In one awful decision, Albanese reveals his do-nothing plan

It didn’t take long for us to discover what a triumphantly re-elected Labor government would be like. Would Anthony Albanese stick to the plan he outlined soon after the 2022 election of avoiding controversy during his first term so he could consolidate Labor’s hold on power, then get on with the big reforms in term two? Or would he decide that his policy of giving no offence to powerful interest groups had been so rapturously received by the voters, he’d stick with it in his new term?

Well, now we know. The re-elected government’s first big decision is to extend the life of Woodside Energy’s North West Shelf gas processing plant on the Burrup peninsula in Western Australia for a further 40 years from 2030.

What was it you guys said about your sacred commitment to achieve net zero emissions by 2050? You remember, the commitment that showed you were fair dinkum about combating climate change whereas the Coalition, with its plan to switch to nuclear energy, wasn’t?

So you’re happy for one of the world’s biggest liquified natural gas projects still to be pumping out greenhouse gases in 2070, 20 years after it’s all meant to be over?

Some estimate that the plant will send 4.4 billion tonnes of greenhouse gas emissions into the atmosphere, but that’s OK because nearly all the gas will be exported. We won’t be burning it, our customers will. (Though we don’t quite know how we’ll ensure their emissions worsen their climate but not ours.)

To be fair, had the government failed to extend the project’s licence, Woodside would have been ropeable and the West Australian branch of the Labor Party – which I sometimes suspect is a wholly owned subsidiary of the mining industry, or maybe the mining unions – might have seceded.

But that’s the point. If you want to govern Australia effectively – if you aim to fix our many problems – you have to be prepared to stand up to powerful interest groups. It’s now clear Albanese isn’t prepared to stand up, but still wants to enjoy the spoils of office.

The strange thing is, according to our present law, the environment minister’s power to end Woodside’s franchise stems only from the project’s effect on the environment, not on climate change. But this would have been no impediment to rejecting the continuation.

Other acidic pollution from the gas plant at Karratha has done great damage to the Murujuga rock art, and will do more. And this isn’t just any old bunch of Aboriginal carvings.

It is the most extensive collection of etched rock art in the world. More than a million carvings chart up to 50,000 years of continuous history, showing how the animals, sea level and landscape have changed over a far longer period than since the building of the pyramids.

It has images of what we called the Tasmanian tiger in the Australian mainland’s far north-west. It includes what may be the world’s oldest image of a human face. It even has an image of a tall ship.

How much natural gas would it take to persuade the French to let some company screw around with the 20,000-year-old paintings in the Lascaux Cave? What about the Poms letting miners have a go at Stonehenge?

But that’s not the way we value our ancient carvings. They may be important to First Australians, but the rest of us don’t see them as our heritage, valuable beyond price. The miners want them? Oh, fair enough.

Speaking of price, how valuable is that gas off the coast of WA? To Woodside’s foreign partners – BP, Shell and Chevron – hugely so. To us, not so much. The foreign companies pay only a fraction of their earnings in royalties to the WA government.

They pay as little as possible in company tax and next to nothing under the federal petroleum resource rent tax. In principle, it’s a beautiful tax on the companies’ super profits; in practice, they pay chicken feed. The Albanese government moved early in its first term to fix up the tax. Now the fossil fuel giants are being hit with two feathers, not one.

Ah yes, but what about all the jobs being generated? About 330 of them. Oil and gas are capital-intensive. We’re destroying our Lascaux Cave to save 330 jobs?

But apart from this decision’s effect on the climate and our pre-settler heritage, what does it say about how we’ll be governed over the next three years? Albo must think he’s laughing. His policy of doing as little as possible has received a ringing endorsement from the voters. So much so that the Liberals have been decimated, while the minors promising to act a lot faster on climate – the Greens and the teals – slipped back a bit.

But if I were Albanese, I wouldn’t be quite so certain that another three years of doing as little as possible – of never rocking the boat or frightening the horses – will see him easily re-elected in 2028.

In all the Libs’ agonising over what they must do to attract more votes, old hands are advising them not to become Labor Lite. Good advice. Albo has already bagsed that position.

I suspect that if Albanese wants to be the Labor government you have when you’re not having Labor, he’d better expect a fair bit of buyer’s remorse, starting with Labor’s true believers.

Just because Albo looked better than the scary Peter Dutton doesn’t mean voters opted for a do-nothing government.

Labor did well – and the Libs did badly – because it attracted more female and young voters. We know both groups are strong believers in climate action. Next time, they may decide the Greens and teals are the only politicians left to vote for.

If most voters expect their government to do something about their growing problems, Albo may attract a lot more critics than he bargained for. But admittedly, he will be kept busy shaking hands with the victims of droughts and 500-year floods.

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Let's stop kidding ourselves. Taxes will have to go up

Before the election, the business press was terribly concerned about the decade of budget deficits and ever-rising public debt the Albanese government had clocked up. Something must be done! After the election, however, when the government pressed on with a move to save up to $3 billion a year by making rich men pay more tax on their superannuation, it was appalled. The sky would fall.

What the two contradictory positions have in common was that both are criticisms of a government few of its business readers would have much sympathy for. But the episode also shows the way voters’ attitudes towards the budget abound in wishful thinking – something the pollies encourage. “You want more, but don’t want to pay for it? Sure, I can do that.”

In Treasury secretary Dr Steven Kennedy’s speech to the Australian Business Economists last week, he showed a graph of the budget’s “structural” deficit stretching all the way out to 2035-36. (The structural component of the budget balance is the bit that’s left after you’ve allowed for the effect on the balance of where we happen to be in the business cycle of boom and bust.)

The structural deficit for next financial year is estimated to be 1.5 per cent of gross domestic product. Kennedy noted that spending on the National Disability Insurance Scheme is expected to reach more than our spending on defence. But he reminded us that (thanks mainly to our good friend Mad King Donald) defence spending is likely to grow a lot in coming years.

And that’s just the feds. The combined state and territory budget deficits are likely to be 1.8 per cent of GDP in the financial year just ending – which is 1.5 percentage points higher than their pre-pandemic long-run average, Kennedy said.

So the states have been really going at it, with their combined debt at the end of this month expected to reach 18.9 per cent of GDP, its highest in the 30-plus years they’ve had control over their own finances.

And yet politicians, federal and state, persist in running election campaigns where they promise bigger and better spending on this, that and the other, without any mention of how it will have to be paid for.

Worse, no matter how much they’ve promised, the Liberals always claim that their taxes will be lower than Labor’s, without this having any effect on their spending on “essential services”. (Perhaps this boils down to a promise not to rely on bracket creep – the “secret tax of inflation” – quite as much as Labor does.)

What the pollies never tell us is that, if you want it, it will cost you. But one woman who is game to tell us what the politicians aren’t is Aruna Sathanapally, boss of the Grattan Institute. In a speech a year ago she told the unvarnished truth: our governments are “not raising enough revenue for what we spend”.

No one wants to pay more tax. And the richest of us protest more and fight hardest when asked to cough up a little more. I meet people who tell me we’re already overtaxed.

Nonsense. “We are a relatively low-tax country with high service expectations. Pre-COVID, Australia was eighth-lowest ranked country in the Organisation for Economic Co-operation and Development for tax collections relative to our country’s size, five percentage points lower than the OECD average,” Sathanapally says.

“Yet, Australians expect high-quality healthcare, aged care, and disability care, among many other things. Like other rich nations, government spending has grown as a share of the economy, particularly in recent decades.

“But our tax base is going in the opposite direction: narrowing as the population ages with the growing cost of tax concessions.

“This leaves a structural gap,” Sathanapally says. “You can tackle the structural problem by reducing spending, increasing revenue, and by growing the economy.

“Growing the economy is the easiest solution to sell, but it is the hardest to achieve in practice. Australia, like other advanced economies, is expecting slower economic growth over the next 40 years than we’ve had over the past 40 years. Even if productivity growth exceeds expectations, it is still unlikely to close the structural gap.

“As a relatively low-tax country, we can afford to raise more revenue, but of course there are better and worse ways to do this. Broadening the tax base and reducing tax concessions tend to be much less economically damaging than simply raising the headline rates of tax.

“Australia’s tax mix asks workers and companies to shoulder most of the burden, while offering substantial concessions for wealth. Wealth in housing and superannuation gets particularly generous treatment.”

“Take superannuation tax breaks for example. They cost the budget almost $45 billion a year and are projected to cost more than the age pension by 2036. These tax breaks predominantly benefit the top 20 per cent of income earners, so they do little to actually reduce age pension spending.

“Meanwhile the combination of capital gains tax breaks and negative gearing encourages speculation in the housing market in place of other more productive uses of funds,” she says.

We know how hard politically governments find it to fix these problems, “but frankly, we are sitting on a wretched generational bargain, and it has gone on for long enough.

“Young people today already face the prospect of weaker wage growth, higher hurdles to owning a home [or more likely, a lifetime of renting] and a future shaped increasingly by extreme weather and natural disasters.

“Yet, we ask our young people – our children and grandchildren – to contribute more towards supporting older generations than our older generations ever contributed when they were of working age,” she concluded.

Phew. It’s not often people in public life say things of so frank, so honest, so disinterested good sense that I want to quote them at such length.

Next, why doesn’t the business press write a desk-thumping editorial explaining how Sathanapally got it all so badly wrong.

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Don't let rich old men tell you the planned super tax is terribly bad

Would you want Australia to become more like America? How on Earth did so many Yanks vote to reinstall a crazy, destructive leader such as Mad King Donald? If we don’t want to become more like them, it’s worth thinking about how it happened, so we know what not to do.

Americans brought Trump back for two main reasons. First, extreme partisanship. Many registered Republicans voted for him because, no matter how bad he was, he couldn’t possibly be as bad as a Democrat president would be. But second, I suspect many Americans voted for him because they’d become so disenchanted with the way the country was run, felt so mistreated and estranged from the rest of America, that they wanted to give the system a big kick up the backside.

It wouldn’t do any good; Trump was no more to be trusted than any other politician, but it would make the outcasts feel a bit better.

