Harsh truth about Labor’s unpopular stage 3 tax cuts

Australia’s ultra rich will be $9000 better off from July and there’s a reason behind Labor’s decision to do a reverse Robin Hood.

ANALYSIS

Treasurer Jim Chalmers is pulling off a reverse Robin Hood, taking from the poor and giving to the rich.

His stage 3 tax cuts will put an extra $9000 into the pockets of advertising account executives with Ferraris.

And this comes after he whisked the low and middle income tax offset (LMITO) away from teachers, ripping $1500 a year out of their pockets.

The reverse Robin Hood can be fine in certain circumstances. Sometimes you schedule a tax cut for high income earners and then you have to implement it.

But for a Labor Treasurer in the current economy it’s a bit disappointing. When people vote for Labor, they expect a certain set of choices.

Spending $15 billion a year giving big tax cuts to a small number of wealthy people doesn’t seem like it could be a priority in a society where, just seven months ago it was a priority to give a $7 billion tax increase to most tax payers.

As the next chart shows, the Government has been collecting more and more tax, and in the most recent periods, corporate income tax hasn’t been increasing much at all. Instead it has been household income tax that is flowing to Canberra.

The yellow bars are big recently, meaning that most of the growth in tax revenue (+14 per cent in the most recent quarter) is from household income tax.

The most recent rise in household income tax is in fact the biggest on record. You could argue that means income tax cuts are more important than ever. But should they really be going to society’s most well-off?

The dry reasoning

The argument for taking money away from those doing it tough is that those people would only have spent it. Spending money in the economy adds to inflation. It certainly is a disciplined approach to economic management. It shows the government is tough. They’re not afraid to hurt people. Not even those who are already hurting. I’m not sure that’s the sort of government Labor voters wanted. But it’s what we have.

The argument for giving money to those doing very well is a bit different. It requires a person to snap out of a toughness mindset and towards a farness mindset: These tax cuts were promised. So they have to be delivered.

Prime Minister Anthony Albanese and Treasurer Jim Chalmers promised tax cuts, so that’s what we’re getting. Picture: Glenn Hampson

Tough on the low income earners. Fair to the high income earners. It doesn’t look like an election-winning slogan to me. If I were running a 3rd party – or considering contesting a seat as an independent – Labor’s attitude towards its supporters would be extremely encouraging.

It’s hard to believe the Albanese government has just a two-seat majority in the House of Representatives. The latest polling has the government ahead 52-48, the gap is down a lot from its widest point, at 57-43.

So what are they up to?

My interpretation is that the Treasurer is trying his hardest to be stable and predictable. The Stage 3 tax cuts were planned so they will go through. Just as the LMITO was scheduled to end, so it ended. He is aiming to project an aura of competence that keeps him in office long enough to deliver the surpluses the last Labor government couldn’t.

To understand the Treasurer you need to know that he used to work for our old Treasurer, Wayne Swan. Swan was in office with Rudd and Gillard and he endured the big collapse in revenues post-GFC. He couldn’t deliver a surplus after that, but announced several times that he was putting the budget back on track to do so. Embarrassingly, circumstances intervened to make those forecasts wrong.

Chalmers was Swan’s chief of staff in that period. He probably feels he has unfinished business with the budget’s bottom line. I suspect he would love nothing more than to deliver the surpluses his former boss couldn’t.

So scrap the tax cuts, right? But you also need to remember Swan took a beating in the press. Chalmers learned from that as well. He wants to avoid a narrative that the government is reactionary and chaotic.

He’s trying to stay still like a stone as the water runs around him. The risk is that people decide he has a heart of stone and throw him out of office.

Jason Murphy is an economist | @jasemurphy. He is the author of the book Incentivology.