If Albanese has lost his bottle, he should retire

Sometimes I think that Sussan Ley and the Liberals’ big problem is that Labor has stolen their clothes. What the Liberals stood for in the good old days was minimum change. Only when changes could no longer be avoided were they made. The Libs’ big selling point was: “Vote for us to keep Labor out. Labor’s never happy unless it’s ‘reforming’ something.”

Well, not any more. Under the leadership of Anthony Albanese, Labor has lost its reforming zeal. It knows we have plenty of problems, and would like to do something about them, but not yet.

Albanese always has a reason for caution. Having lost the 2019 election against Scott Morrison that many thought it would win, Labor’s been in living in fear of that three-letter word “tax”.

Along with its policy to help first home buyers by restricting property investors’ use of negative gearing, Labor planned to help pay for its promises by making a small change to the “franking credits” that go to people who own shares.

Its Liberal opponents made this sound like Labor was planning an almighty tax grab, and Labor lost the election. Now that frightening three-letter word never passes its lips.

To ensure he won the 2022 election, Albanese made Labor a “small target”, promising to do a few nice things, but nothing nasty. The plan to fix negative gearing was gone, as was any threat to franking credits.

Once in power, Albanese discovered another reason for not doing anything someone mightn’t like. He’d won with a very narrow majority, so had to focus on consolidating Labor in power. This would set him up to really start fixing things in his second term.

With considerable help from the Liberals’ unpopular Peter Dutton, this strategy worked a treat at this year’s election. Labor won 94 seats in the lower house, the most seats any single party has ever won. And with a buffer of 18 seats, Albanese was now perfectly placed to get on with some controversial measures.

With the Liberals decimated and almost all the teal independents re-elected in the big-city seats they’d taken from the Libs, it was hard to see how Labor could lose the next election in 2028.

But no. Albanese had a new reason for proceeding with caution. With at least three terms almost guaranteed, he wants to steal the Libs’ status as the natural party of government.

If you can argue that the low risk of losing government in 2028 at last empowers Labor to make controversial reforms, you can just as easily argue it allows Labor to get away with doing as little as possible.

Labor much enjoys the big ministerial salaries and being driven around in big white cars. If you can enjoy the perks without doing the heavy lifting, why wouldn’t you? Albanese can’t think of a reason. He may have been a lefty firebrand when he entered parliament almost 30 years ago, but those embers have had a long time to cool.

These days, there’s no great ideological divide between Labor’s Left and Right factions. As one of the Left’s luminaries explained to me, these days they’re just rival management teams.

But the public doesn’t know that, and I have a theory that those from the Left faction who make it to the prime ministership – Albanese, and Julia Gillard before him – go to great lengths to demonstrate that they’re in no way left wing.

So what are the big problems Albanese isn’t game to get on with? Well, a big one is our contribution to global efforts to limit climate change by achieving net zero emissions of greenhouse gases by 2050 – and, since scientists’ modelling of how long we’ve got is proving optimistic, preferably much earlier.

The government keeps assuring us we’re “on track” to transition to renewable energy and achieve our commitment to reducing emissions by 43 per cent by 2030, but scientists aren’t so sure.

In any case, this month the government will need to announce our commitment for 2035, and anything less than a 75 per cent reduction will show a lack of resolve. By the same token, such a commitment won’t have much credibility without Labor having the courage to bring back an improved version of the carbon tax Gillard introduced in 2012 but that great statesman Tony Abbott abolished two years later.

As former competition boss Rod Sims has explained – and we experienced last time – the point of a carbon tax is to make building solar and wind farms more profitable relative to coal and gas, not to make people pay more tax. The proceeds of the tax would be used to compensate all but the high-earning taxpayers.

But Albanese and his troops have wrongly convinced themselves that Gillard’s carbon tax was the main reason the infighting rabble that was the Rudd-Gillard-Rudd government got tossed out in 2013 – which is why, in all the economic reform roundtable’s talk of tax reform, a carbon tax went conspicuously unmentioned.

The other big problem the government isn’t doing enough on is “intergenerational inequity” – the rough deal we’re giving our younger adults. You see this most clearly in the difficulty young people have affording a home of their own.

To be fair, the Albanese government has been working with the states to increase the supply of homes in the parts of our big cities where people most want to live, although we’re yet to see much progress.

