended by an expert committee – has saved patients money and helped ease the cost-of-living crisis.

But hang on. Surely, that means chemists receiving fewer dispensing fees from the government? This evil must be opposed. Enter a union more powerful than any workers’ union, the Pharmacy Guild. This iniquity will see shortages of medicine and hundreds of chemists closing down across the land, it assured us.

The government fought back, refuting the talk of shortages and revealing figures showing a surge in applications for new pharmacies in the months following the announcement of the prescription change.

It had already promised to plough back into pharmacies the $1.2 billion it expected to save on dispensing fees. But the guild claimed pharmacies’ losses would be $4.5 billion, and last week the guild negotiated a new deal, which would see the government pouring a further $3 billion into pharmacies over five years.

Also last week, we saw the government releasing the report of the aged care taskforce, chaired by Aged Care Minister Anika Wells, calling for the well-off elderly to contribute more to the cost of their own care.

What was the problem? Wells spelled it out in a speech last June: “We must act now. The Baby Boomers are coming … We are going to need a fair and equitable system to meet the needs of Baby Boomers who, with their numbers and determination to solve problems, have shaken every single system they’ve come across.”

The report argued for the present mechanism used to get more from the better-off, the refundable accommodation deposit, to be replaced by a rental-only system.

But it called for the deposit system to be phased out over five years, and postponed the proposed start of the phase-out to 2030. With all its talk of “grandfathering” – applying the changes only to new entrants to the system – it remains to be seen how keen Albo & co are to take on the entitled Baby Boomers.

Finally last week, the Commonwealth Grants Commission’s carve-up of the proceeds from the goods and services tax for the next financial year was announced, bringing a bad shock for NSW and Queensland, and good news for Victoria and the other states and territories.

It was an unwelcome reminder of the separate, but related, special deal then-treasurer Scott Morrison awarded the West Australians in 2018. So great was the uproar from the other states that they were promised more money to ensure the sandgropers’ special deal left the others “no worse off”.

Meaning? That the West Australians’ successful rent-seeking is costing federal taxpayers from other states a bundle in forgone federal spending.

As the independent economist (and proud Tasmanian) Saul Eslake never tires of demonstrating, the Westies had less than zero grounds for arguing that they were getting a bad deal from the carve-up formula.

The grants commission was set up in the 1930s in response to their congenital paranoia that the rest of Australia was having a lend of them. For as long as they were classed as a “mendicant” state cross-subsidised by Victoria and NSW, they were happy.

But from the moment the growth of their mining industry was so great that they were required to join Victoria and NSW in helping maintain the quality of government services in the other states, it suddenly became yet another plot by those “over east” to do them down.

So, here’s the moral of the story for our weak-kneed federal politicians on both sides. Once you give in to rent-seekers, you’re gone. They won’t give up their ill-gotten gains without a massive, vote-losing fight.

Meanwhile, everyone else wonders why, despite the huge sums you’re raising in taxes, the quantity and quality of the services you’re providing is so poor.

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Contrary to appearances, the stage 3 tax cuts will leave us worse off

It’s time we stopped kidding ourselves about the looming tax cuts. They’re what you get when neither of the two big parties is game to make real tax reforms, and the best they can do is lumber us with yet another failed attempt to wedge the other side.

If you want real reform, vote for the minor parties, which may be able to use their bargaining power in the Senate to get something sensible put through.

The stage 3 tax cuts always were irresponsible, and still are. They’ve caused interest rates to be raised by more than they needed to be, and they’ll leave us with substandard government services, as well as plunging us back into deficit and debt.

Only an irresponsible (Coalition) government would commit themselves to making a huge tax cut of a specified shape more than six years ahead of an unknowable future, hoping they could trick Labor into making itself an easy political target by opposing them.

Back then, the Libs thought the budget was returning to continuing surpluses. Wrong. They didn’t think there’d be a pandemic. Wrong. They had no idea it would be followed by an inflation surge and a cost-of-living crisis.

Only an irresponsible (Labor) opposition would go along with legislating the tax cuts five years ahead of time, then promise not to change them should it win the 2022 election.

Let’s be clear. Just because Prime Minister Anthony Albanese’s changes made the tax cuts less unfair, that doesn’t make them good policy. And just because many families, hard-pressed by the cost-of-living crisis, will be pleased to have the relief the tax cuts bring, that doesn’t mean the tax cuts are now good policy.

Don’t be misled by the Reserve Bank’s acceptance of Albanese’s claim that his changes would not add to inflation. Any $20 billion-a-year tax cut is a huge stimulus to demand, imparting further upward pressure on prices.

All the Reserve was saying was that diverting a lump of the tax cut from high-income earners to middle and low earners wouldn’t make much difference to the degree of stimulus. Why wasn’t it worried about a $20 billion inflationary stimulus? Because it had known it was coming for years, and had already taken account of it, increasing interest rates sufficiently to counter its future inflationary effect.

Get it? Had there been no huge tax cut in the offing, interest rates would now be lower than they are, and causing less cost-of-living pain.

As the Grattan Institute’s Brendan Coates and Kate Griffiths have reminded us, the big loser from the stage 3 tax cuts – whether the original or the revised version – is the budget.

The budget has done surprisingly well from the return to full employment, the effect of continuing high commodity prices on miners’ payments of company tax and from wage inflation’s effect on bracket creep. So much so that it returned to a healthy surplus last financial year. It may well stay in surplus this financial year.

Great. But next year it’s likely to return to deficit and stay there for the foreseeable future. Why? Because we can’t afford to give ourselves a $20 billion annual tax cut at this time. As if we didn’t have enough debt already, we’ll be borrowing to pay for our tax cut.

In theory, of course, we could pay for it with a $20 billion-a-year cut in government spending. But, as the Coalition was supposed to have learnt in 2014 – when voters reacted badly to its plans for big spending cuts, and it had to drop them post-haste – this is a pipe dream.

No, in truth, what voters are demanding is more spending, not less. The previous government went for years using fair means or foul – robo-debt, finding excuses to suspend people’s dole payments, neglecting aged care, allowing waiting lists to build up – to hold back government spending as part of its delusional claim to be able to reduce taxes.

As Dr Mike Keating, a former top econocrat, has said, we keep forgetting that the purpose of taxation is to pay for the services that our society demands, and which are best financed collectively.

So when we award ourselves a tax cut we can’t afford, the first thing we do is condemn ourselves to continuing unsatisfactory existing services, and few of the additional services we need.

Those additional services include education – from early education to university – healthcare, childcare, aged care, disability care and defence. (Another thing the Libs didn’t foresee in 2018: our desperate need to acquire nuclear subs.)

