Albanese can afford to seem firm about tax cuts

Sep 6, 2022
Digital tax forms and symbols holographed from a computer screen
Image: iStock

Newly elected as prime minister Anthony Albanese promised voters he would not lose a second in getting down to the tasks for which he had been elected. In the period leading up to the election, he had been criticised by followers for having a narrow agenda. But that included some big-ticket items in child-care, NDIS repair and wage increases for aged care workers, as well as a primary task of budget repair. Affording much in the way of extras was going to be difficult and lobbying for it much discouraged.

Albanese, his Treasurer, Jim Chalmers and his Minister for Finance, Katie Gallagher have now been at the job long enough that there is a long queue outside their doors. Queues for projects dear to Labor hearts, in health, and education and training, in overseas aid, in payment of social security benefits and the reform of inefficient arrangements established by coalition governments more for the handout of money to their cronies than for the equitable administration of government services.

Though there is no shortage of rent seekers and opportunists in the queue, many of the causes being put forward have been accepted by the Albanese and the Labor leadership as matters fitting within their agenda, but only when the time is right. Right now, the budget position and the priority of Labor promises doesn’t permit even highly desirable policies and programs.

Only when the government has put the economy into a better position will it be debating other urgent and pressing calls for increased spending. Even then proponents can expect a very heavy foot on the brake as a guard against spending over-runs, and rigorous debates about the priority of any fresh task taken up. The government may not have spare money within what will still be a deficit in this term. They do not have the luxury of being able to do things simply because they are popular, help some neglected constituency, or are mere ideological flourishes, party branding and prime ministerial self-indulgences.

Choices can be – must be – made, but they must compete with other pet projects, and events, including defence, managing Pacific relationships, and the still disorganised pandemic response which will also make heavy on scarce money.

Some, conscious of this, are already eyeing off alternative ways of bolstering the government’s resources. A decade of logrolling, boondoggles and partisan rorts can be wound back, at least in part, even if some of the savings must immediately be dedicated to health, education and welfare projects that were consciously underfunded by a Treasurer expecting the worst at the election. Fixing that problem does not mean lifting the mean-minded, oppressive, coercive and morally judgmental foot over the necks of welfare beneficiaries. That will largely remain policy – until righting the wrong finds its way up the priority list. People in the position that Albanese’s mother once was cannot expect much help from this government in this term; their cause is simply not pressing enough.

Of course, the government could improve its financial position, to the tune of hundreds of billions of dollars over ten years from 2024, by abandoning the legislated plans for third stage tax cuts. Most of these tax cuts flow to the wealthiest half of the population, and the moral case for these cuts would be weak even if the economy were in splendid shape. It is not now, and the country simply cannot afford them if it is to provide the goods and services the public expects.

When the tax cuts were first proposed as part of a three-stage plan, Labor strongly criticised the case for the third-stage cuts. But, conscious of how they were conceived as a double trap for Labor, they ultimately let the legislation go though. The trap was the likelihood of the coalition declaring Labor to be fighting a class war against tax cuts five or more years before the tax cuts would be in force. The second part of the trap was to create the conditions of a reduced pot of money, in which a Labor government would have to seriously cut government spending to make ends meet.

Lobbies must work hard to be seen to drag an apparently reluctant Labor to dump tax cuts. The lobbies must accept responsibility for the blowback.

A good many people, Labor and conservative, in academia, business and in the lobbies are publicly urging Albanese and Chalmers to dump the cuts. The case for doing so improves with their arguments, heard by the public. The theatre of it all has seen Albanese and Chalmers to be quite unresponsive and discouraging. They point out that during the election they responded to questions by saying they did not propose to drop the cuts. Even earlier Albanese had consciously thrown out most of Labor’s previous policies on tax reform, as put forward in 2019 by Bill Shorten and Chris Bowen and stared down those who criticised him for being weak on Labor principle.

But on a subject like that, Albanese has all the political time in the world. Announcing something new now does not help address his immediate problems. It would not change estimates of government revenue over the next two years. The outyear forecasts would seems better, but there’s little political dividend from that. Out-year costs are always difficult to estimate, because so much can occur during the three years before. That is to say that the “market” would not reward the government for an early dumping of the promise. The national market might never welcome a dumping, but the international markets would probably think it responsible and forward thinking. With a decision announced now, an uninspired opposition would try to make mileage from claims of broken promises, incompetent economic management, Labor’s incapacity to manage spending, and so on. Why have all this now, unnecessarily, while Labor is working hard – and so far, fairly successfully — to sell and implement its immediate policies and priorities?

One can take it that Albanese would dearly love to drop the tax cuts, but he must balance the political and economic benefits against the costs. Not having decided anything yet, he can deny any plan, even as he complains of the legacy left to him by the coalition. If economic conditions deteriorate – as well they might – he can at some future time of his own declare a budgeting emergency requiring a review of the cuts. If he does then dump them, he can balance the political costs against the immediate benefit of money he is able to push into new programs and projects. We must, of course, all hope that this extra money is not dissipated in marginal seat rorts – as they were so often by coalition governments. But if the money was seen as being recommitted into some worthy and widely distributed program – say Medicare fee and rebate review – the public, including the middle class, might perceive the equity of the trade-off.

From a political marketing viewpoint, it might seem a good strategy to have two or more years of Albanese playing Mr No firmly, if sympathetically. His treasurer has already shown himself well up to the task, able patiently to acknowledge the case for doing more in a particular area, to damn the opposition for their mean-mindedness about the poor and failures to deal with fundamental problems. He has a practiced style of then insisting that he simply does not have the money or the resources to do anything immediately. He can explain that Labor’s initial priorities were set on need, even as Labor knew there were other needy projects about. It would only be after they had achieved some of their goals that there might be some spare money to eke out.

Ideally, from Labor’s view, one could have interest groups arguing forcefully with the government that it ought to liberate the money put aside for tax cuts for some vital national project – such as health insurance and the restoration of bulkbilling. Labor could play coy and reluctant, but eventually surrender, in circumstances where the coalition, if it still exists might find it hard to criticise.

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