I worry that if we go on the way we have been, we could end up with a section of our own community that was so peed off it wanted to kick against the pricks (excuse my language; not all politicians deserve that description). And it’s a mighty big section to have on the outer – the young. Everywhere they look, the young feel discriminated against.

Most of the older generation bought homes when they were affordable, but now they’re unaffordable. At work, they get paid much less than most older workers. And while their parents paid nothing for their tertiary education, they’re hit with huge HECS debts.

The young are right to feel ill-treated. Our system of tax and welfare benefits is biased in favour of the elderly and against the young.

Many people on the age pension benefit only to the extent that their paid-off home is ignored in means testing. Many self-proclaimed “self-funded retirees”, however, are doing very well for themselves.

It’s possible for a young family on, say, $150,000 a year, to be paying a lot of income tax, while a well-off retired couple on the same income pays very little.

The Albanese government is already facing annual budget deficits for at least the next decade, adding to the annual interest bill on our growing public debt. If we’re going to be spending more on defence and many other things, it will have to raise more in taxes.

How? Well, the nation’s chief executives in the Business Council of Australia helpfully suggest an increase in the GST. But it would be fairer if the government started by reducing the tax concessions and loopholes used mainly by the well-off.

And that brings us to the massive tax concessions attached to superannuation, which cost the government almost $50 billion a year in lost revenue. The concessions are worth far more per dollar saved to high income-earners than lower earners.

But they also favour the old rather than the young. The old earn more than the young, find it easier to save, and get the benefit from super sooner than the young. That’s why, in the government’s efforts to collect more tax, fixing the super concessions is a good way to reduce the tax system’s bias against the young.

Two-thirds of the value of super tax concessions go to the top 20 per cent of income earners. The concessions are intended to ensure people have enough income to live comfortably in retirement, but a fifth of withdrawals from super go as bequests to the superannuant’s children.

Treasury estimates that the share of withdrawals going as bequests will rise to a third by 2060. In other words, the concessions are so great that super has become a taxpayer-subsidised inheritance scheme. Meanwhile, other taxes must be higher to cover the cost of this inheritance scheme.

Treasurer Jim Chalmers intends to press on with a super tax measure he announced two years ago, but hasn’t yet been passed by the Senate. The plan is to increase the tax rate on super annual earnings for balances exceeding $3 million from 15 per cent to 30 per cent. The tax would apply only to the amount above $3 million.

The change will affect just the top 0.5 per cent of people with super – only about 80,000 people (including me). It would save the government more than $2 billion a year.

But the people affected by the change – mainly rich men – have put up an almighty resistance, portraying the measure as utterly iniquitous and – would you believe – unfair to the younger generation. “I’m not opposing this for myself ...”

However, the proposal has had strong support from the Australian Council of Social Service and the Grattan Institute.

The claim that the proposal would harm the young rests on the government’s intention not to index the $3 million threshold. If you left it unchanged forever, inflation would eventually cause the higher tax to apply to all the young.

Sorry, this is fanciful. There will be plenty of time to raise the threshold before then. Meanwhile, it will just apply to more, but slightly less-rich, old men (and a very few rich old women).

The other claim is that the extra tax would apply not just to interest and dividend income but also unrealised capital gains. This is true, but not as iniquitous as the protesters claim. It will mainly affect self-managed super funds.

It’s a messy way to tax earnings, but it’s difficult to avoid administratively because the existing 15 per cent tax on earnings is imposed on the fund, not its individual members.

Taxing capital gains that haven’t yet been realised may mean the tax has to be covered by money taken from elsewhere, but most people this well-off have plenty of money outside their super funds.

So, don’t believe it. These rich people just don’t want to pay more tax, and, as usual, are hunting around for the best counter-arguments they can find. I can afford to pay it, and so can they.

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Ross Garnaut: Prophet with a sunny view of our better future

Economist Paul Krugman’s endlessly repeated maxim that “productivity isn’t everything but, in the long run, it’s almost everything” has deluded far too many of the economics profession’s conventional thinkers.

It’s a throwaway line that should be thrown away.

It implies that any economic objective other than improved productivity is hardly worth worrying about. Such as? Distributional fairness aka “intergenerational inequity”. Tell that to the 40 per cent of voters under 40, and see how far you get.

It implies that the structure of our economy never changes, nor does the planet we live on. So the single-minded pursuit of improved productivity will somehow either stop climate change or magically deliver us a zero-carbon economy without any need for government intervention.

Or maybe the proviso “in the long run” is saying that our great, great-grandchildren will be able to look back on the clean-energy transition as little more than a blip. What a pity we live in a succession of short runs, not the long run.

A more realistic view is that, should the world fail to stop climate change, life will become almost unlivable, much of the economy will be stranded assets, and every spare cent we have will be spent shifting from one part of the country to another, and on buying hugely expensive water and permanent air conditioning.

A less cataclysmic future would see climate change get a lot worse before the major economies finally got their act together and ended the use of fossil fuels. This, of course, would lead to much unemployment in our coal and gas industries and much loss of export income.

Our future, no matter which way you envisage it, doesn’t sound very inviting. Much of our “natural endowment” of coal and gas deposits will be worthless and our “comparative advantage” in flogging them off to other countries will have disappeared. Do you still believe our government should be only worried about improving productivity?

What we need is some sort of economist prophet who can help us overcome this existential threat, not an army of blinkered economists telling us all that matters is raising our material standard of living.

Fortunately, among the profession’s abundance of unproductive thinkers is a lone prophetic, and so productive, thinker, Professor Ross Garnaut, who sees not only how we can minimise the economic cost of the transition to clean energy, but also what we can do for an encore. What we can do to fill the vacuum left by the looming collapse of our fossil fuel export business (which, by chance, happens to be our highest-productivity industry).

Because economists are such incurious people, Garnaut seems to have been the first among them to notice that, purely by chance, Australia’s natural endowment also includes a relative abundance of sun and wind.

Until now, we thought these were non-resources and of little or no commercial value. It took Garnaut to point out that, in a post-carbon world, they had the potential be our new-found comparative advantage. To provide us with a whole new way of making a bundle from exports, while generating many new jobs for the miners to move to.

When you add the possibility of structural change to the rules of conventional economics, you get what’s a scary thought for many economists: maybe our natural endowment isn’t ordained by the economic gods to be unchangeable through all eternity.

Maybe there are interventions fallible governments should be making to move our economic activity from one dimension of our natural endowment to another. Maybe such a switch is too high-risk and involves too many “positive externalities” (monetary benefits than can’t be captured by the business doing the investing) for us to wait for market forces to take us to this brave new world.

Maybe changing circumstances can change the nature of our comparative advantage in international trade, meaning the government has to nudge the private sector in a new direction.

It was Garnaut who first had the vision of transforming Australia into a “Superpower” in a world of ubiquitous renewable energy. And it was he who uncovered the facts that made this goal plausible.

Exporting our fossil fuels is cheap, whereas exporting renewable energy would be much more expensive. So whereas it was more economic to send our coal and iron ore overseas to be turned into steel, in the post-carbon world it soon will be more economic to produce green iron and other green metals in Australia and then export them.

In a speech last week, Garnaut acknowledged that, in its first term, the Albanese government began to lay the policy foundations for the Superpower project. The economic principles are set out clearly and well by Treasury’s “national interest framework” for A Future made in Australia, released after last year’s budget, he says.

The re-elected Albanese government has already restated its commitment to the project. Garnaut says there’s much more for the government to do in creating the right incentives for our manufacturers to re-organise and expand.

Research sponsored by his Superpower Institute finds that Australian exports of goods embodying renewable energy could reduce global emissions by up to 10 per cent. So we can contribute disproportionately to global decarbonisation by supplying goods embodying renewable energy that the high-income economies of Northeast Asia and Europe cannot supply at reasonable cost from their own resources.

This would “generate export income for Australians vastly in excess of that provided by the gas and coal industries that will decline as the world moves to net zero emissions over the next few decades”.

Garnaut concludes: “The new industries are large enough to drive restoration of growth in Australian productivity and living standards after the dozen years of stagnation that began in 2013.”

The present fashion of obsessing with productivity improvement for its own sake is counterproductive and probably won’t achieve much. We should get our priorities right and focus on fixing our most fundamental problems – unfairness between the generations, action on climate change and fully exploiting the opportunities presented by our newfound strength in renewable energy – and let productivity look after itself.

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Be warned: Ever-higher defence spending means ever-higher taxes

By tacit agreement of both sides, election campaigns exist in a highly contrived fantasy world where the future holds nothing unpleasant. Government spending only ever goes up to meet our growing needs, while those nasty taxes only ever go down. Debt and deficit have been banished to the never-never land of Don’t You Worry About That.

But last week Peter Dutton ripped a great big hole in the circus tent, through which you could see a frightening prospect: we seem to have strayed into a land where taxes just keep going up.

And this from the leader of the Liberals, the party that long has assured us taxes would always be lower under it than under its evil Labor opponents, the party of “tax and spend”.

It’s a lovely thought: there’s a party you can vote for that will always keep taxes lower. It’s just a pity the record doesn’t bear it out. I learnt long ago never to play the game that says one side is always better at running the economy or keeping taxes low.

This may shock you, but the record shows the two sides are much of a muchness. That’s because much that happens in the economy is caused by factors beyond a government’s ability to control.

When taxes are low relative to size of the economy, it’s usually because we’re in a world recession. That’s also when government spending is soaring and the budget deficit’s blowing out.

When taxes are particularly high, it’s usually because the economy’s booming, the government isn’t having to spend quite so much, the budget balance is heading back to surplus, and income tax collections are growing like steam – thanks to something you may have heard of, bracket creep.

Don’t believe any politician who tells you the other side’s into bracket creep, but we’re not. No sign of that in the record books. Similarly, don’t be fooled when some pollie – Dutton last week, for instance – tells you he “aspires” to end the tyranny of bracket creep. Even if he really believed it, his treasurer would take him into a back room and sort him.

Get this: it’s the magic of bracket creep – the effect of inflation in steadily increasing your income tax bill even though you’re no better off – that sustains the whole happy illusion that government spending can keep growing without any announced increases in the rates of income tax.

