No backing out now for Labor. Chalmers has set the tone, and the goal, for term two

Ten years ago, in the pages of The Australian Financial Review, a fascinating exchange took place between two political titans. First up was John Howard. The thrust of his case was that the Coalition, in opposition, had offered “extensive bipartisanship” to economic reforms of the Hawke-Keating governments (in part, he wrote, because they were originally Coalition policies).

Illustration by Joe BenkeCredit:

Obviously, Paul Keating was never going to let that go through to the keeper. The next day he responded. In one brief paragraph, Howard had conceded that the Coalition had not supported all Labor’s reforms. For Keating, though, this was the nub of the matter. Howard had “opposed every wage increase proposed … Every one.” Medicare and compulsory superannuation, too. Plus several new taxes.

Keating’s point was not just that there were some minor holes in Howard’s claim to have been cooperative. Keating was saying that you couldn’t have some parts and not the others. That wouldn’t have worked, either economically or philosophically: all the parts connected. But, just as importantly, it would not have worked politically. For instance, “without the capital gains tax and the fringe benefit tax, I would not have had Labor caucus support for the massive personal top rate cut or the company tax cut”. By opposing some economic reforms, this logic ran, Howard had in effect opposed all. Keating’s project, in his telling, was a delicately constructed machine: remove some screws and the whole thing broke down.

On tax specifically, Keating wrote, “John Howard never understood that you can’t support some bits of a big tax reform without the balancing bits.”

Last week, Treasurer Jim Chalmers made what may end up being one of the most significant speeches in this term of government. Its finish was dramatic: “the stakes are too high in our economy – the opportunity is too substantial – to waste this term or waste our time.”

Bob Hawke and Paul Keating in 1985; Anthony Albanese and Jim Chalmers 38 years later.Credit:

What did Chalmers mean by this? Well, several things, but there was no missing the central focus – even if it was put in less dramatic language. “No sensible progress can be made on productivity, resilience or budget sustainability” – the three areas he said needed work – “without proper consideration of more tax reform.” Not only that: “I don’t just accept that, I welcome it.”

In human terms, this was dry as dust. In political terms, it was massive. Chalmers has set himself – and Anthony Albanese – a standard now. If there is no significant tax reform this term, the government will be embarrassed. Asked the next day whether he expected “robust reforms can be implemented in this term of parliament”, Chalmers said, “I think so.”

Chalmers did not mention Keating. But the “balancing bits” were a central theme of both his speech and his answers to questions afterwards. In holding a productivity roundtable in August – announced by Albanese the week before, also at the Press Club – the government wanted to be “upfront with all of you and the country beyond about the trade-offs”. In his answers, Chalmers mentioned “trade-offs” 13 times.

At base, this is about making the budget add up – people can ask for tax cuts, but only if taxes are raised elsewhere or spending is cut. Mostly, though, Chalmers has, quite properly, reminded us that tax reform is unavoidably a political project. “Trade-offs” are, traditionally, the very essence of politics: something is gained and something is lost.

Crucially, this is a very different type of politics for the Albanese government. Labor’s first term was not much about trade-offs. With a couple of exceptions, it was mostly about shepherding change through quietly: making sure that nobody was losing enough that they would complain. Now, it seems, the government will contemplate policies with much more dramatic impacts – impacts everyone will notice. Significant losses will be matched by equally significant gains. The political complexity lies in who bears the losses and who gets the gains. It was a strikingly bold – and potentially historic – moment for Labor.

Two weeks ago, the Coalition’s finance spokesman, James Paterson, insisted the Coalition was up for talking to the government about tax reform, including reducing taxes and then collecting “that revenue in less distortionary ways”. That sounded a lot like higher taxes in some areas. But, he also said, the opposition would not help Labor “increase taxes”.

“But isn’t that tax reform?” asked the ABC’s David Speers. “You’re gonna have to put something up to cut somewhere else.” Paterson insisted, “We are not interested in increasing taxes”.

You can perhaps, if you squint, make sense of this – it will be up to new opposition leader Sussan Ley, in her own turn at the Press Club this week, to try. The likelihood is that Chalmers will face a version of what Keating faced: support for some bits, but not for the others that make them politically plausible.

Chalmers talked a lot about consensus in his speech. Reaching agreement would be “everyone’s responsibility”. It’s an important point. It is also a useful point to make at this stage of the process: after all, it is Chalmers’ job to push everyone towards agreement by making clear the government shouldn’t be expected to do all of this by itself.

But what if, in the end, there is not consensus? Or what if consensus forms only around a very limited set of changes? Chalmers declared, “if we fail it won’t be because of a shortage of ideas, options or choices. It won’t be a shortage of courage – but a shortage of consensus.”

Ultimately, though, if there is not consensus, courage will be required. If you read Chalmers’ words as a persuasive tactic, they are fair enough. If, on the other hand, the government thinks it has given itself an alibi, it is kidding itself. The goal has been set.

Political embarrassment would not be the only consequence of a retreat on tax reform. Keating’s mentions of Medicare and superannuation are reminders that economic reform does not have to be only about tax. Instead, tax changes can take their place within a grander Labor project, alongside other concrete policies, the benefits of which voters more readily grasp. But it is hard to see how that larger Labor project works if tax reform fails.

Sean Kelly is author of The Game: A Portrait of Scott Morrison, a regular columnist and a former adviser to Julia Gillard and Kevin Rudd.