But don’t hold your breath waiting for any politician from either major party to explain that home truth to the punters. No, much better to keep playing the crazy game where the Libs unceasingly claim to be the party of “lower, simpler and fairer taxes” and Labor says “I’ll see you and raise you”.

Anyone who knows the first thing about tax reform knows that achieving that trifecta is impossible. But if the Liberal lightweights realise how stupid repeating that nonsense makes them seem to the economically literate, they don’t care.

All they know is that the punters lap up that kind of self-delusion. Which, of course, is why Labor never calls them out on their nonsense.

The other thing we do by pressing on with tax cuts we can’t afford is sign up for more deficits and debt. Coates and Griffiths remind us that the high commodity prices the budget is benefitting from surely can’t last forever.

If you exclude this temporary benefit, Grattan estimates that we’re running a “structural” budget deficit of close to 2 per cent of gross domestic product, or about $50 billion a year in today’s dollars.

We’re ignoring it now, but one day we’ll have to at least start covering the extra interest we’ll be paying. How? By increasing taxes. How else? Ideally, we’d introduce new taxes that improved our economic efficiency or the system’s fairness. Far more likely, we’ll just be given back less bracket creep.

It’s the pollies’ bipartite policy of not stopping bracket creep by indexing the income tax scales each year that makes their unceasing talk of lower tax so dishonest and hypocritical. They’ve demonised all new taxes or overt increases in existing taxes, while keeping bracket creep hidden in their back pocket.

Which is not to argue we must eradicate it. Most of the tax reform we’ve had – notably, the introduction of the goods and services tax – has come with the political sweetener of a big, bracket-creep-funded cut in income tax. (Would-be reformers, please note.)

Another name for bracket creep is “automatic stabiliser”. When spending is growing strongly and inflation pressure is building, bracket creep is one of the budget’s main instruments working automatically to help restrain demand by causing people’s after-tax income to rise by a lower percentage than their pre-tax income.

The pollies can’t just let bracket creep roll on for forever. You have to use the occasional tax cut to return some of the proceeds. But July 2024 turned out to be quite the wrong time to do it.

So even if the Reserve starts to cut interest rates towards the end of this year, the tax cuts mean rates will stay higher for longer than they needed to.

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How top earners kid themselves (and us) they're overtaxed

Apparently, the nation’s chief executives and other top people are groaning under the weight of the tax they pay. Is it any wonder they’re doing such an ordinary job of running the country’s big businesses? When you see what’s left of their pay after tax, it’s a wonder they bother turning up.

I know this will shock you – just as it does every time the business media remind their readers of it. According to the latest available figures, for 2020-21, the top-earning 1 per cent of taxpayers paid more than 18 per cent of the total income tax take.

Taxpayers in the top 10 per cent paid 46 per cent of the total income tax collection of $237 billion.

Think of it. Just the top 10 per cent pay almost half of all the taxes. Do you know that the bottom 50 per cent of taxpayers pay less than 12 per cent? Talk about lifters and leaners. Those lazy good-for-nothings have no idea how easy they get it. And still, they whinge unceasingly about the cost of living.

How’s your bulldust detector going? All the figures I’ve given you are true, but, like many of the things said in the political debate, they’re misleading. If you’re not smart enough to see how they’re misleading, that’s your lookout.

It’s true that because income tax is “progressive” – people at the top pay a much higher proportion of their income than those at the bottom – people at the top end up paying a much higher share of the total tax take.

That’s because they’re considered able to bear a bigger share of the cost of government. And remember that about two-thirds of those in the bottom half would have (often not well-paid) part-time jobs.

But what the people who bang on about how much tax they’re paying want you to forget is that although income tax is the biggest tax we pay, it’s just one of the many taxes – federal, state and local – we pay.

In fact, it accounts for only about half of all the tax we pay. And almost all the other taxes are “regressive” – they hit the bottom end proportionally harder than the top.

So, take account of all the other taxes, and the rich man’s burden is a lot less heavy than the rich old men try to tell us.

It’s clear that, of all the taxes we pay, it’s personal income tax that the well-off most object to and want to pay a lot less of. Whenever you see them arguing that we need major tax system reform to “sharpen incentives to invest, innovate and hire” and make the system “genuinely productivity-enhancing”, that’s what they really mean.

Most voters approve of Prime Minister Anthony Albanese’s decision to help ease cost-of-living pressure by diverting a big chunk of the stage 3 tax cuts from high-income earners to middle and lower earners, but the (Big) Business Council was distinctly disapproving.

“The [original] stage 3 package rewarded aspiration and started to address bracket creep with a simpler system”, but “the changes do not address any of the real issues with our tax system”, it said.

But if you’re not impressed by the argument that pretends income tax is the only tax that matters, the big business lobby has others. “Personal income contributes too much of our [total] tax revenue … [at] 51 per cent today,” it says, implying we should cut income tax and increase other, indirect taxes.

A related argument is that few countries are as reliant on income tax as we are. Figures for 2021 say our personal income tax as a proportion of total taxes is the fifth highest among the 38 member countries of the Organisation for Economic Co-operation and Development.

Again, it’s true but misleading. It’s a false comparison because, unlike almost all the other countries, Australia uses income tax to cover the cost of social security payments – such as unemployment and sickness benefits, disability and age pensions, as well as healthcare benefits – whereas other countries cover these with separate, income-related social security contributions imposed on workers and their employers.

Calculations by Matt Grudnoff of the Australia Institute show that if you add to income tax the social security contributions imposed in other countries (and, in our case, add the states’ payroll taxes), our ranking goes from fifth highest to seventh lowest. So much for that argument.

Some people argue that we should add our compulsory employer superannuation contributions to our income tax, now set at 11 per cent of wages. But that argument is wrong because the super levy is not a tax.

Taxes involve the government making you pay money into its coffers, which is then spent by the government as it sees fit. With super contributions, the money goes into an account with a super fund that has your name on it and is always yours to spend as you see fit once you reach a certain age. If you die without spending it all, what’s left goes to your rellos.

And here’s another thing. One reason income tax accounts for as much as half of Australia’s total tax collections is that the Abbott government abolished former prime minister Julia Gillard’s carbon tax and her mining tax.

The very business lobby groups who supported these anti-tax-reform measures are now complaining that we’re too dependent on income tax. If they were genuine, the problem could be easily fixed: take up Professor Ross Garnaut’s proposal for a new, bigger “carbon solution levy”, which, by raising $100 billion a year, would greatly reduce our reliance on income tax.

Finally, don’t let the rich guys’ talk of high taxes fool you into believing Australia is a high-tax country. That’s the opposite of the truth. When you take total taxes as a proportion of gross domestic product, the OECD average in 2021 was 34 per cent. Ours was less than 30 per cent, making us ninth lowest. And only three of the eight lower countries are rich like us.