The pollies never have to announce an increase because inflation – even at a low rate – does the increasing without being asked, or much noticed. Bracket creep is the tax increase you have when the politicians have sworn not to increase tax rates.

What few of the people complaining about the cost of living realise is how much of the pain they’re suffering comes from bracket creep. They see prices rising at the supermarket, they see the Reserve Bank increasing interest rates, but they don’t see the taxman quietly increasing the income tax they pay.

Remember Anthony Albanese and Treasurer Jim Chalmers’ incessant boasting about the two financial years in which the annual budget deficit suddenly turned into two surpluses in a row? Much of that turnaround was caused by bracket creep – a point they didn’t think to mention.

Note, too, that it’s bracket creep which allows governments to announce modest tax cuts before elections, or promise them after elections. Bracket creep quietly but continuously pushes up the average rate of tax on all our income, allowing politicians to look like they’re cutting tax by occasionally giving back some of the bracket-creep proceeds.

But let’s get back to what Dutton did last week. It was yet another effect on this election campaign coming from Cyclone Donald. Trump has not just increased tariffs, he’s pressuring America’s former allies to greatly increase their spending on defence so they’re not as reliant on America’s own defence spending.

It’s true that we’ve gone for decades spending less than we might have, hoping that the way we’ve slavishly sent troops to just about everywhere in the world the Americans have picked a fight will ensure that, should we ever face a threat from some foreign power, the Yanks will fly to the defence of their loyal Aussie buddies.

This hope has always been dubious, but now Trump has turned on America’s defence allies it has become impossible to believe. So, although just a third of poll respondents think we should increase our defence spending, that’s pretty sure to be what happens.

At present, we’re spending about $56 billion a year on defence, equivalent to 2 per cent of our national income (aka gross domestic product). Labor’s existing plan is for this to rise to $100 billion a year by 2034, or 2.3 per cent of GDP. But the Americans say we should be spending 3 per cent. So last week Dutton promised to raise it to 2.5 per cent by 2030, on the way to 3 per cent by 2035.

Dutton says getting to 2.5 per cent would involve additional spending of a cumulative $21 billion. How would he pay for this? Simple, he says. He’d repeal Labor’s promised tax cut of about $5 a week, rising to $10 a week the following year, which it has already legislated. This would save $17 billion over the next four years, and about $7 billion a year thereafter.

What? Did you get that? Here’s a politician – a Liberal politician, no less – standing up in an election campaign and promising to increase taxes. By the standards of modern elections, that’s brave. Something Albanese would never dare to do. And that’s not all. If our politicians are serious about greatly increasing our spending on defence on the way to 3 per cent of GDP – and they seem to be – we’re talking really big bucks, not something we could just put on tick.

Speaking of which, we’re already looking at budget deficits totalling $150 billion over the coming four financial years. Do you really think we won’t be paying a lot more tax in coming years?

We’ll be seeing a lot more bracket creep, and far fewer seeming tax cuts.

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This election is one of the worst I've seen

How are you going with the election? Are you getting a lot out of the debate, seeing the big issues canvassed and making up your mind who’ll win your vote?

It’s not as if the choice isn’t clear: do you want to wait 15 months for a permanent tax cut of $5 a week, rising to $10 a week a year later, or would you be eligible for a $1200 once-only tax cut in July 2026, plus an immediate one-year cut of 25c a litre in the price of petrol?

If that’s not enough to seduce you, there’s more. Anthony Albanese will cut the price of draught beer by 5¢ a glass for two years or, for small businesses, Peter Dutton will make entertainment expenses tax-deductible (conditions apply).

But you may want to judge it on the character of the leaders. Again, the choice is clear: do you want the controlled, experienced hand of Albanese, who’ll never do anything rash, whose goals are modest and whose motto is “steady but slow”? Got a problem? He’ll think about it. If you want a prime minister who’s on everyone’s side, Albo’s your man.

Or do you want tough cop Dutton on the beat, always quick on the draw and ready to protect us from the threatening world we live in? He’s heard of a supermarket worker who’d had a machete held to her throat. That won’t happen to you on Dutto’s watch.

And it’s not as if the campaign so far hasn’t been action packed. We’ve had Albanese falling off the platform at an election rally, then denying it. We’ve had Dutton joining a kids’ football game and hitting a cameraman in the forehead.

What would a campaign be without seeing pollies in safety helmets and high-vis vests on TV every night? Or at a childcare centre, showing how human they are and what good fathers they must be whenever they can make it home?

What’s new this time is Greens leader Adam Bandt taking a big red toothbrush with him to TV interviews (must have some meaning I’m missing) or his colleague waving round a bleeding headless salmon in the Senate.

What’s that? You don’t think much of the election campaign? It’s been neither interesting nor edifying, and hasn’t got to grips with the big issues?

Well, I agree. I think both sides are treating us like mugs. Maybe like the mugs many of us have allowed ourselves to become.

In my 51 years as a journalist, this is the 20th federal election campaign I’ve observed at close quarters, and I’m convinced they’re getting worse: more contrived, manipulative, transactional and misleading, and less focused on the various serious problems facing us, which are far greater than they used to be, and now include America’s abdication from leadership of the free world.

In short, election campaigns have become dishonest, aimed at tricking us into voting for one side rather than the other, using trinkets to distract us from the bigger issues that neither side has thought much about nor has any great desire to tackle.

I know that’s easy to say for an oldie like me (77, since you were too polite to ask). “It was much better in my day.” But though things weren’t great in the old days – we’ve never been a paragon of Socratic debate – I think they’ve got worse over the years, and I’ll try to show how they’ve got worse and explain why.

But I must say this: even if things in Australia have got worse, they’re not as bad as they are in many other countries, particularly the US. Nor are they ever likely to be.

Three things protect us from other countries’ decline. First, compulsory voting, which forces everyone to register a choice and pay at least some degree of attention. Second, preferential voting ensures the person who wins is the one most of us prefer.

And third, an independent electoral commission which regularly increases the number of electorates and redraws boundaries to ensure there’s roughly the same number of voters in each, and these have boundaries that aren’t gerrymandered to give one side or the other a built-in advantage.

This is in marked contrast to the US, where each state government determines its own federal voting arrangements. Their gerrymandering ensures they have very few marginal electorates, whereas we have a lot. And we don’t have voting arrangements designed to disadvantage certain classes of voters, such as racial minorities.

So we shouldn’t complain too much. Even so, our election campaigns have changed over the years, and not for the better.

They’ve changed because the voters have changed – Gen Z seems a lot less interested in conventional politics than we Baby Boomers were at their age, when there was so much disapproval of Australia’s part in the Vietnam War, and so many young men (including me) hoping not to be conscripted.

Another important source of change is technological advance, particularly the effect of the information revolution, which has armed the parties with greater knowledge of voters’ views, and changed the media by which politicians reach out to voters.

Finally, the political class’s changing aspirations have affected the way campaigns are run. In the olden days – even before my time – politicians used to travel round, visiting key electorates and talking to voters. They’d do this at evening public meetings or, during the day, from the back of a truck in the main street.

But the advent of television changed all that. While local politicians and their supporters may canvas their electorates door to door, most contact between the party leaders and the voters occurs via TV.

These days, leaders still visit marginal seats around the country, but what they do during the day is aimed at producing the colour and movement that will get them a spot on the evening TV news – hence helmets and high-vis.

They’ve worked up a list of promises to announce, and they (and their media entourage) go somewhere vaguely relevant to deliver the announcement. Guess where they go to announce a change in childcare?

A big advantage of this is that their busy day ends late afternoon, once the TV news camerapeople have got what they need for this evening. Then the leaders can go to a fundraiser, appear on a current affairs program, or get an early night.

Trouble is, though the pollies haven’t changed their routine, the evening TV news bulletin isn’t nearly as universal as it was. When there were only four channels, all airing their news at the same time, if you wanted to watch telly while you had dinner, you couldn’t avoid the nightly news bulletin.

Now the proliferation of TV choices makes it much easier to avoid the news, which many do. The parties have started using social media to spread their messages, but this makes it harder for the rest of us to see what they’re up to.

As the proportion of people who don’t follow the news – and aren’t much interested in politics – has grown, the parties have had to reach them via advertising. They now spend a fortune on TV ads, with far fewer ads in print and on radio. My theory is that, for the many people who don’t follow politics but know they’ll have to vote, they do their last-minute homework by remembering the TV ads they’ve seen.

But advertising works by appealing to our emotions, not our brains. Don’t explain the details, just make me feel nice – or angry. The parties know negative ads – attacks on their opponents – work better than positive ones (“you’re gonna love my policies”), which is hardly a boon to the democratic process.

This is what has made fear campaigns – misleading people about how badly they’d be affected by the other side’s planned changes – so fearfully effective. And the increasing resort to fearmongering is a major way by which election campaigns have become less informative and more misleading.

So it’s not just the way the mechanics of campaigning have changed. More importantly, it’s the way what’s said has changed, and the way the politicians’ objectives and behaviour have changed.

Politics has become more professional. In former times, politicians tended to be men (yes, almost all of them men) who turned to politics after a career as a lawyer, businessman or union official. They’d wearied of making money and decided to spend the last part of their working life fighting for a cause.

I’m sure personal ambition has always been a big motivation for getting into politics, but in those days, it came mixed with a strong desire to make the world a better place. These days, politics has become a career path you follow for most of your working life.

When young people are interested in politics and would like to make a career of it, they get started as soon as they leave university, taking a job working for a union, or in a minister or opposition minister’s office. The number of people working in ministers’ offices has grown considerably during my time in journalism.

It started in the Labor Party, but then the Liberals joined in. You work your way up the ladder, first aiming for preselection as a parliamentary candidate. Once you’ve made it into parliament, you work towards a job as a minister or shadow minister, then see how far you can make it towards the very top.

Such a career path teaches you a lot about how the political game is played, but not much about how government policies work best in the interests of the public. It tends to replace any initial idealism with pragmatism and cynicism. It tends to feed ambition.

