Progressive taxation is the cornerstone of a fair, equitable and just society. Just don’t tell that to the Australian Labor Party.
On 26 July, Anthony Albanese announced that Labor now formally supports stage three of the Coalition’s income tax cuts – a move which brings Australia closer to a more regressive, flat income tax system than at any other time in our history. These changes mean that Australia’s future will be economically and ethically poorer, no matter the outcome of the next election.
To explain the significance of these tax cuts, it is worth revisiting the logic behind progressive taxation in the first place. In brief: the more you earn, the greater your marginal tax rate. This ensures that lower-income earners do not have a greater share of their income taxed than higher-income earners – a situation known as “regressive taxation”. This isn’t just good ethics, it’s good economics as well.
Ethically, progressive taxation means that higher-income earners contribute to the society which made their success possible. The burden for financing good schools and hospitals should not fall overwhelmingly on the poor. Economically, the wealthier you are, the less you spend on personal consumption (relative to your overall income). The reason for this is quite simple: a loaf of bread costs the same whether you are a builder or a banker. By taxing higher earners more, governments can invest without reducing overall spending in the economy. Despite claiming to be better, fairer economic managers, Labor appears to have forgotten all of this.
This brings me to stage three of the government’s legislated tax cuts. Scheduled to take effect in 2024, these cuts will apply the same marginal tax rate to anyone earning between $45,000 and $200,000 per year. It does this by reducing the 32.5 per cent tax bracket to 30 per cent and abolishing the 37 per cent tax bracket altogether. Simple mathematics dictates that those earning more, benefit more. The Australia Institute calculated that 79-91 per cent of the benefits will flow to the top 20 per cent, with just 3-4 per cent of the benefits going to lower-income earners. These changes will reduce Federal Government revenue by $137 billion over a decade, entrench privilege, and exacerbate income inequality.
Of course, one expects such a naked assault on egalitarianism from the Coalition. It hardly makes sense to blame a party that believes in smaller government and lower taxes for achieving exactly that. When asked about the government’s future economic plan, federal treasurer Josh Frydenberg claimed to be inspired by Margaret Thatcher and Ronald Reagan, two former politicians known for cutting taxes, deregulating industry, and aggressively breaking the power of trade unions. Fair call – at least the Government is doing what it believes in. Can the same be said of the Labor Party?
Since losing the 2019 Federal election, Labor has engaged in a period of soul-searching. Actually, that would be far too charitable. Under the leadership of Anthony Albanese – who once remarked that he got into politics to “fight Tories” – Labor has systematically purged its policy platform of anything even remotely approximating economic redistribution. Franking credits reform? Gone. Policies to make housing more affordable? No way. Action on climate change? Ask us closer to the election. And now, finally, Labor has rolled over and abandoned its former opposition to the most regressive taxation changes since John Howard.
Labor has promised, however, to set up a Minister for Youth, to “listen” to the concerns of young people. As a young, former member of the ALP, I recognise this for the rhetorical window-dressing exercise that it is. I am concerned about precarious employment and stagnant wages. I am concerned about unaffordable housing and rising costs of living. Above all, I am concerned about the catastrophic effects of unchecked climate change. Will Labor take a bold, ambitious policy platform on these issues to the next election? Apparently not.
A progressive party should believe in a progressive taxation system. Either Labor disagrees with this statement, or it no longer considers itself progressive. Albanese tells us that Labor wants to create a society where “no one is left behind”. Progressive voters will feel rightly bemused by this slogan. Labor left us behind long ago.