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Why fixing negative gearing would be a positive for our kids

Life wasn’t meant to be easy for our politicians – which is as it should be. Poor old Anthony Albanese. No sooner has he got away with breaking his promise on the stage 3 tax cuts than he’s besieged by people demanding more tax reform.

Trouble is, they all want different things, and every one of them could cost him votes as fat cats who stand to lose some tax break join forces with the opposition to run a great scare campaign, claiming it’s ordinary voters who’d be hit.

Despite the many things wrong with our tax system, the two big parties have wedged themselves into a corner on reform. Neither side’s game to do anything for fear of what the other side would say.

But when, unsurprisingly, polling showed that most people approved of Albanese’s decision to switch about $7 billion a year of the tax cuts away from those at the top and give them to those in the middle and bottom, the would-be reformers swarmed out of the woodwork.

First out was the (Big) Business Council, terribly worried about the lack of investment and the need for greater productivity. I’ll check their claims another day.

Then came two of our best economists, Professors Ross Garnaut and Rod Sims, proposing to bring back the carbon tax, only bigger and better. As I wrote last week, it’s a good idea.

But the one to watch, another old favourite, is the talk of finally doing something to curb the negative gearing of investment properties, which really took off 20 years ago after John Howard decided that the capital gain on property and other investments should be taxed at only half the rate applying to income from actual work.

A rental property is negatively geared when so much of the cost of buying it is covered by a loan rather than your own savings that the interest bill and other expenses exceed the rent you earn.

Why would anyone deliberately set up a business to run at a loss? Because the loss is deductible against your income from work. On a small investment of your own money, you sell the property a few years later at a big capital gain, only half of which is taxed. Not bad, eh?

Former Treasury secretary Dr Ken Henry reminds us that the rental property sector’s deductions are now so huge they exceed the rental income, making it not a net taxpayer. Taken together, all those landlords contribute nothing but are being subsidised by the mug workers.

What should worry Albanese is that the Greens are now pushing negative-gearing reform as part of their efforts to rebrand themselves as the party that cares about renters and first-home buyers.

If Labor doesn’t start showing it wants to improve the daunting prospects facing the younger generation, it risks losing its share of the youth vote to the Greens. The Libs needn’t worry, they’ve lost most of their share already.

Some years ago, the Grattan Institute proposed allowing landlords’ rental losses to be deducted only from other “passive” income, not wage income. There must be some recognition that capital gains shouldn’t be taxed at their full, inflated amount, so the 50 per cent discount should be cut to 25 per cent.

Another approach would be to allow losses to be deducted against wage income only if the investment property was newly built. This would overcome the objection that investors usually buy established homes, thus adding to the demand for homes without adding to their supply, and so pushing prices up out of reach of first-home buyers.

Now, the business people who see themselves as losing from the restriction of negative gearing – the real estate agents and home building companies – always claim it would do great damage to renters and home buyers alike. Don’t believe it. When economists try to estimate the likely effects, they find them to be small. Average house prices would fall by just 1 or 2 per cent, they say. So much for the death and destruction.

But these sums underestimate the likely benefit to young buyers. While the fall in the average price of all houses and units may be small, that’s because most house prices would be unaffected. Entry-level homes, the kind bought by mum-and-dad investors and first-home buyers, would become more affordable because those prices would fall by a lot more.

What’s more, a recent study finds that the share of households who own their home rather than renting it would increase by a huge 4.7 percentage points. Nor would it surprise me if, in practice, the effect was greater than the economists’ figuring suggests.

Even so, fixing negative gearing is no magic answer to housing affordability, and the Albanese government’s efforts to increase the supply of housing, particularly in the parts of cities where people prefer to live, is another part of the answer.

Albanese and Treasurer Jim Chalmers say they have no plans to change negative gearing, but that’s what they said about changing the stage 3 tax cuts – until they were ready to move.

And with the Greens using negative gearing as a bargaining chip in the Senate, progress is far from impossible.

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We can't escape a carbon tax, which is good news, not bad

When economists are at their best, they speak truth to power. And that’s just what two of our best economists, Professor Ross Garnaut and Rod Sims, did this week. In their own polite way, they spoke out against the blatant self-interest of our (largely foreign-owned) fossil fuel industry.

They sought to counter the decade of damage done by the former federal Liberal government which, for short-sighted political gain, engaged in populist demonisation of Julia Gillard’s carbon tax.

And, by their willingness to call for a new “carbon solution levy”, they shamed the present Labor government, which dare not even mention a carbon price and isn’t game to take more than baby steps in the right direction, for fear of what Peter Dutton might say.

But the two men’s message is actually far more positive than that. In launching a new think tank, the Superpower Institute, they pursue Garnaut’s vision of how we can turn the threat of climate change into an opportunity to revitalise our economy, raising our productivity and our living standards.

Sims, former boss of the competition watchdog, says that, following a decade of stagnant production per person, real wages and living standards, Australia’s full participation in the world’s move to achieve net-zero global emissions is the only credible path to restoring productivity improvement and rising living standards.

Climate change is a threat to our climate, obviously. But it’s also a threat to our livelihood because Australia is one of the world’s largest exporters of fossil fuels. Garnaut points out that, as the rest of the world moves to renewables, two of our three largest export industries will phase out.

This will send our productivity backwards, he notes – as all the big-business people reading us lectures about productivity never do.

The good news, however, is that “putting Australia back on a path to rising productivity and living standards doesn’t mean going back to the way things were”. It’s now clear that “Australia’s advantages in the emerging zero-carbon world economy are so large that they define the most credible path to restoration of growth in Australian living standards.”

Garnaut says that “In designing policies to secure our own decarbonisation, we now have to give a large place to Australia’s opportunity to be the renewable energy superpower of the zero-carbon world economy.”

Other countries do not share our natural endowments of wind and solar energy resources, land to deploy them, as well as land to grow “biomass” – plant material – sustainably as an alternative to petroleum and coal for the manufacture of chemicals.

From a cost perspective, we are the natural location to produce a substantial proportion of the products presently made with large carbon emissions in North-East Asia and Europe.

The Superpower Institute champions a “market-based” solution to the climate challenge. We shouldn’t be following the Americans by funding the transition from budget deficits, nor become inward looking and protectionist.

Rather, everything that can be left to competitive markets should be, while everything that only governments can do – providing “public goods” and regulating natural monopolies – should be done by the government.

Sims notes a truth that, since Tony Abbott’s successful demonisation of the carbon tax, neither side of politics wants to acknowledge, that markets only work effectively if firms are required to pay the costs that their activities impose on others and, on the other hand, if firms are rewarded for the benefits their activities confer on others.