These days it’s rare for politicians to enter politics later in life. Two exceptions were the Liberals’ Dr John Hewson and Malcolm Turnbull. Both were hugely intelligent, and both cared about good policy, but both had trouble playing the political game at the professional level and didn’t survive at the top. Labor’s exception was Bob Hawke. His great success at the top came from all the politics he’d learnt while rising to the top of the union movement.

So when the barroom experts assert that most politicians care more about their personal advancement than about doing good things for the nation, I’m inclined to agree. As someone famous once said, “by their fruits ye shall know them”.

The professionalisation of politics is a main reason that what’s said and done in election campaigns has changed, but another reason is that politics has become more scientific. In former days, politics was played by ear. Pollies decided what voters liked and didn’t like from what the voters they met said to them, then used their own intuition to fill in the gaps.

These days, the parties spend a lot of money conducting private polling, not just of how people intend to vote, but what issues are more important to them at present. They also use carefully selected focus groups to get ordinary voters expressing their views on particular issues.

When someone says something and everyone round the table says “yes, that’s right”, the professionals running the group take note and pass it on to the pollies for them to use. Or it can work the other way: the pollies and their people think of lines to help sell a policy measure, and they’re tried out on appropriately chosen focus groups. What goes over well gets used in public utterances.

Between the careerism and the carefully gathered knowledge of what voters think, election campaigns have become more contrived. We’re transported to a fantasy land, where everything is nice and nothing is nasty (except the bad guys on the other side).

The pollies never try to tell a voter something they don’t want to hear. They never tell a voter they’re wrong about anything, and seem to go along with anything you may say, no matter how silly.

Have you noticed the way politicians expect us to be – and encourage us to be – completely selfish? It simplifies their job. They tell us what they can do for us and our families, never what we should be agreeing to in the interests of the country.

And the more they talk about doing this little thing or that little thing for us – the more they make following elections good preparation for a trivia quiz – the more they avoid having to talk about a host of big but controversial issues: climate change, the environment versus jobs, AUKUS, school funding, online gambling and even uninsurable homes. Of course, I couldn’t swear the media had played no part in dumbing-down election campaigns.

The pollies always tell us about the various nice things they plan to do to make our lives better, and never tell us of the not-nice things they’ll have to do to improve our lives. In election campaigns, every player wins a prize.

Not so long ago, a big part of elections was pollies being pressed to tell us exactly how much their promises would cost and exactly how they’d be paid for.

But doing that is what caused Labor’s Bill Shorten to lose the 2019 election he was expected to win. He had some expensive promises, but spelt out some small tax changes that would cover their cost.

These changes had been carefully selected to hit only some well-off people who could afford the loss, but the Libs ran a scare campaign telling ordinary punters they’d be hit and, with the effect magnified by a lot of yellow and black ads paid for by some fat Queenslander, Shorten lost enough votes to cost him the election.

The trouble here is that politicians on both sides have broken so many promises and said and done so many tricky things for so long that many voters have concluded they are all liars. This is why so many people have stopped listening to them.

But there’s one exception. The only thing a politician says that the doubters are prepared to believe is that their opponents are not to be trusted because they’re out to get you. “Ah yes, ain’t that the truth.”

That’s why scare campaigns have become the currency of election campaigning, with stultifying effect.

And that’s why the 2019 election has made elections and their campaigns much worse than they were. Under Albanese, Labor vowed never to be caught like that again. He made himself a “small target” at the 2022 election, promising to do very little, and not to do many things: introduce new taxes, increase existing taxes, and cancel or change the already legislated stage 3 tax cuts.

Apart from the latter, he’s kept those promises. He’s been a small-target prime minister, doing as little as possible to tackle our many problems, which is why so many of us are so uninspired by his performance. It’s far too risk-averse.

A leader who’s not game to do anything unpopular – such as putting up taxes – is a leader who’ll never make much progress solving our deeper problems, like giving our youngsters a fair shake, and never improve the future they profess to care about so much.

Trouble is, under our two-party system, when one side takes a position, the other side almost always copies it. We get less choice, not more. So when Albanese decides it’s safest to stay small target, Dutton stays small target.

When ditto Dutto keeps changing his policies mid-campaign, we’re watching him learning on the job not to be daring, not to fix things and, above all, to be only superficially different from the other side.

The big change since the 2019 election is that neither side will ever have the courage to propose any kind of tax change that would have some people paying a bit more – even those who could easily afford it. The tiniest possibility of an increase for some, and the fearmongers on the other side will soon have taxpayers throughout the land shaking in their boots.

This has taken the election-campaign fantasy land to a whole new level of unreality. The laws of economics have been suspended for the duration of the campaign. Government spending can only ever go up, while taxation can only ever go down. The budget deficit is presumed to be unaffected, covered by a sign saying Don’t You Worry About That.

Surely you remember the days when campaigns devoted much attention to “what do your promises cost and how will you pay for them?” That’s what tripped up Labor in 2019 and, I confidently predict, Dutton won’t let trip him up now.

Some worthy souls in the media keep lists of what the promises have cost and demand a detailed account of how that cost will be covered, but the two sides just brush them aside. They’re in tacit agreement not play that game any more. In truth, both sides will add to deficit and debt.

The other way to look at all this is that, by their poor behaviour – government by scare campaign – the two sides of politics have fought to a standstill. Neither side is game to do anything about any of our big problems for fear of the lies this would allow the other side to say about them. Now, I know what you’re thinking: “OK, Ross, if you’re so smart, what’s the solution to the mess election campaigns have got into?”

The good news is, the nation’s voters are already working on the solution. So many people have lost faith in the two sides of politics that the proportion of people voting for the two majors is the lowest it’s ever been.

In the 2022 election, the share of first-preference votes going to the minor parties and independents rose to almost a third, with the remaining two-thirds shared roughly equally between Labor and the Coalition. We saw the Libs losing seats to the teal independents, and the Greens winning more seats in the lower house.

I’m confident the minor parties’ share of the vote will go higher in this election. The experts are pretty sure that, whichever major gets more seats, it will be in minority government, needing the support of enough minors and independents to convince the governor-general it could govern effectively.

Both major parties would like us to believe minority government would mean chaos and no agreement on anything. Don’t be fooled. As we saw with Julia Gillard’s minority Labor government in 2010, the government was stable and passed more legislation than usual.

What changed was that, to get that support and stability, Labor had to agree to put through controversial measures it wouldn’t have been game to propose by itself. Such as? The carbon tax. Minority government transfers some power to the parties and independents who still believe we need real, controversial policy changes to solve our problems and improve our future.

So if you don’t like what the two major parties have done to campaigns and timidity in government, you should share my hope that this election puts neither major party back in majority government.

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Budget deficit perfection would be nice, but among the best is fine

The independent economist and former Treasury officer Chris Richardson, the leader of Treasury-in-Exile and thus chief apostle of fiscal rectitude, does the country a favour with his eternal campaigning to keep budget deficits and public debt levels low.

It works like Defence, where the retired generals do the talking for the serving generals, whose opinions must be expressed only to their political masters in private.

But all those people who, only in recent times, have joined the protest march demanding an end to deficit and debt don’t want to do the country any favours. I’m no great admirer of the Albanese government, but that doesn’t make every criticism of its performance reasonable.

According to these partisans’ version of events, the budget was in surplus and doing fine until this terrible government started spending with abandon, plunging the budget into deficit, where it’s likely to stay for the next decade, leading to ever-rising public debt. So should some great global mishap come along, we’d be in deep doo-doo.

The first thing wrong with this narrative is its implication that the prospect of a decade of deficits is all Labor’s doing. There’s nothing new about budget deficits; the budget’s been in deficit for more than two in every three years in the past half-century.

What’s more, Treasury was projecting a decade of deficits in then-treasurer Josh Frydenberg’s budget before the last federal election in 2022. So why don’t I remember the people who profess to be so worried now, expressing much concern then? Surely not because debt and deficits only matter when you’ve got a Labor government?

Actually, and as Treasurer Jim Chalmers never tires of reminding us, the projected decade of deficits and rising debt we’re told about today isn’t nearly as bad as the one we were shown back then – the one that didn’t seem to worry anyone.

Why was the projection three years ago so much worse than this one? Because Treasury’s forecasts and projections soon became woefully wrong. The budget deficit of $78 billion it was expecting in 2022-23 turned out to be a surplus of $22 billion. For the following year, the expected deficit of $57 billion was a surplus of $16 billion.

That’s an improvement of more than $170 billion right there. And because this hugely better outcome came so early in the decade, it also meant a huge reduction in the feds’ projected annual interest bill.

But while Chalmers is wrong to claim so much credit for this astonishing turnaround, his critics are wrong to give him none. They dismiss this vast improvement in the debt outlook as nothing more than good luck.

Huh? Rather than falling, as Treasury always assumes they will, iron ore and coal prices took off, so mining company profits and company tax payments boomed.

That’s only half the story, however. Treasury failed to foresee that the economy would return to near full employment – and pretty much stay there to this day, despite the big increase in interest rates intended to get the inflation rate down.

This meant a record proportion of the working-age population in jobs, earning wages and paying income tax. As well, the inflation surge meant a lot more bracket creep than expected.

So, remembering the Albanese government and Reserve Bank’s joint policy of seeking to get inflation down without inducing a recession, you have to say there’s been an element of good management as well as good luck, for which Chalmers and Albanese deserve some credit.

Chalmers gets credit for saving rather than spending most of the government’s higher-than-expected tax collections – something that wouldn’t have happened if Labor had been spending as uncontrollably as the partisan critics claim.

Much effort has been put into demonstrating that government spending is “out of control” and will continue that way for a decade unless something’s done. But analysis by Dr Peter Davidson of the Australian Council of Social Service gives the lie to such claims.

Davidson measures budget spending by the average annual increase after adjusting for inflation and population growth – real spending per person. Over the 27 years to 2018, the long-term average increase was 1.7 per cent a year.

But under the Abbott and Turnbull governments from 2014 to 2018, there was a period of budget austerity when the spending increase averaged just 0.1 per cent a year, as backlogs were allowed to build up and deficiencies were ignored.

Then, during the Covid response period from 2018 to 2022, spending grew by an exceptional 2.6 per cent a year. Now, over the six years to 2028, spending growth is expected to average 1.3 per year.

