Has Labor abandoned major tax reform?
August 18, 2025
No policy area in Australia is in greater need of major reform than taxation.
The current tax system is failing Australians on many fronts. It’s central to three of the country’s biggest problems – intergenerational inequality, poor productivity growth and an unsustainable budget.
Proponents of tax reform were understandably excited when the government announced an Economic Reform Roundtable with three main “themes” – to increase productivity, build resilience, and strengthen the budget.
Finally, a government was prepared to grapple with the undeniable challenges of tax reform.
Unfortunately, the excitement’s been short-lived. After a brief period of Australia’s favourite on the table, off the table policy game, it’s become apparent that tax reform is not an urgent priority for this government.
When questioned by a reporter last week, Anthony Albanese replied, “the only tax policy that we’re implementing is the one that we took to the election”.
“No surprises”, at least on the domestic front, is a key feature of his political strategy. If the Roundtable does produce any good tax ideas, the best we can hope for is that Albanese will put them to voters at the next election.
Unlike Tony Abbott, he prefers to ask for permission, not forgiveness.
Liberal Senator James Paterson effectively endorsed the prime minister’s approach when he gave his own views on the Roundtable – “You earn a mandate by taking policies to an election, and this government has no mandate for any tax increases.”
This policy mandate argument has gained in strength in recent years. It says a government should only implement a policy for which it has a specific mandate, and that it can only get that mandate by first putting the policy to voters before an election.
The argument is justified as ensuring a key objective of democracy – elections as a mechanism for converting voter policy preferences into government action.
Such an idea is, of course, nonsense. If followed, this would represent a significant and unwarranted impediment to government action.
That’s why it’s always promoted by parties in opposition.
An election is not just a referendum on the policy platforms of the competing parties. It’s also an opportunity for the voters to pass judgment on the past performance and policies of the incumbent government. In that way, there’s always electoral accountability for government policies, whether prospectively or retrospectively.
Obtaining specific electoral mandates before pursuing policy sits well with Albanese’s cautious approach.
But sometimes, there’s a fine line between caution and cowardice.
Unfortunately, tax policy has become an area where the major parties seem particularly reluctant to undertake reform without the prior approval of voters. The fundamental flaw in that approach is obvious. Substantive tax reform is difficult. It creates winners and losers and that’s electorally dangerous. Therefore, politicians shy away from it.
Better to woo voters with electoral bribes than promote true reform and risk losing votes. We saw that in the last federal election and we see it all the time now in state elections.
Many in the federal Labor Party believe it lost the “unlosable” 2019 election because it campaigned on changes to negative gearing, CGT and franking credits. They’re determined not to make that mistake again. On tax at least, the party will practice “small target” campaigning.
You can see the problem. Labor won’t take new tax policy to an election, but it also won’t implement new tax policy while in power without first taking it to an election.
It’s a catch-22 situation. It means the Albanese Government has effectively abandoned major tax reform.
And to be clear, tweaking income tax rates and thresholds is not major tax reform. Nor is a misconceived tax on unrealised gains in $3 million-plus super accounts that impacts only a very small proportion of Australians.
What is the point of Labor having significant political capital if it’s not prepared to use it?
Australia would be a far poorer country today if Bob Hawke and Paul Keating had practised the timidity of their modern equivalents.
If the Albanese Government believes a tax policy makes sense, it should have the courage to implement it now and be judged on the outcome at the next election.
This is not a partisan issue. Recent Coalition Governments have been equally reluctant to embrace meaningful tax reform.
Paralysis reigns and the tax system becomes less and less fit for purpose, with serious economic consequences.
Part of the problem is complacency based on the assumption that Australia is the lucky country and its citizens are among the wealthiest people in the world. But much of that wealth is just a reflection of our inflated house prices.
More illuminating is the recent ranking from The Economist magazine of GDP per person adjusted for prices and hours worked. On that measure, Australia comes in at a less than stellar 20th place.
And there’s one certainty. Without major tax reform, things will only get worse.
The views expressed in this article may or may not reflect those of Pearls and Irritations.