Why Albo broke his election promise over tax cuts

Poor Albo, he’s scared witless about the cost of living crisis. He’s tinkering at the edges and praying to the global inflation gods that things will sort themselves out.

My phone dinged.

It was my editor, texting me:

“Scott, I’d like you to address the omnipresent issue of tax cuts in your column. It’s the biggest story of the week and readers would like to know your thoughts.”

I carefully pondered his request for six seconds, then shot back my reply:

“Nah”, and added a yawn emoji.

Then I went for a swim with my kids.

When I got out of the water I checked my phone:

Three missed calls from my editor.

(Turns out he had a few emojis of his own for me.)

Soooo … let’s talk about the biggest story of the week, and what I think about it.

The Government has halved its promised tax cuts for the highest earners, and will instead use that dough to deliver tax cuts to everyone earning up to about $145,000, with the average income earner scoring an $804-a-year tax cut.

Personally, I agree with the changes. A few extra bucks a week to many of my financial counselling clients is the difference between sausages and chicken. Or new school shoes for the kids.

Why did Albo break his election promise?

Because he’s scared witless that he’ll get Bill Shortened for the cost of living crisis.

News flash: despite what the autocue says on the Channel 9 news, the cost of living crisis we’re living through isn’t just confined to Australia.

One of the benefits of overseas travel is seeing the same news stories being repeated everywhere: rents are crazy high in the UK, grocery prices are surging in the US, and energy bills are out of control in France. In other words, inflation is a global phenomenon, and it has pushed up the price of everything all around the world.

And, yes, it hurts.

When my three-year-old falls off his trike and scrapes his knee, I bend down and kiss it better. The kiss doesn’t make it any better, of course, but it gives us both the illusion that I’m doing something to take the pain away.

It’s the same with poor old Albo. He’s tinkering at the edges and praying to the global inflation gods that things will sort themselves out.

And who knows what the gods will do?

Which brings me to what I really want to say:

Don’t let the media do your thinking for you.

Case in point: remember when the Reserve Bank Governor said interest rates wouldn’t rise until 2024?

It wasn’t just him saying it. Smart-sounding suited-up sausages appeared on the nightly news and echoed what he said. Hundreds of news articles reiterated that rates would stay low. It was ‘common knowledge’. ‘Fact’.

… and we all know what happened after that.

Well, today the ‘common knowledge’ is that interest rates have peaked and will start coming down later in the year – a nice soft landing. I watched CBA’s head bean-counter on TV earlier this week saying our biggest bank has “priced these cuts in”.

… but what happens if all the pundits are wrong?

After all, from a long-term historical perspective, interest rates aren’t currently that high. They could move higher from here. Or stay the same. Or they could go down and then ratchet up again!

Let me be clear: I’m not calling for higher rates. And I’m not offering a forecast. Maybe interest rates will come screaming back down and we can all get back to buying jet skis on Afterpay.

Yet, even if higher rates don’t ever come to be on the front page of the newspaper like this week’s tax cuts, ask yourself: what’s the worst that could happen if you planned for them?

Tread Your Own Path!

Prime Minister Anthony Albanese. Picture: NCA NewsWire / Martin Ollman

Labor lied!

Scott,

I am sick and tired of this do-nothing government lying through their back teeth. It’s just DISGUSTING. Through DECADES of sacrifice and 80-hour weeks, I am earning $210,000 a year. You owe it to your audience to explain what bracket creep is. Australia’s top tax rate ($180,000) hasn’t changed since 2008. If it was indexed to inflation it would be around $270,000. That’s theft by stealth. So every one of your readers will be okay if they never get a wage increase. We are one of the highest taxed countries in the world (look it up).

Chris

Hey Chris

Welcome to the 1 per cent club! As a high-income earner, I’m a card-carrying member too. Please park your Audi and head up to the members’ mansion. A millennial earning minimum wage will serve you canapes whenever you click your fingers.

Sorry (not sorry).

Here’s what I think about it.

I expect to pay higher taxes, pay more levies and get fewer benefits with every passing year.

Why?

Because our government has a spending problem (this is nothing new, and it’s bipartisan: both sides have a history of spending like drunken sailors). And the way they pay for their spending is by shaking down higher income earners.

Now, if I was the Prime Minister for a day I’d introduce indexation to tax brackets, which would eliminate bracket creep forever (though there’s a better chance of Mr Potato Head becoming Prime Minister).

Fact is, Australia has a progressive tax system where income is redistributed from the top to the bottom. You can get all bent out of shape of it, or you can look at it as the price we pay for the privilege of living in the greatest country on earth.

While it may be true that we’re one of the highest taxing nations, Chris, for me it’s worth it. Go to America and see how they treat lower income earners, and see how that’s working out for them.

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Hey Scott,

I’m contemplating a dry 2024 … again! I had my last drink on New Year’s Eve and have lasted until now (just). I’m really hoping the money I normally spend on wine and vodka cruisers can be turned into a spa retreat or a weekend getaway. I confess, though, I’m feeling a little deja vu in writing this, as I pretty much said the same thing last year! I know you gave it up recently – did you win? I’d love to hear any advice you might have to get rid of it once and for all. Thanks!

Linda

Barefoot Investor says even if higher rates don’t ever come to be on the front page of the newspaper like this week’s tax cuts, ask yourself: what’s the worst that could happen if you planned for them?

Hi Linda

Well done for giving up the turps!

Let me preface what I’m about to tell you with a disclaimer: you shouldn’t take health advice from a man with no shoes. Seriously, I am not even remotely qualified to talk about this.

Having said that, I do know a bit about money, and when it comes to quitting drinking I think saving money is a pretty weak motivator. After all, you work hard, so why not enjoy a nice red wine with your friends?

A better motivator – for me at least – is modelling good habits for my kids. I want them to grow up and see that they can have a good time without drinking.

Another powerful motivator could be the benefits for your health of cutting back on the booze.

And here I can point to someone who is qualified to give health advice: neuroscientist Dr Andrew Huberman. He created one of the most downloaded podcast episodes in history: ‘What alcohol does to your body, brain and health’. I tune out of most podcasts after about 10 minutes, but this one had me hooked for over two hours. Every teenager (and adult) should listen to this episode; it’s one of the few podcasts that can genuinely change your life.

DISCLAIMER: Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions.

Originally published as Why Albo broke his election promise over tax cuts