So claims of Labor’s profligate spending are themselves on the profligate side. It’s here that the critics move from partisanship to self-interested ideology. Their obsession with government spending comes from their ideology that, while all tax cuts are good, all spending increases are bad.

Why are they bad? Because they increase the pressure for higher taxes and reduce the scope for tax cuts. A decade of deficits caused by excessive tax cuts would be OK, but one caused by trying to ensure the punters got decent education, healthcare and social security is utterly irresponsible.

The final respect in which decade-of-deficits bewailers are wrong is their claim that our government’s financial position has us sailing close to the wind. Rubbish.

As former top econocrat Dr Mike Keating advises, if you take the debt of all levels of government in 2024, our gross public debt is equivalent to just 58 per cent of our gross domestic product. This compares with the Euro area on 90 per cent, Britain on 103 per cent, Canada on 105 per cent and the US on 122 per cent.

Much of the credit for our relatively low level of debt and deficit should go to decades of preaching by Treasury and its alumni, including Chris Richardson. But though they sometimes imply we’re at risk of being dangerously overloaded with debt, what they’re really trying to do is maintain our longstanding record as only moderate drinkers.

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Budget to give the economy a push next financial year

By MILLIE MUROI, Economics Writer

If there’s only one thing you gleaned from the budget – and it is the new tax cuts – that’s exactly what the government wanted.

The clock is ticking for Prime Minister Anthony Albanese, who, at the time of writing, was expected to call an election as early as Friday. That means a sweetener – such as a promise to let you keep more of your pay – is perfectly timed to nudge voters its way.

But the move also doubled as a distraction from something Labor would rather not talk about: the fact the nation’s finances will be in the red for the next decade despite a turnaround in the economy’s health.

This isn’t the end of the world, but with most of its major policies already announced in preparation for the election, the government knew it needed to give the press something good to latch onto when it unveiled its budget on Tuesday.

The tiny tax cut – the equivalent of about $5 a week for most taxpayers – due to kick in next year, was a sure-fire way to make a good impression.

But the budget revealed a bit more than just a cute tax cut. It also painted a picture of the state of the economy and the government’s game plan.

“Fiscal policy” is the government’s way of steering the economy by changing how much it spends and collects in tax. When the government increases its tax collections by more than it increases its spending from year to year, it’s choosing a “contractionary” stance (one that slows down the economy by taking more money out of it than the government pumps in).

When the government increases its spending by more than it increases its tax collection, it is adopting an “expansionary” stance (stimulating the economy by pumping more money into it). That’s the position taken by the government this year.

Turning to a page in the budget papers many economists call the “table of truth” shows us how the budget position for this financial year (and expectations for future years) has changed from previous forecasts – and what the biggest drivers are.

The “parameter variations” in this table tell us how cyclical factors – things the government has little control over – affect the budget. For example, lower global interest rates over the next few years are expected to shrink the interest rate bill paid by the government despite its growing debt.

AMP chief economist Shane Oliver says higher commodity prices and employment were the kind of parameter variations that helped deliver the government two back-to-back surpluses in 2022-23 and 2023-24.

Then there’s the effect of government policy decisions that weighed down the budget this financial year (2024-25) by $137 million more than was expected back in December, mostly because of an increase in spending on things such as cheaper medicines. This affects what’s called the “structural” part of the budget.

Next financial year, 2025-26, the government’s decisions will drain roughly $7 billion more than previously expected. That’s because it has made new promises such as earmarking $8 billion to boost the amount of bulk-billing and a six-month extension of electricity bill relief at a cost of $1.8 billion.

But improved economic conditions next year should help top up the budget by $12 billion. That’s mostly because of what’s called “automatic stabilisers”, which affect how much money comes into – and leaves – the government’s coffers, adjusting automatically to changes in the speed of the economy.

When business is booming and incomes are rising, for example, people pay more in tax, meaning more cash gets swept into the government’s hands. When the economy gets sluggish and people lose their jobs, the amount of tax flowing in falls.

As Betashares chief economist David Bassanese notes, the government is assuming (among other things) that there will be more people in jobs over the next few years, meaning there should be more income tax flowing in.

The government is also expecting economic growth to pick up and inflation to stay around the 2 per cent to 3 per cent target range, while slightly tweaking down its unemployment forecast to 4.25 per cent over the next four years.

Most of the savings, though, will be spent by the government, leaving the budget only a few billion dollars better off than expected back in December over the next four years – and still in deficit.

At the time of the mid-year budget update, the coming financial year was expected to have a $47 billion deficit – which is 1.6 per cent of GDP. Now, because of measures in the budget and changes in the government’s forecasts, it’s going to be $42 billion, or 1.5 per cent of GDP. The deficit is still a lot bigger than it was last financial year.

Now, it’s worth noting the Coalition, in 2022, also had deficits (that is, spending exceeding revenue) laid out for 10 years. As independent economist Saul Eslake points out, neither side of politics really wants to have the tough conversation of how to fix this problem when there’s growing demands for spending in areas such as healthcare and defence – and especially not before an election.

But the government isn’t the only major player when it comes to managing the economy. The Reserve Bank is also a heavyweight. It doesn’t have the same spending or tax powers, but it uses a tool called “monetary policy” – which you might know better as interest rates.

Like the government’s fiscal policy, monetary policy can be expansionary when interest rates are dropped (because it encourages spending and investment), or contractionary when interest rates are increased.

For the past few years, the bank has been cranking up interest rates in an effort to rein in inflation. For the first time since mid-2022, the bank in February notched down interest rates from 4.35 per cent to 4.1 per cent, moving towards an expansionary stance. Why?

Because it reckons, like the government, that prices are now rising slowly enough, and demand has softened enough relative to supply, to indicate the economy is no longer running too far ahead of its capacity.

The budget is unlikely to have much sway on the Reserve Bank’s forecasts or coming rate decisions. The spending changes were modest, the deficits have been flagged for months and the government’s forecasts aren’t drastically different to what the bank is expecting.

But if the outlook for the economy over the next few years is as rosy as the government is expecting, there’s a case for whoever is in charge in future years to ramp up efforts to return the budget to a surplus, or at least a neutral position, earlier.

That doesn’t have to mean drastic cuts to spending. It could mean changing the way the government collects revenue by introducing an inheritance tax or reducing the capital gains tax discount, and pursuing bolder productivity-boosting measures (Labor’s ban on non-compete agreements is a good start).

In the meantime, the budget for this financial year is expected to be nearly $28 billion in deficit. In the coming year, that deficit is expected to increase to $42 billion. This is an increase equivalent to 0.5 per cent of GDP, making the stance of fiscal policy adopted in the budget mildly expansionary.

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The government is timid and uninspired. This budget is a perfect fit

If you’re having trouble working up much interest in the budget, don’t feel bad. It’s not you, it’s the government. So much fuss is made about the annual federal budget that we expect it to be full of major announcements. Well, not this one, and not from a government that never wants to rock the boat.

It is, however, a budget we’ve wished on ourselves. We’ve made it clear that, while ever we’re feeling pain from the cost of living, we’re not much interested in anything else, and an unambitious government has been relieved to take us at our word.

Most of the measures in the budget are small cuts to various charges that affect households’ budgets. The government will be spending more to encourage GPs to bulk-bill their patients and to cut the maximum cost of a pharmaceutical prescription to $25 a pop.

It will extend the electricity bill rebate for the last half of this year, yielding households a saving of $150.

And not forgetting the big one that will make all the difference to the cost of living: indexation of the excise on draught beer will be paused for two years. Anyone who can see the saving per glass gets a prize for exceptional eyesight.

All this is to be done just as soon as we vote to re-elect the Albanese government – except that Peter Dutton has promised a Coalition government would do the same.

Of course, all these measures to ease the cost of living have already been announced, with one exception: a two-stage cut in income tax. Who knew? Surely, that’s something to get excited about?

Well, yes, until you examine the details. When Treasurer Jim Chalmers says the tax cuts are modest, he’s not exaggerating.

It boils down to this: in 15 months’ time, July next year, everyone earning more than $45,000 a year ($860 a week) will get a tax cut of a bit over $5 a week. A year later, they’ll get a further cut of $5, taking it up to $10.30 a week. Part-timers earning between $350 and $860 a week will get an initial saving of up to $5 a week.

Even with this last-minute addition, it’s not hard to believe that, until Cyclone Alfred intervened, Labor was hoping to hold the election in April and leave the budget until later. Why did the delayed election date prompt it to go ahead with a budget when it had nothing much to announce? Law and practice. It had to.

Still, budgets also tell us the government’s latest forecasts for the economy and for the budget bottom line: is the government expecting to spend more than it raises in taxes, or less? More. Every financial year for the next 10.

So the government foresees a decade of budget deficits and further borrowing to cover those deficits. Does it have any plan to correct this? Not that it’s telling us about. My guess is that its policy is to worry about that only after it has been re-elected. If it isn’t, good luck, Mr Dutton.

But since we can’t see further than the cost of living, how are we doing? On the face of it, we’re well over the worst. Over the year to December, consumer prices rose by a modest 2.4 per cent.

The rate of inflation is forecast to stay low, meaning the Reserve Bank is likely to keep cutting interest rates in coming months by a total of 1 percentage point or so, which will take a lot of pressure off people with big mortgages.

The government expects wages to rise a bit faster than consumer prices which, if it comes to pass, will ease the cost of living to a small extent. But if many people still feel it’s a struggle to pay their bills, I won’t be surprised.

Why not? Because, over the five years to last December, consumer prices rose by about 4.5 per cent more than wages did. Until that “wage deficit” is closed, many people will still be feeling the pinch.

This makes it all the more important to understand why the government’s move to continue its energy rebate for another six months isn’t as good as it sounds.

The rebate – which is temporary and paid directly to your electricity retailer – began from July 1 last year. It thus caused quarterly electricity bills to be $75 less than they otherwise would have been.