When the producers of fossil fuels don’t bear the cost of the damage their emissions of greenhouse gasses do to the climate, and the producers of renewable energy don’t enjoy the monetary benefit of not damaging the environment, these two “externalities” – one bad, the other good – constitute “market failure”.

And the way to make the market work as it should is for the government to use some kind of “price on carbon” – whether a literal tax on carbon, or its close cousin, an emissions trading scheme – to internalise those two externalities to the prices paid by fossil fuel producers and received by renewables producers.

The price on carbon that Garnaut and Sims want, their “carbon solution levy”, would be imposed on all emissions from Australian produced fossil fuel (whether those emissions occurred here or in the country that imported the fuel from us) and from any fossil fuel we imported.

Only about 100 businesses would pay the levy directly, though they would pass it on to their customers, of course. It would be levied at the rate of recent carbon emission permits in the European Union’s emissions trading scheme.

Imposing the levy on all our exports of fossil fuel, rather than just our own emissions, makes the scheme far bigger than the one Abbott scuttled in 2014. It would raise about $100 billion a year.

But it’s bigger to take account of the Europeans’ “carbon border adjustment mechanism” which, from 2026, will impose a tax on all fossil fuels imported from Australia that haven’t already been taxed.

Get it? If we don’t tax our fossil fuel exports, the Europeans or some other government will do it for us – and keep the proceeds.

What will we do with the proceeds of our levy? Most of them will go to a “superpower innovation scheme” that makes grants to support early investors in each of our new, green export industries. In this way it will lower the prices of carbon-free steel, aluminium and other products, helping them compete against the equivalent polluting products. The positive externality internalised.

Garnaut says we need to have the new levy introduced by 2031 at the latest. But the earlier it can be done, the more of the levy’s proceeds can be used to provide cost-of-living relief of, say $300 a year, to every household and business, as well as fully compensating for the levy’s effect on electricity prices.

Thank heavens some of our economists are working on smart ways to fix our problems while our politicians play political games.

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Let's stop using interest rates to throttle people with mortgages

What this country needs at a time like this is economists who can be objective, who’re willing to think outside the box, and who are disinterested – who think like they don’t have a dog in this fight.

On Friday, Reserve Bank governor Michele Bullock, with her lieutenants, made her first appearance as governor before the House of Reps economics committee.

See if you can find the logical flaw in this statement she made: “The [Reserve’s] board understands that the rise in interest rates has put additional pressure on the households that have mortgages. But the alternative of lower interest rates and high inflation for a prolonged period would be even worse for these households, as well as all the households without mortgages.”

Sorry, that’s just Bullock doing her Maggie TINA Thatcher impression, mindlessly repeating the assertion that “There Is No Alternative”. Nonsense. There are various alternatives, and if economists were doing their duty by the country, they’d be talking about them, evaluating them and proposing them.

What’s true is that the Reserve has no alternative to using interest rates to slow demand. Some economists can be forgiven for being too young to know that we didn’t always rely mainly on interest rates to fight inflation, just as we didn’t always allow the central bank to dominate the management of the economy.

These were policy changes we – and the rest of the rich world – made in the early 1980s because we thought they’d be an improvement. In principle, now we’re more aware of the drawbacks of giving the central bank dominion over macroeconomic management, there’s no reason we can’t decide to do something else.

In practice, however, don’t hold your breath waiting for the Reserve to advocate making it share its power with another authority. Nor expect the reform push to be led by economists working in industries such as banking and the financial markets, which benefit from their close relations with the central bank.

What those with eyes should have seen in recent years is that relying so heavily on an instrument as blunt as interest rates is both inequitable and inefficient. It squeezes the third of households with mortgages – or the even smaller proportion with big mortgages – while hitting the remaining two-thirds or more only indirectly.

It’s largely by chance that the Reserve’s need to jam on the demand brakes has coincided with the worst shortage of rental accommodation in ages, thereby spreading the squeeze to another third of households. Had this not happened, the Reserve would have needed to bash up home buyers even more brutally than it has.

Clearly, it would be both fairer – and thus more politically palatable – and more effective to use an instrument that directly affected a much higher proportion of households. This should mean the screws wouldn’t have to be tightened so much, another advantage.

One obvious alternative tool would be to temporarily move the rate of the goods and services tax up (or, at other times, down) a percentage point or two.

Another alternative, one I like, is to divide compulsory employer superannuation contributions into a part permanently set at 11 per cent, and a part that could be varied temporarily between plus several percentage points and minus several points.

This would leave workers less able to keep spending (or more able to spend), as the managers of demand required to stabilise both inflation and unemployment.

Its great attraction is that it involves the government temporarily fiddling with people’s ability to spend, without actually taking any money from them. Surely, this would be the least politically painful way to manage demand.

Experience with central-bank dominance has shown us one big advantage: the economic car has been driven markedly better when the brake and the accelerator are controlled by econocrats independent of the elected government.

But this simply means we’d have to set up an independent authority to control all the instruments of macro management, whether monetary or fiscal.

Not all our economists have been too stuck in the mud of orthodoxy to think these new thoughts. They were canvased by professors Ross Garnaut and David Vines in their submission to the Reserve Bank inquiry – which, predictably, was brushed aside by a panel of economists anxious to stay inside the box.

A century ago, Australians were proud of the way we showed the world better ways of doing things, such as the secret ballot and votes for women. These days, our economists are dedicated followers of international fashion.

This means the country that should be leading the way to better tools to manage demand will wait until it becomes fashionable overseas. Why should we be first? Because our unusual practice of having mainly variable-rate home loans means our use of the interest-rate tool bites a lot harder and faster, thus making our monetary policy a lot blunter than theirs.

Economists may not fret much about how badly some punters are hurting as the economic managers rapidly correct the consequences of their gross miscalculations – the Reserve played a big part in the excessive stimulus during the COVID lockdowns – but one day the politicians who carry the can politically for these miscalculations will revolt against the arrogance of their economic gurus.

Reserve Bank governors – and, in earlier times, Treasury secretaries – privately congratulate themselves for being the last backstop protecting the nation against inflation. When no one else cares, they do. When no one else will impose a cost of living crisis on spendthrift consumers, they will.

Don’t you believe it. If they cared as much as they think they do, they’d care a lot more about effective competition policy. But when the economists leading the Australian Competition and Consumer Commission – Allan Fels and later, Rod Sims – were battling to get more power to reject anticompetitive mergers, they got precious little support from their fellow economists.

While the (Big) Business Council was lobbying privately to retain the laxity, backed up on the other side by a few Labor-Party-powerful unions that had done sweetheart deals with their big employers, the Reserve and Treasury were missing in action.