But as well as seeking to increase the supply of homes, Albanese should also help by reducing the demand for the kind of places first home owners buy from better-off, negatively geared investors. These days, however, all mention of negative gearing is verboten.

And that’s before you get to the awkward truth that a young to middle-aged worker pays far more income tax on the same income than if it’s earned by a retiree with loads of superannuation or other investment income.

Speaking of retirement, that’s what Albanese should do if he wants to run a government but can’t bring himself to govern. No shame in being past it.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Voters turn from the big parties, increasing political competition

John Howard is right to describe the NSW election result as a “conventional change of government”. An old and disfigured government was tossed out and the other side given a go. It’s common when a government’s been in power for a decade or more. But don’t let this convince you nothing’s changed about the way we vote.

What’s happening is that the longstanding two-party system of government is breaking down before our eyes. Years of bad behaviour by the Coalition and Labor are leading more people to vote for minor parties and independents.

This means it’s become rare for any government, state or federal, to be elected with a big majority. Majorities now tend to be narrow, and minority governments are common, particularly at state level.

The big two are always telling us a “hung parliament” would be a terrible thing, causing “chaos and confusion”. Not true. They say this because it would be a terrible thing for them, requiring them to do deals with people they hate, to get the numbers to govern.

The “crossbenchers” usually drive a hard bargain. NSW’s four-year, fixed-date elections were forced on Liberal premier Nick Greiner in 1991 by three independents. Julia Gillard’s short-lived carbon tax was forced on her by the Greens, when she fell short of a majority in 2010.

So weaker governments are bad for the major parties, but good for democracy and voters, who get more to choose from.

Why is any of this the business of an economics writer? Because the nature of competition between a few big players in a market – “oligopoly” – is a subject economists study. And two-party government has a lot in common with markets dominated by two huge companies – duopoly.

But first, a closer look at the latest election. The “landslide” to Labor is looking a fair bit less than it looked on Saturday night. Chris Minns hasn’t yet secured a majority, and if he does, it will be narrow. Why? Because so many people are voting for minor parties and independents. At this stage in the counting, 28 per cent of voters spurned the big two. This compares with almost 32 per cent at the federal election last May, where the big swing away from the Liberals gave Labor just a narrow majority.

In NSW, the Greens look to have retained their three seats in the lower house, with independents looking sure of eight seats, and probably more. One of the new independents was backed by teal money.

An American economist named Harold Hotelling is famous for talking about a beach with two ice-cream sellers. From the swimmers’ perspective, the best place for them would be one at the quarter-mark and the other at the three-quarter mark. This would minimise the distance anyone had to walk to get a cone.

But Hotelling figured that the two would end up back-to-back at the centre of the beach. Why? Because that was the way each could ensure the other got no more than half the “market share”.

The social psychologist Hugh Mackay says that the key to competition is to focus on the customer, not your competitor. That’s just what oligopolists and our political duopolists don’t do.

If there’s one thing most people don’t understand about politics it’s the way each big party obsesses about what the other side’s doing, and how it will react to what they do.

It was this that caused Anthony Albanese to go to last year’s election promising to do nothing that could offend anyone much. Promise to make needed but controversial changes and the other side launches a scare campaign. It’s only when politicians tell us how bad the other side’s policies would be that we’re tempted to believe them.

The two sides are always trying to “wedge” each other by announcing a bad but popular policy and hoping the other side will be silly enough to oppose it.

Trouble is, they rarely fall for it. They sidestep the wedge by supporting the policy. Which means both sides end up agreeing to do bad things. This is why Albanese agreed to the AUKUS pact sight unseen and, earlier, to stick with the stage three tax cut that’s biased against Labor voters.

This is where the minor parties come in, particularly those sharing the balance of power in the Senate. They can use their power to stop, or at least tone down, the bad policies the government of the day foolishly locked itself into.

Consider this. Last week Climate Change Minister Chris Bowen loudly vowed not to negotiate with the Greens over his “safeguard mechanism”. But by Monday, wiser heads had prevailed, and a deal was done, making the mechanism much more effective.

The big two each offer voters a policy package-deal not very different to the other one’s. Whichever package you pick will include policies you don’t like. But the minor party and independent “new entrants” to the political market give consumers a wider choice by forcing the big guys to “unbundle” their packages.

Sounds more like democracy’s supposed to be.

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