Its extension for the last two quarters of this year won’t stop your bills being higher than they were because your retailer has increased its prices. But it will stop your bill also being $75 a quarter higher than otherwise. Thanks to generous Anthony and Jim, that unpleasant surprise won’t come until you get your first quarterly bill in 2026. (Come to think of it, maybe the new tax cut is timed to ease the pain of higher power bills.)

As for Trump and his planned trade war, the T-word doesn’t get a mention. Rather, Chalmers worries about “heightened global uncertainty” and “escalating trade tensions”. Why the obfuscation? Maybe Chalmers wants us to see what a great job the government’s done fixing the cost of living and doesn’t want that terrible man raining on his parade.

Actually, it’s too early for concrete actions. We don’t yet know how stupid Trump intends to be, let alone whether the other big economies intend to worsen it by giving as good as they get (otherwise known as cutting off your nose to spite your face).

So right now is the time to think hard about our options, not announce a response. We do know our government won’t be tempted to retaliate, and Chalmers is right to say we must make our economy more resilient to shocks from overseas.

But spending on a new “buy Australian” campaign? It may make uninformed voters feel better, but I doubt it will fix the problem.

This government is timid, uninspired and uninspiring. This budget fits it perfectly.

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Argy-bargy on the way to next week's off-again, on-again budget

According to the business press, Anthony Albanese was desperately hoping for an early election so he could avoid next week’s budget and the drubbing he’ll get when Treasurer Jim Chalmers is forced to reveal projections of a decade of budget deficits.

If you think that, you don’t know much about budgets. But, more to the point, nor do I expect to believe the budget’s forecasts for the economy in 2025-26.

The first reason I don’t believe Albanese was living in fear of having to reveal a decade of deficits is that, although the business press may be shocked and appalled by budget deficits, the voters have never been. That will be particularly so at a time when all they care about is the cost of living.

The business press and the rest of the partisan media will make a great fuss, but the punters won’t care – just as they didn’t when, in the previous government’s last budget of March 2022, treasurer Josh Frydenberg revealed his own projections of a decade of deficits.

Funnily, I don’t remember the business press making a big fuss back then, perhaps because it only feels a need to worry about deficits when a government of the wrong colour is in power.

But if you’re wondering why, three years later, we still face a decade of deficits, I’ll give you a clue: what the two projections have in common is the stage 3 tax cuts. If all you care about is balancing the budget, the tax cuts were unaffordable then, and they’re still unaffordable now.

Of course, the “Trumpist” logic of big business is that tax cuts are always responsible, whereas increased government spending, for any purpose, is always irresponsible.

Another reason for doubting that Albanese thought having an economic statement rather than a full budget would allow him to avoid admitting to the prospect of a decade of deficits is the requirement under the Charter of Budget Honesty for the secretaries of Treasury and Finance to produce a PEFO – a pre-election economic and fiscal outlook statement. That statement would have revealed. . . the projected decade of deficits.

What the press gallery seems not to know is the reason for the modern practice of governments providing an economic statement immediately before announcing an election – unless, of course, the election is called immediately after a budget’s been delivered, as will happen next week for the third election in a row.

Why must the officials’ PEFO always be preceded by a government economic statement in some form? So an excitable media won’t leap to the conclusion that any deterioration in the budget balance since the previous government statement represents the econocrats revealing something their political masters were hiding.

Guess what? The politicians’ statement and the PEFO a week or two later are always almost identical. (And I bet it was the econocrats who suggested the idea to the pollies. The last thing the bureaucrats want is to embarrass the duly elected government of the day.)

But enough already on the politics of budgets. Better get to some actual economics. I don’t expect to believe the economic forecasts we see in next week’s budget. Why not? Because they’re highly likely to be wrong. Economists are hopeless at forecasting even just a year ahead because the models they rely on – whether mental or mathematical – are so woefully oversimplified.

That being so, the forecasters’ rule of thumb is to predict “reversion to the mean”. If last year was below average, this year growth will be up; if last year was above average, this year growth will be down.

As well, when times are tough, official forecasts tend to err on the optimistic side. (This is no bad thing when, to some extent, their forecasts tend to be self-fulfilling; the last thing we need is the government predicting death and destruction.)

But I’m under no such constraint. And I can’t see the economy getting out of second gear in the financial year ahead. The obvious reason for expecting further weak growth is the effect of all Trump’s antics. But this factor is easy to overestimate. Unlike some countries, we don’t do much trade with the US.

The media have tended to exaggerate the likely effect on us of all Trump’s off-again, on-again tariffs to make it a better story. The ultimate effect on us will come mainly via China, our biggest export destination, but the Chinese have their own ways of protecting themselves in the unending tussle with the Yanks for the title of top dog.

What’s likely to have a bigger effect on us is the uncertainty about how Trump’s craziness will play out. Uncertainty has real effects when it prompts businesses and even households to delay investment decisions until the prospects are clearer.

So there will be some adverse effect on our economic growth. Even without Trump, however, it’s too easy to sound wise by making a big thing of what’s happening in the rest of the world. Never forget that roughly three-quarters of all the goods and services we produce are bought by Australians, while roughly three-quarters of all the goods and services we buy are made by Australians.

On the positive side for economic growth, it can’t be long before the Reserve Bank cuts interest rates back to their normal or “neutral” level. But that suggests a total cut of only 1 percentage point or so. It won’t set the world on fire.

Similarly, the parties’ many election promises will add to government spending and act as a stimulus to the economy and private spending. But again, don’t let the modern practice of exaggerating the significance of government policy measures by quoting their expected cost “over four years” mislead you.

From the perspective of the budget’s immediate effect on economic growth, it’s only the cost of the measure in the first year that matters. And, because we’re measuring annual growth, it’s only any increase on the first year’s spending that matters.

The fancy mathematics economists indulge in is overrated, but simple arithmetic isn’t.

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To make Medicare healthy again, the pollies must fix its symptoms

I don’t know if you noticed, but the federal election campaign began on Sunday. The date of the election has yet to be announced – it may be mid-April or mid-May – but hostilities have begun. And they began with an issue that’s been big in election campaigns for 50 years: Medicare.

On Sunday, Anthony Albanese revealed his election masterpiece, the knockout punch that would send Peter Dutton reeling, something Albo has had up his sleeve since December. You know how hard it’s getting to find a doctor who bulk-bills?

Well, Labor will fix that. Remember Bob Hawke’s famous election promise that “by 1990, no Australian child will be living in poverty”? Albo’s topped that. He’s promising that, by 2030, nine out of 10 GP visits will be bulk-billed. And all that for a mere $8.5 billion over four years in extra spending.

Politically, it was brilliant. Health is important to Australians, and they love being able to see a doctor without coughing up, so to speak. Poll after poll shows that when in comes to healthcare, Labor’s the party voters trust. And fixing bulk-billing ticks another box: cost of living.

It gets better. Dutton has form on bulk-billing. Do you remember when Tony Abbott won government in 2013? He’d promised not to cut various classes of government spending, but in his first budget he was making savings everywhere. He was going to introduce a “patient co-payment” of $7 a pop on visits to GPs.

There was so much public uproar and opposition in the Senate that most of the planned nasties were dropped. Guess who was minister for health at the time?

What a fabulous political tactician Albo is. A whole election campaign discussing the need to restore bulk-billing. Sorry, great move – not gonna fly. Within a few hours, Dutton had matched Labor’s offer “dollar for dollar”. The man who told us the Albanese government was “spending like a drunken sailor” said “see you, and raise you”. He’d be spending $9 billion over four years, thanks to $500 million for an already announced improvement in mental health.

Dutton had no time to consider the detail of Labor’s proposal, nor how he’d pay for it. By the way, how would he pay for it? Don’t worry, he’ll tell you later. How much later? Didn’t say.

Remember all those election campaigns when we agonised over debt and deficit? Where the media kept count of the cost of all the promises, and parties struggled to find ways to pay for it all?

Not this time. Neither man has an accountant’s streak. If Albanese keeps producing measures to help with the cost of living, and Dutton keeps matching him, this will be a costly campaign.

And now that the question of Medicare and bulk-billing has been neutralised, I doubt we’ll hear much about them again. So, since they matter far more to our lives than the incessant politicking, let’s take a closer look while we can.

Medicare – first introduced as Medibank by the Whitlam government in 1975 – is Australia’s first system of universal health care, in which everyone who needs help gets it, regardless of their ability to pay. Every rich country has a universal system, except the United States.

Under Medicare, the federal government pays about half the cost of the states’ public hospitals. In principle, bulk-billing ensures everyone can see a doctor when they need one. If in practice that’s too expensive, you can always wait in a public hospital’s emergency department.

Trouble is, universal health care is expensive and getting more so, which is a problem when politicians like appearing to cut taxes, and never increase them or introduce new ones. However, the government’s accountants know there’s more than one way to skin a budget.

When the $7 patient co-payment got rejected, the feds solved the problem by freezing the Medicare rebates to GPs rather than adjusting them for inflation. As Australia’s leading health economist Professor Stephen Duckett explains, this slowly forced GPs to abandon bulk-billing and introduce their own patient co-payments as their practice costs increased but their rebates didn’t.

It’s said that by the time Labor returned to office in 2022, bulk-billing was in freefall. Labor restored the indexation of Medicare rebates, then tripled the special incentive for GPs to bulk-bill pensioners and holders of healthcare cards, children and people in rural and remote areas.

This helped, but the increased payments weren’t enough to eliminate the gap between the rebate and the fees GPs were charging in metropolitan areas. The present average out-of-pocket payment is $46 a pop. (Bit more than $7, eh?)

At present, less than half of people are “always” bulk-billed when they see a GP. A further quarter of patients are “usually” bulk-billed.

Co-payments hit poor people harder than the rest of us, and I think they can be a false economy. The medical problems of people who don’t see the doctor because they can’t afford it can get a lot worse, which is both tough on them and tough on the taxpayer when they have to be rushed to hospital for operations and a long stay.

Albanese’s new promise is to further increase the incentives for GPs to bulk-bill, as well as to extend those incentive payments to cover all patients, not just pensioners, children and the others. His third change is to introduce an additional 12.5 per cent “practice payment” to those medical practices that bulk-bill all their patients. The changes would take effect from November 1.