The people at the bottom of the inflation cliff boast about the diligence of their ambulance service, while doing nothing to help the people at the top of the cliff trying to erect a better safety fence.

If you were looking for examples of oligopolies with pricing power, you could start with the big four banks. If you were looking for examples of “regulatory capture” – where the bureaucrats supposed to be regulating an industry in the public interest get sweet-talked into going easy – you could start with the Reserve and banking (with Treasury not far behind).

In the natural conflict between the goals of financial stability and effective competition, the Reserve long ago decided we’d worry about competition later.

But the more concentrated we allow our industries to become, the more often the Reserve will have to struggle to control inflation surges, and the harder it will need to bash home-buyers on the head.

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Chalmers finds a better way to get inflation down: fix the budget

There’s an important point to learn from this week’s mid-(financial)-year’s budget update: in the economy, as in life, there’s more than one way to skin a cat.

The big news is that, after turning last year’s previously expected budget deficit into a surplus of $22 billion – our first surplus in 15 years – Treasurer Jim Chalmers is now expecting this financial year’s budget deficit to be $1.1 billion, not the $13.9 billion he was expecting at budget time seven months’ ago.

Now, though $1.1 billion is an unimaginably huge sum to you and me, in an economy of our size it’s a drop in the ocean. Compared with gross domestic product – the nominal value of all the goods and services we expect to produce in 2023-24 – it rounds to 0.0 per cent.

So, for practical purposes, it would be a balanced budget. And as Chalmers says, it’s “within striking distance” of another budget surplus.

This means that, compared with the prospects for the budget we were told about before the federal election in May last year, Chalmers and Finance Minister Katy Gallagher have made huge strides in reducing the government’s “debt and deficit”. Yay!

But here’s the point. We live in the age of “central bankism”, where we’ve convinced ourselves that pretty much the only way to steer the economy between the Scylla of high inflation and the Charybdis of high unemployment is to whack interest rates up or down, AKA monetary policy.

It ain’t true. Which means Chalmers may be right to avoid including in the budget update any further measures to relieve cost-of-living pressures and, rather, give top priority to improving the budget balance, thereby increasing the downward pressure on inflation.

The fact is, we’ve always had two tools or instruments the managers of the economy can use to smooth its path through the ups and downs of the business cycle, avoiding both high unemployment and high inflation. One is monetary policy – the manipulation of interest rates – but the other is fiscal policy, the manipulation of government spending and taxation via the budget.

This year we’ve been reminded how unsatisfactory interest rates are as a way of trying to slow inflation. Monetary policy puts people with big mortgages through the wringer, but lets the rest of us off lightly. This is both unfair and inefficient.

Which is why we should make much more use of the budget to fight inflation. That’s what Chalmers is doing. The more we use the budget, the less the Reserve Bank needs to raise interest rates. This spreads the pain more evenly – to the two-thirds of households that don’t have mortgages – which should be both fairer and more effective.

Starting at the beginning, in a market economy prices are set by the interaction of supply and demand: how much producers and distributors want to be paid to sell you their goods and services, versus how much consumers are willing and able to pay for them.

The rapid rise in consumer prices we saw last year came partly from disruptions to supply caused by the pandemic and the Ukraine war. There’s nothing higher interest rates can do to fix supply problems and, in any case, they’re gradually going away.

But another cause of the jump in prices was strong demand for goods and services, arising from all the stimulus the federal and state governments applied during the pandemic, not to mention the Reserve’s near-zero interest rates.

Since few people were out of job for long, this excessive stimulus left many workers and small business people with lots to spend. And when demand exceeded supply, businesses did what came naturally and raised their prices.

How do you counter demand-driven inflation? By making it much harder for people to keep spending so strongly. Greatly increasing how much people have to pay on their mortgages each month leaves them with much less to spend on other things.

Then, as demand for their products falls back, businesses stop increasing their prices and may even start offering discounts.

But governments can achieve the same squeeze on households by stopping their budgets putting more money into the economy than they’re taking out in taxes. When they run budget surpluses by taking more tax out of the economy than they put back in government spending, they squeeze households even tighter.

So that’s the logic Chalmers is following in eliminating the budget deficit and aiming for surpluses to keep downward pressure on prices. This has the secondary benefit of getting the government’s finances back in shape.

But how has the budget balance improved so much while Chalmers has been in charge? Not so much by anything he’s done as by what he hasn’t.

The government’s tax collections have grown much more strongly than anyone expected. Chalmers and his boss, Anthony Albanese, have resisted the temptation to spend much of this extra moolah.

The prices of our commodity exports have stayed high, causing mining companies to pay more tax. And the economy has grown more strongly than expected, allowing other businesses to raise their prices, increase their profits and pay more tax.

More people have got jobs and paid tax on their wages, while higher consumer prices have meant bigger wage rises for existing workers, pushing them into higher tax brackets.

This is the budget’s “automatic stabilisers” responding to strong growth in the economy by increasing tax collections and improving the budget balance, which acts as a brake on strong demand for goods and services.

There’s just one problem. Chalmers has joined the anti-inflation drive very late in the piece. The Reserve has already raised interest rates a long way, with much of the dampening effect still to flow through and weaken demand to the point where inflation pressure falls back to the 2 per cent to 3 per cent target.

We just have to hope that, between Reserve governor Michele Bullock’s monetary tightening and Chalmers’ fiscal tightening, they haven’t hit the economy much harder than they needed to.

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Paying tax is good and, for better government, we should pay more

On Friday, a former top econocrat did something no serving econocrat is allowed to do, and no politician is game to do: he set out the case for us to pay higher, not lower, taxes.

For years, politicians have sought our votes by promising smaller government and lower taxes. This often helped get them elected, but it hasn’t worked as promised.

They’ve reduced the size of government by privatising government-owned businesses and outsourcing the provision of many government-funded services. But though they’re always announcing tax cuts, the hidden tax of bracket creep means there’s been no real reduction in the tax we pay. Great.

The man advocating a radically different approach is Dr Mike Keating. He laid out the case for bigger government and higher taxes in a speech to the Australia Institute’s revenue summit at Parliament House in Canberra.

The pollies seeking election by promising lower taxes take it as obvious that taxation is a bad thing – a “burden” which, like all burdens, needs to be minimised.

But Keating says we should remember the purpose of taxation. It’s to pay for a wide range of services that governments provide to us either directly (education, healthcare, child care, aged care, pensions and payments) or collectively (defence, law and order, roads). Some services we get while we’re young, some when we’re middle-aged, and many when we’re old.

Keating says there’s a wide consensus among Australians about the things we expect the government to do for us. “We recognise that all Australians are entitled to basic levels of education, healthcare, income support and shelter, and that governments have a responsibility to ensure the provision of these essential services,” he says.

Recent Coalition governments promising us lower taxes always added the promise that this could be done without reducing “essential services”.

Keating says there’s now widespread acknowledgement that these services that we pay for collectively are critical to building our community and to our sense of community.

So taxation reflects our mutual obligation to one another as citizens. Taxation underpins an inclusive society and is an efficient way of paying for those services that are consumed collectively. Many of the services paid for by taxation add to our quality of life.

Indeed, he says, history suggests that our demand for these services, such as education and health, tends to rise rapidly as economic growth causes our incomes to grow. They’re what economists call “superior goods”. The better off we get, the more of our income we devote to them.

The problem for governments – which politicians themselves have worsened – is the disconnect in people’s minds between our demand for government services and the taxation needed to pay for them. We refuse to join the dots.

“We want increased access to more and better services on the one hand, and less taxation on the other,” Keating says.

So, let’s stop kidding ourselves. If we want more and better services from government, we’ll have to pay for them with higher taxes, just as when we want more or better in a shop or a restaurant, we know we’ll have to pay more.

But assuming we accept that truth, why do we already want the government to be bigger and better?

One way the previous government sought to square the circle of maintaining “essential services” while cutting taxes – including next July’s stage-three tax cuts – is by underspending on those services and hoping no one would notice.

Keating has thought of no less than seven areas where there’s little doubt that we need to spend more.

First, although the previous government acted on the scandals exposed by the royal commission into aged care, and governments have spent more on childcare, both remain underfunded. What’s more, increases in the availability and quality of care services are likely to lead to higher costs because higher wages will be needed to attract the extra workers.

Second, the Albanese government’s increased spending on “social housing” (what in the olden days was called the housing commission) is widely considered to be much less than needed.

Third, federal government grants for public hospitals will probably have to grow a lot faster than presently expected to reduce excessive waiting times. And the Medicare payments to GPs are still too low, risking shortages of doctors, particularly in the country.

Fourth, federal funding for universities hardly grew in real terms over the nine years of the Coalition government, and actually fell per student. Labor will be pressured to make this up. As for vocational education and training – TAFE – the new National Skills Agreement requires the feds to cough up more.

Fifth, unemployment benefits – this week labelled JobSeeker, maybe something else next week – are very low compared with most other rich economies. And the recent leap in rents means the rent assistance paid to pensioners and others on benefits is now far too mean.

Sixth, it’s clear we’ll need to spend a lot more on the AUKUS nuclear submarines and other defence capabilities. This could increase annual defence spending by at least 1 per cent of gross domestic product over the next decade.

Finally, measures to reduce carbon emissions and to fully develop Australia’s potential as an exporter of renewable energy will almost certainly require greater funding than the government is presently planning.

The Grattan Institute estimates that if present tax arrangements aren’t changed to cover the expected additional growth in government spending, the “structural” (underlying) budget deficit will be close to 3 per cent of GDP in 10 years. Keating thinks it’s more likely to be 4 per cent – or $100 billion a year in today’s dollars.

Continuing deficits of this size would be quite unrealistic, he says. He suggests not another review of the tax system, but a major, authoritative inquiry to assess how much revenue is needed to adequately fund all government services.

When the public has a better understanding of what we’d get for our money, then maybe we’ll be more prepared to accept the need for higher taxes.

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How to make sense of Treasury's latest intergenerational report

Our sixth intergenerational report envisages an Australia of fewer young people and more elderly, with slower improvement in living standards, climate change causing economic and social upheaval, aged and disability care becoming our fastest-growing industry, and home ownership declining, while we spend more defending ourselves from the threat of a rising China, real or imagined.

That does sound like fun, but remember this: just as I hope many of the predictions I make will be self-defeating prophecies – because people act to ensure they don’t happen – so it is with Treasury’s regular intergenerational reports.

They say, here’s the pencil sketch of the next four decades that we get when we assume present economic and demographic trends keep rolling on for 40 years, and that present government policies are never changed.

Get it? Intergenerational reports are Treasury’s memo to the government of the day, saying things will have to change. The memo to you and me says: you may hate change, but unless you let our political masters make changes, this is how crappy life may become.

Every intergenerational report comes to the same bottom line: if you think you won’t be paying more tax in future you must have rocks in your head.

The media can’t stop themselves from referring to the report’s findings as “forecasts”. Nonsense. Forecasts purport to tell you what will happen. These reports are “projections”: if we make a host of key assumptions about what will happen, plug them in the machine and turn the handle 40 times, this is what comes out.

Remembering that Treasury demonstrates almost annually its inability to forecast in late April what its own budget balance will be in just two months’ time, June 30, let’s not imagine that anything it tells us today about 2063 could prove close to the truth, except by chance.

This is no attack on Treasury. No one’s forecasts are less wrong than theirs. It’s just saying don’t let the false confidence of the economics profession fool you. Only God knows what the world will look like in 2063 – and she’s not telling.

We’re all peering through a glass darkly, doing the best we can to guess what’s coming around the corner. How many pandemics in the next 40 years? Treasury’s best guess: none. How many global financial crises? Best guess: none.

We know from experience that the economy rarely moves in straight lines for long, but the nature of Treasury’s mechanical projections is that most curves stay straight for 40 years. Unexpected things are bound to happen. Some will knock us off course only briefly; some may change our direction forever. Some will be bad; some will be good.

The report’s single most important assumption is the rate at which the productivity of labour will improve. Until now, Treasury has avoided argument by assuming that the average rate of improvement over the next 40 years will be its rate over past 30 years.

The first report in 2002 assumed a rate of 1.75 per cent, but in later reports it was cut to 1.5 per cent. Now it’s been cut to the seemingly less unrealistic 20-year average of 1.2 per cent.

This shift makes a big difference. The first report had living standards – measured as real gross domestic product per person – climbing 90 per cent in 40 years. This report has them climbing by only 57 per cent in the next 40.

Since this is only the second of the six intergenerational reports produced under a Labor government, it’s only the second that takes climate change seriously. The other four looked into the coming 40 years and didn’t see any consequences of climate change worth taking into account.

Labor’s first report, in 2010, had a lot to say about climate change, but this report attempts to measure its effect on the economy and the budget. It estimates that climate change will cause the level of real GDP in 2063 to be between $135 billion and $423 billion less than it would overwise have been, in today’s dollars.

The report’s title has always been a misnomer. If it lived up to its name, it would deal with the intergenerational transfer of income and wealth from the young to the old – an issue that deserves much more attention than it gets.