Of course, Medicare has more problems than just out-of-pocket payments. The standard fee-for-service way of paying GPs makes sense for people with acute problems, but not the growing number with multiple chronic conditions (like a certain ageing journo).

Fortunately, Duckett thinks the promised changes could “start the necessary transition” away from fee-for-service in general practice.

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The secret to better health and less obesity is a tax

By MILLIE MUROI, Economics Writer

If you’re like me, chances are that during the silly season you indulged in a bit more of the guilty pleasures than usual. I would make a bet though (and hit bingo about 90 per cent of the time) that it wasn’t tobacco that you reached for, but sugary treats – and maybe a bit of alcohol.

The rates at which we tax tobacco might have you thinking that smoking is among the biggest health risks we face. But with the daily smoking rate down to about one in 10 people, it’s things like obesity and diabetes that have grown to become our biggest health problems.

Obesity has tripled in Australia since 1980, and so has diabetes over the past 25 years. In 2022, one in three Australian adults was obese and another one in three overweight, while about one in 20 had diabetes.

And as Grattan Institute health program director Peter Breadon and senior associate Jessica Geraghty have highlighted, one of the heftiest reasons we have such high rates of obesity and type 2 diabetes – which makes up more than 85 per cent of diabetes cases – is that we consume far too much sugar.

You might not realise it, but on average, Australians consume half a kilogram of sugar each week – much of it invisible. That lolly snake or biscuit you reach for in the afternoon might be obvious culprits, but large quantities of sugar also swim around in soft drinks and even savoury products such as pasta sauces and pre-made soups. “Popular drinks such as Solo and Coke have as much as 10 teaspoons of sugar in just one 375-millilitre can,” Breadon says.

Our high sugar consumption puts us at higher risk of diabetes: a disease that contributes to one in 10 Australian deaths, leaves thousands of us sick or with a disability, and costs billions of dollars a year to taxpayers. In 2018, obesity alone was estimated to cost nearly $12 billion in direct health and indirect community costs.

So, what can we do to curb our sweet tooth? Make it more costly. In an ideal world, we could factor in all the health risks and cut back our consumption without the need for additional incentives – or disincentives.

But sugar sneaks around under a bunch of aliases – high fructose corn syrup, glucose or molasses to name a few – making it hard to spot for those hoping to squeeze some of it out of their diet. And it’s easy for us to reach for a sugar hit, sometimes without realising it, kicking the can down the road when it comes to considering the longer-term consequences.

That’s unless we put an upfront price on the damage – a tax on sugary drinks would be a good start. Why? Because sugary drinks make up nearly one-quarter of our daily added-sugar intake – more than any other major types of food. Sugary drinks are also especially harmful because they’re often sunk quickly, cause rapid spikes in blood glucose and insulin, and don’t do much to make people feel full.

Breadon suggests a tiered tax in which drinks with the most sugar would be slugged 60¢ per litre, while low-sugar drinks would face no tax – along with one year’s notice to give manufacturers time to change their recipes.

It’s not an immediate fix for our health problems, but there are promising signs already. More than 100 countries, including Britain, France and Portugal, have sugary drink taxes in place – and they are working.

They make people less thirsty for sugary drinks and they prod manufacturers to pour less sugar into their drinks. Four years after Britain introduced a sugary drinks tax, just one in 12 products had more than eight grams of sugar in every 100 millilitres of liquid – down from one in three before the tax. There have also been studies that show sugary drinks taxes have trimmed obesity among girls, reduced dental decay and cut the number of children having teeth taken out in hospital.

Breadon and his colleagues at Grattan estimate their proposed tax for Australia would reduce the amount of sugary drinks we consume by about 275 million litres a year – enough to fill 110 Olympic swimming pools.

It would mean Australians would ingest nearly three-quarters of a kilogram less sugar each year thanks to manufacturers cutting down their sugar use and consumers opting for the cheaper option: low or no sugar drinks.

Disadvantaged Australians, who are the hardest hit by obesity, would be the biggest winners, Breadon says. And the financial drain on households and the wider industry, including sugar farmers, would be fairly small given about 85 per cent of Australia’s raw sugar is exported.

While the main goal of a sugary drinks tax would be to improve our health, it would also benefit the government’s bottom line (which has suffered in recent years as tax revenue from tobacco has plummeted). If introduced today, Grattan estimates, the sugary drinks tax would raise nearly $500 million in the first year, while also generating savings by reducing the demand for healthcare.

While the government has been helping Australians living with diabetes, including through listing new insulin injections, such as Fiasp, on the Pharmaceutical Benefits Scheme, Health Minister Mark Butler has no plans for a sugar tax.

Shadow Health Minister Anne Ruston has said the Coalition also doesn’t support a sugar tax, saying there were better ways to encourage healthy eating and preventive health, without hurting the hip pockets of families.

While there needs to be other preventive measures in place, such as stronger labelling regulations, a tax on sugary drinks is the cheapest and easiest to implement. The government’s new year resolutions should include the boldness to consider a sugar tax, rather than kicking the drink can down the road.

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We've entered the era of gutless government

Sorry to tell you that I’m finishing this year most unimpressed by Anthony Albanese and his government. I’m still reeling from his last two weeks of parliament, pushing through 45 bills just to show how much he’d achieved and give himself the option of calling an election early next year should he see a break in the clouds.

Some of the measures pushed through at breakneck speed merited much more scrutiny, while some reforms that should have been put through were abandoned. One measure he’d hoped to rush through, fortunately, didn’t make it.

It all left me more conscious of his government’s weak performance, capping off 2 ½ years in which Labor turned its mind to many of the problems left by its Liberal predecessors, did a bit to help, but never nearly enough.

Why not? Because there were powerful interest groups Labor didn’t want to offend. And because it lives in fear of what the Libs might say. The two-party duopoly has painted itself into a corner, with neither side game to do what needs to be done.

Take the greatest threat to our future: climate change. Labor was elected in May 2022 partly because it seemed to be genuine in its determination to see Australia play its part in reducing greenhouse gas emissions, whereas the Coalition seemed only to be pretending to care.

In government, Labor kept its promise to legislate its target of reducing emissions by 43 per cent by 2030. It strengthened its predecessors’ “safeguard mechanism”, limiting emissions by major industries. It made speeches about how nice it would be for Australia to become a world superpower, using clean electricity to manufacture green iron, green aluminium and other things, then export them to Asian countries with far less sun and wind than we have.

So clearly, we’ve now accepted that our industries exporting coal and natural gas will start to phase down and out. What? Gosh no. No, no, if the coal industry wants to extend its mines, that’s fine. If the West Australians want assurance of the need for offshore gas beyond net zero emissions in 2050, that’s fine.

Under the shiny new slogan of Nature Positive, Labor had promised to end further degradation of our natural environment, including by setting up a federal environment protection authority. This was opposed by the Coalition, proudly proclaiming itself to be the mining industry’s great friend, but the necessary legislation could go through thanks to a deal Environment Minister Tanya Plibersek had reached with the Greens.

But then the WA premier phoned Albanese to advise that the state’s miners were most unhappy about further efforts to protect the environment, so the deal was squashed. But not to worry. Should Albo decide against an early election, the bill would be back on the drawing board when parliament resumed for a short sitting in February.

In his timidity, Albanese has introduced to politics the each-way bet. Strong support for the move to renewables? Of course. Continuing support for the use and export of fossil fuels? Of course. Welcome to the era of gutless government.

From the greatest threat to our future on this planet to the greatest example of populist cynicism. To great applause from voters – and with the whole world watching this Aussie reform, up there with the secret ballot – Albanese rushed through his bill banning children under 16 from using social media.

Had he figured out a foolproof way of enforcing the ban? Could the kids soon find ways around it? Would we all be forced to provide trustworthy tech giants such as Facebook and TikTok with documentary proof of our age? No. Let’s just push the bill through and worry about such details later. And never mind the experts saying what’s needed is to train our young people how to detect misinformation and disinformation.

This is politicians acting on their cynical maxim that “the appearance is the reality”. They don’t need actually to fix a problem, just create the appearance of fixing it. Just do something the unthinking punters, and the shock jocks who lead them on, happily imagine will fix things.

The promised measures that were dropped from Albanese’s frenetic bill-passing included action to curb the advertising of sports gambling and the plan – announced in February last year – to raise the tax on superannuation balances over $3 million (a needed reform despite what it would have cost a poor battler such as me).

One bit of good news was the disappearance of Labor’s bill to reform election fundraising. Although it included various valuable changes, its claim to be taking “big money” out of politics was a thinly disguised plot to knock out Clive Palmer and the teals’ funding from Climate 200 while ignoring the political duopoly’s funding from the unions and big business.

Fortunately, the duopolists couldn’t agree to push it through.

The sad part of Albanese’s unimpressive performance is that there’s little reason to believe the Peter Dutton-led Coalition would do any better at fixing the many problems the Morrison government left for Labor to deal with. One of which, of course, was the cause of what soon unfolded after the May 2022 election to become the “cost-of-living crisis”. Much of the surge in prices came from overseas disruptions to supply. The rest, according to the Reserve Bank’s reasoning, came from the stimulus applied by the Morrison and state governments that turned out to be far more than needed.

Albanese and Treasurer Jim Chalmers have done a good job in managing the unfinished return to low inflation, but they have no control over when the Reserve will decide to start cutting interest rates. If, as seems likely, Labor loses seats at next year’s election, that will be voters punishing it for the cost of living, over which it had little control, not for its weak performance in so many other areas.

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How Albanese is tighten up on tax-dodging multinational companies

By MILLIE MUROI, Economics Writer

Earlier this week, a crucial piece of legislation made its way through parliament. It didn’t receive a lot of fanfare, but it’s a long-overdue tweak to our tax system.

You probably know companies such as Amazon, Apple and Microsoft. They’re multinational corporations that make hundreds of billions of dollars in profit every year, some of it right here in Australia – and probably from you as a customer.

Yet, the taxes they pay are not always proportional to the profit they’re pocketing. That’s something laws passed earlier this week seek to change.

Apple raked in an income of more than $12 billion in the 2022-23 period, according to the government’s transparency report. But it only paid 1 per cent tax on that income. How is that possible?