It would talk about the way our treatment of housing favours the elderly, and how the tax, spending and superannuation decisions of the Howard government, in particular, shifted income from the young to the old.

But no. The real reason it’s called the intergenerational report is that its main purpose is to bang on about the huge effect the ageing of the population – the rise in the population’s average age – will have on the federal budget (while ignoring any effects on the states’ budgets).

It’s here, however, that Rafal Chomik, of the ACR Centre of Excellence in Population Ageing Research at the University of NSW, has noted this overhyped story being toned down over the six reports. In 2002, the first report projected that, by 2023, the share of the population aged 65 and over would climb from 12.5 per cent to nearly 19 per cent.

Actually, it’s only up to 17.3 per cent. And the projection for 2063 is 23.4 per cent, less than the 24.5 per cent originally projected for 2042.

Another factor on which the report was too pessimistic at the start is the effect of ageing on participation in the labour force (by having a job or actively seeking one). Whereas it was expected to dive as the Baby Boomers retired, it’s now expected just to glide down.

Participation actually reached a record high of 66.6 per cent this year – who knew our response to a pandemic would return us to full employment for the first time in 50 years? – and is now projected to have fallen only to 63.8 per cent by 2063. If so, that would be higher than it was in 2002.

Chomik says the first report projected government spending on health care to reach more than 8 per cent of GDP by 2042. Now it’s projected to reach just 6.2 per cent by 2063. But, thanks to the royal commission, the cost of aged care is now expected to grow faster, to 2.5 per cent of GDP by 2063.

Which brings us to Treasury’s bottom line, the federal budget. Treasury projects that, as a percentage of GDP, the budget deficit will decline steadily until 2049, before ageing causes it to start heading back up.

Note, however, that while government spending is projected to rise by almost 4 per cent of GDP, tax collections are assumed, as always, to be unchanged.

Get the (unchanged) commercial message from Treasury? Taxes will have to rise.

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Grim Reaper is catching up with the Baby Boomers, waving bills

Having witnessed the last days of my parents and in-laws, I don’t delude myself – as they did – that I’ll be able to avoid being carted off to an old people’s home. Sorry, an aged care residential facility.

Actually, I dream of dying in the saddle. My last, half-finished column would be the announcement that I’d finally made way for the bright young women coming up behind me. That’s assuming they hadn’t already found a chance to push me under a bus.

Speaking of bright young women, Anthony Albanese’s Minister for Aged Care and Sport, Anika Wells, seems to be attacking her job with much more enthusiasm than her Coalition predecessors.

In a speech to the National Press Club last week, she noted that Labor inherited a system that a royal commission had characterised with a single word – “neglect”. She’d spent the past 12 months engaged in “triage” and “urgent reform” and was now able to think about the future.

And what’s she been thinking? “I don’t want Australians to be scared about the care they will be provided in later life,” she said. “I don’t want daughters and sons worried about the treatment their parents will receive.”

The Howard government’s Aged Care Act of 1997 was aimed at saving money by turning aged care over to community and for-profit providers. It was focused on how the providers were to run their services, setting out their obligations and responsibilities.

But, as recommended by the royal commission, the government planned to introduce a new act next year, this time focused on the rights of older people, with “a clear statement that the care provided to residents is safe and of high quality”.

Labor had already done much to fix the system, she said, but there were more challenges ahead, and “we must act now”. Why? Because “the Baby Boomers are coming”. (I’d have thought they’d come some time ago, and the real problem was their looming departure.)

But I imagine the Boomers (present company excepted) will be living a lot longer than previous generations – thanks to advances in medical science and being the first generation to realise that exercise was something to be sought and enjoyed, not avoided.

But though their arrival in aged care may be at a later age, their later lives won’t be trouble-free and certainly not doctor-free.

One change we’ll be seeing is more in-home care. Almost everyone would prefer to keep living at home rather than go off to a “facility” (sounds like a toilet block). The previous government did introduce the home-care package, but it was expensive and so was limited in how many people were given it.

Wells is introducing a new Support at Home program in July 2025 which, by delaying or eliminating people’s move to facility care, should save money.

But her big announcement last week was the setting up of an aged care taskforce – chaired by her good self – to answer the royal commission’s “great unanswered question”: How to make aged care equitable and sustainable into the future?

Which is a politician’s way of saying, “How we gonna pay for all this?”

One of the commissioners wanted a new aged care tax levy of 1 per cent of everyone’s taxable income (which, in practice, would be added to the present 2 per cent Medicare levy), whereas the other wanted some unspecified combination of a levy and a means-tested contribution from users.

Wells notes that, within a decade, we’ll have, for the first time ever, more people aged over 65 than under 18. And the proportion of people aged 15 to 64 – the people working and paying income tax – will shrink.

Now, this is the point where we need to remember that we’ve gone for decades stacking the financial rules against the younger generation and in favour of the oldies. We’ve kept handing tax breaks to the ageing. Old people can have good incomes that are largely untaxed, whereas young people on the same money have to pay up - and pay for their tertiary education.

It’s not true that every Boomer’s rolling in it – there are poor people in every generation – but most have done pretty well. Most were able to climb aboard the home-ownership gravy train when homes were still affordable. Many have been able to buy an investment property or two on the top.

And though the compulsory superannuation scheme hasn’t applied to the whole of their working lives, they’ll be retiring with a lot more, hugely taxpayer-subsidised super than any previous generation.

So, the idea of spreading the entire cost of the Boomers’ aged care – whether in-home or in-facility – across all those people young enough to still be working and paying income tax ought to be unthinkable.

If Labor doesn’t summon the courage to ask those Baby Boomers who’ve done OK to help pay directly for the cost of their highly privileged lives’ last stage, it will just prove what a rotten world Albo and the rest of us have left our offspring.

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Avoiding a tax-cut backlash will be harder than Albanese thinks

Anthony Albanese, who never impressed me when a warrior of the NSW Labor Left, has impressed me greatly by the way he’s conducted himself since becoming prime minister. He wants to raise the standard of political behaviour. Everyone gets listened to with respect, and every election promise he made not to do this, and not to do that, is honoured, no matter how inconvenient.

Having lumbered himself with those promises, Albo is taking the long view. His first term will be used to win voters’ respect and trust, creating a foundation for him to be more comfortably re-elected, with a program of more controversial reform.

Which brings us to the much-debated stage three tax cuts, designed by his political opponents to favour high-income earners at the expense of low and middle earners, something anathema to a Labor government but already put into law.

Many have been urging Albanese and his Treasurer Jim Chalmers to rescind the tax cuts or at least cut them back. But it now seems clear Albanese has made up his mind that the cut, no matter how deleterious, must go ahead. A clear promise was given, and must be kept. Can you imagine the outcry if it wasn’t? Peter Dutton would never let it rest.

Well, I can imagine it. But if Albanese thinks that keeping the promise will mean no outcry, he’s sadly deluded. Once the punters see how little they’re getting compared with how much the fat cats (including a particularly fat economics journo) are getting – once everyone sees the official “what-you-save tax table” published by every masthead – there’ll be a lot of anger.

And guess who’ll be leading the cry. Do you really think Dutton won’t have the front to turn on his own government’s tax cuts? He was trying it out in his budget reply speech last week: “Labor’s working poor”. How about “the struggling middle class”?

Albanese needs to do two things: get Treasury to give him an advance look at that what-you-save table, and get some pollie with a better memory to remind him how “bracket creep” works and how resentful middle income-earners get when they see more and more of every pay rise disappearing in tax.

Because the income tax scale isn’t indexed for inflation, every pay rise you get increases the average rate of tax you pay on the whole of your income – whether or not it literally lifts you into a higher tax bracket. And because the brackets are closer together at the bottom of the scale, bracket creep hits lower incomes harder than middle incomes. But middle incomes are hit harder than high incomes because those people already in the top tax bracket can’t be pushed any higher.

Bracket creep gets greater as inflation increases. The inflation rate’s been unusually high, which has led to higher pay rises, even if they haven’t been big enough to match the rise in prices. Even so, your latest pay rise is having slightly more tax taken out of it than the previous one. So bracket creep is another, hidden reason you’re having trouble keeping up with the cost of living.

If we never got a tax cut, the average rate of tax we pay on all our income would just keep going up and up forever – unless, of course, we never got another pay rise.

This is why every government knows it must have a tax cut every few years if it wants to stop the natives getting restless. But the stage three tax cut we’re due to get from July next year hasn’t been designed to compensate people at the bottom, the middle and the top proportionately to the degree of bracket creep they’ve suffered since 2017-18, when the staged, three-step tax cuts were announced.

Quite the reverse. According to estimates by Paul Tilley, a former Treasury officer, people earning up to roughly $70,000 a year will get tax cuts too small to fully reverse the rise in their average tax rate over the period.

Those earning between $70,000 and $120,000 a year will have their average tax rate cut back to what it was in 2018, whereas those earning more than that – that is, more than 1.5 times the median full-time wage – will get their average tax rate cut to well below what it was in 2018.

Now let’s look at what you save in dollars per week. Albanese says the tax cuts begin at $45,000 a year. The national minimum full-time wage is $42,250. So, people on very low wages, and many with part-time jobs, will get nothing.

On $55,000, you’ll get a saving of $2.40 a week. On the median full-time wage of about $80,000 you’ll get $16.80 a week – that is, no “real” saving. On $120,000, it’s $36 a week.

Meanwhile, me and my mates (and members of parliament), struggling to get by on $200,000 and above, will get a saving of $175 a week, or $25 a day.

Good luck selling that lot, Albo.

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The taxman's sneaky trick that will quietly pick our pocket

I’ve seen some sneaky tax tricks in my time, but nothing that compares with this. It could go down in history as the perfect fiscal crime – except that many people won’t notice that some politician has taken money out of their pocket. Which, of course, is what makes it the perfect crime.

All most people may notice is that the cost of living’s got even worse, but they won’t quite realise why. That’s partly because most of the media won’t be making a song and dance about it.

Why not? Because nothing’s been announced. Because you have to know a fair bit about the tax system to understand what’s happening. Because neither side of politics wants to talk about it. There’s no controversy. And neither side’s spin doctors are keen to confirm to inquiring journalists that the strange story they read in this august organ is right.

Since the trick first became apparent to the experienced eye, in Scott Morrison and Josh Frydenberg’s budget in March last year, just before the election, my colleague Shane Wright and I have been determined to make sure our readers were told.

Wright was at it again on Saturday, and now I’m making sure you got the message. Don’t say we didn’t tell you, even if others have been far less vocal about it.

It’s a complicated story, hard to get your head around and, particularly because it’s about something that isn’t happening now but will happen later, one that’s easily forgotten.

As you see, the move was initiated by the Coalition, but will have its effect under Labor. The opposition may try to blame it on the government, but it’s probably too complicated.

This is a story about the misleadingly named Low and Middle Income Tax Offset, known to tax aficionados as “the LAMIngTOn”. It began life as stage one of the three-stage income tax cuts announced in the budget of May 2018, to take effect over seven years.

The previous government kept changing the amount of the offset – a kind of tax refund – over the years. It started out as “up to” $530 a year, but was increased to $1080 a year just before the 2019 election.

It was to have been absorbed into the second stage of the tax cuts, but it was decided to keep it going. Then, in last year’s pre-election budget, it was decided to increase it by $420 to “up to” $1500 a year. Yippee, we said. Good old Liberals!

By then, people earning up to $37,000 a year got a refund of $675 a year. It then slowly increased to be the full $1500 for those earning between $48,000 and $90,000 a year. Then it started cutting out, reaching zero when income reached $126,000.

This meant more than 10 million taxpayers – almost 70 per cent of the total – got a rebate on top of any other refund they were entitled to.

But here’s the trick. Unlike a normal tax cut, which goes on forever, the lamington was a temporary measure. If it were to be continued for another financial year, a decision had to be made. Morrison and Frydenberg’s last budget contained no such decision.

Why not? Because, in the days leading up to the budget, cabinet decided to increase it, but not to continue it beyond June 2022. Decisions not to do things don’t have to be announced, and this one wasn’t. For obvious reasons.

You really had to be in the know to realise that this constituted a decision to increase the tax 10 million people would pay in 2022-23, by up to $1500 a throw.

Wright and I were at pains to point this out in our coverage of the budget. We thought that, especially with an election imminent, people might find it pretty interesting. But, with neither side of politics wanting to talk about it, few people took much notice. Perhaps they didn’t believe us.

The other strange thing about the lamington is that, whereas a normal tax cut flows through immediately to increase your fortnightly take-home pay, you don’t get a tax cut delivered in the form of a tax offset until after the relevant financial year has ended and you’ve submitted your tax return. The taxman just adds it to any other refund you’re entitled to.

This means the last-ever lamington, for 2021-22, was served up between July and October last year.

It also means that the only way many lamington eaters will get a hint that they paid a lot more tax in the year to June 2023 is when, some time after July, they notice that their refund cheque is a lot smaller than last year’s and wonder why.

Note, I don’t disagree with the two-party cartel’s decision to be rid of the lamington. It was a stupid way to cut tax, born of creative accounting. But when they tacitly collude to conceal what they’ve done, it’s supposed to be the media’s job to point it out. We’ve done our bit.

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