While the company tax rate in Australia is 30 per cent for most businesses with a turnover of $50 million or more, firms can reduce their taxable income and, therefore, the amount of tax they pay.

Some deductions are fair and reasonable: for example, claiming deductions for day-to-day business expenses including materials you need to supply a good or service. Other strategies are … questionable.

A business like Apple may not be breaking the law, but it can take advantage of different tax rates across the world.

Australia’s company tax is among the highest in the world. According to the Organisation for Economic Co-operation and Development, we were only trumped by one country: Colombia, where companies paid about one-third of their income in tax.

By contrast, countries such as Hong Kong, Singapore and the United Arab Emirates have much smaller company tax rates, making them attractive tax havens. Companies can sneakily shift their income to these countries or use cunning tactics to play the system to their favour.

Former economics professor turned Assistant Minister for Competition, Charities and Treasury Dr Andrew Leigh says the share of multinational companies’ profits passing through tax havens has soared. Back in the 1970s, virtually no multinational profits went through tax havens, he says. “Now it’s up to about 40 per cent.”

Stronger reporting requirements and wider availability of data have made it easier to spot when a company is skirting the rules, acting as a deterrent for businesses hoping to fly under the radar with sneaky tactics.

And in 2017, the Australian Taxation Office found itself in a legal battle in the ongoing crusade against companies paying less tax through loopholes in the system, coming out on top against resource giant Chevron.

The Federal Court ruled against Chevron’s use of an arrangement called related-party finance – commonly used by multinationals to reduce the tax they have to pay in Australia.

It’s where the local entity of a multinational firm borrows funds from its offshore counterpart, which sets much higher interest rates than would usually be reasonable. That interest flows back to the offshore part of that company and allows the Australian branch to claim higher tax deductions because interest payments can be a tax-deductible expense.

Chevron’s Australian subsidiary had taken a $4 billion loan from its US parent company to develop Western Australian gas reserves. This added to the local subsidiary’s debt pile, but allowed it to sidestep Australia’s 30 per cent company tax rate, with those interest payments instead being taxed in the US where the corporate tax rate was lower. In 2017, Chevron had paid no company tax in five of the previous seven financial years.

The Federal Court eventually ruled Chevron’s Australian subsidiary should not be allowed to claim interest on its borrowings from the rest of Chevron Group as if they were two standalone companies. In the 2022-23 period, Chevron paid more than $4 billion in tax.

However, Mark Zirnsak, secretariat for the Tax Justice Network, says that ruling has not closed the loophole entirely. Instead, he says Chevron got too greedy. “It’s still legal to claim the interest rate payment to yourself like Chevron did,” he says. “What the ATO contested was the rate of interest.”

Get it? If Chevron had just charged itself a standard rate of interest – similar to a bank – there would have been no issues.

Related party finance is just one of the many tricks multinationals use to dodge the Aussie taxman.

There’s also something called “transfer pricing” which companies such as mining giant BHP have been penalised for. For years, BHP was selling Australian iron ore and coal to its Singapore operation. Now, there’s nothing wrong with that – except that BHP was then selling these commodities for much more from its Singapore marketing hub to other nations.

Since Singapore has a much lower corporate tax rate, BHP was reducing its tax bill despite the coal and iron ore originally coming from Australia.

This week, the Australian government finally joined the growing army of countries – more than 135 so far – that have agreed to a global minimum tax of 15 per cent: A company with more than $1.2 billion in global revenue must pay at least 15 per cent tax across its global operations. Otherwise, the countries they’re doing business in can now get a bite of its untaxed profits.

This is supposed to deter companies from creating artificial structures in low or no-tax territories, such as the Cayman Islands, in a bid to avoid paying taxes in places where they actually do their business.

It’s also supposed to prevent a “race to the bottom” where countries compete for the lowest company tax rates to attract businesses. How? Because if countries charge company tax rates below 15 per cent, then other countries can impose “top-up” taxes.

Australia, for example, can now apply a “top-up tax” on a multinational operating in Australia if that multinational pays less than a 15 per cent tax rate wherever it does business globally.

Zirnsak says the 15 per cent rate is too low, but a positive change for now.

“The Biden administration would have liked to push it higher, and the Europeans were pushing for it to be lower, so at the end of the day, 15 per cent was a compromise,” he says.

“It’s no longer going to be a game where you can simply try and cheat the governments of the countries you’re actually doing business in through your artificial legal structures and working with governments that are happy to assist you in tax avoidance and profit.”

Leigh says the next step for the government is to crack down on tech giants, which have been more difficult to pin down. That’s partly because of the virtual nature of their services which has made taxing them properly an elusive exercise globally.

Of course, it’s a long-overdue change, and there’s lots left to do. But shifty multinational taxation tactics are being squeezed out.

It’s not just the big guys playing sneaky games. But as Leigh says, the local cafe you bought your coffee from today probably doesn’t pay an accountant exorbitant amounts to figure out how to minimise their tax.

“They don’t sit down at their weekly planning meeting and decide which country they want to pay tax in to minimise their tax.”

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Our politicians aren't acting their age. That's a good thing

By MILLIE MUROI, Economics Writer

If I told you someone, especially a politician, wasn’t acting their age, you might safely assume that’s a bad thing. What childish behaviour have they indulged in this time, you might ask.

But this week, it’s a compliment. The fountain of youth still evades us, and there’s no great anti-ageing commission – AAC, not to be confused with the ACCC – on the way. But the focus in Canberra has switched, at least for a minute, to something that’s flown under the radar for too long.

Treasurer Jim Chalmers on Thursday – at last – said something a lot of us, especially young people, have lived and known well: “there is an element of intergenerational unfairness in our economy”.

The culprit? A three-letter word that sends most of us to sleep, but here it is: tax. No one really likes it, but there’s a collective understanding – served with a hearty side of grumbling – that it’s a necessary part of our economy.

A good tax system, however, is supposed to be fair. And it’s meant to make our country fairer, too.

Tax as it stands now stacks the cards against young people: the very people we need to be supporting to become the backbone of our economy – including hospitals, aged care homes, and schools – as the rest of the country ages.

What’s unfair about our tax system? Didn’t generations before us get put through the same wringer? Well, not really.

If our economy is a board game, the rules have changed. So has the starting point for our newest players.

Young people today graduate from university or TAFE with bigger study debts than their parents had, face house prices more than 16 times the average household income (rather than nine times the average household income 25 years ago) and wages that have only started clawing back losses from inflation in the past year.

To then have a tax system that pulls the ladder out-of-reach of young people is bad – for all of us.

Grattan Institute chief executive Aruna Sathanapally, in a speech last week, put it like this: “Intergenerational equity is not a zero-sum game.”

We may never have it perfect, but it needs to be fair. Who wants to play or work hard in a game where your winnings are constantly whisked away?

But that’s what’s happening. Our tax and spending policies are leading to “unprecedented transfers from younger households to older households”, Sathanapally says.

Analysis from Grattan in 2019 showed a working-age household earning $100,000 would pay about 2½ times as much tax as a household over 65 earning the same amount.

While households over 65 have grown their income, they’ve also been shielded from paying their fair share of tax. That’s thanks to a bunch of policies that have ground down taxes for some types of income but not others.

If you’ve held an asset – such as an investment property – for at least a year, you could sell it and get 50 per cent off the tax you pay on its capital gains. If you bought the property before 1985, you’d pay no tax at all on your (probably very handsome) profit.

And if you’re drawing down on your super, it’s tax-free to withdraw after the age of 60 (after being taxed at a concessional rate of 15 per cent while you’ve been contributing to it).

But most young people don’t own a property they can sell – or even live in – and would have missed out on the windfall gains of the past few decades that have seen house prices shoot through the roof. And withdrawing from super isn’t really an option.

A bulk of young people’s income comes from wages that attract no tax discounts. And as our population ages, our reliance on taxing wages will probably worsen.

Why can’t young people just work their way up to things such as home ownership? Well, it’s a tough ask to save for a deposit when, on top of income tax, young people are paying off huge study loans and facing rents that have risen much faster than inflation or wage growth.

Income taxes have ballooned as a share of our economy – from about 8 per cent of gross domestic product (GDP) in the early 1960s to 14 per cent in the 1980s, and more than 18 per cent in 2023. And while in the 1950s, income from “personal exertion” – or wages – was subject to lower tax rates than income from investments, there’s now no such distinction.

In fact, those who invest in housing can be negatively geared, meaning if they make a loss on their investment property because the rent they earn on it is less than the costs of owning the property (including interest they pay on their mortgage), they can reduce their taxable income. That’s even if the property is quietly growing in value.

At the same time, zoning rules are pushing young people to the edges of our cities, further away from their work and study, and pushing up house prices in leafy suburbs.

The upshot of all this is that young people are having a harder time than older generations – so much so that the generation born in the 1990s, aged between 25 and 34 today, are the first not to enjoy higher incomes than their predecessors.

And according to Grattan, the wealth disparity between older and younger Australians has worsened. In 1994, those aged 65 to 74 had about three times the wealth of those aged 25 to 34. By 2020, that gap had increased to nearly five times.

While not all older Australians are wealthy, it was mostly older, wealthier households that continued saving and spending on discretionary items as inflation and interest rates spiked in the past few years. Younger Australians mostly cut back on spending and drained their savings.

It’s only recently that politicians have paid more attention to the plight of young people. That’s probably because, despite nearly 40 per cent of our population being aged under 40, fewer than 10 per cent of our federal MPs fit that bill.

Independent MP Allegra Spender this week launched her green paper on tax, pointing out that younger Australians were being left behind, unable to grow their financial security in line with other generations. “This creates a society of haves and have-nots, where your family wealth, and access to the bank of mum and dad, is essential to get ahead,” she said.

If we want a society that gives everyone the chance to work hard and get ahead, and move away from a game determined by a roll of the dice on who our parents are and how much wealth they can pass on to us, we need to shake up our tax settings.

It’s been a long time coming, but if our policymakers can step into the shoes of younger Australians and speak for their interests – as they’ve started to do – we’ll all be better off.O

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