Chalmers has earned the right to snub the Coalition, but here’s why he shouldn’t

Jim Chalmers slammed the door shut this week on doing a deal with the Coalition on tax changes to superannuation. The treasurer is perfectly entitled to thumb his nose at the opposition. Labor first announced these tax changes last term, the government took them to the election, and it then secured a thumping majority on May 3. But Chalmers is making a mistake.

The much-depleted Coalition has not yet decided whether it plans to be constructive, in a legislative sense, in this second term on the opposition benches, or whether it will continue with the monomaniacal impulse to say “no” to most proposals.

Illustration by Dionne GainCredit:

Chalmers could not agree to the Coalition’s twin requests – that the tax change be indexed so that over time the impost does not affect more than the initial estimate of 80,000 people and second, that the tax would not apply to unrealised capital gains (such as a family farm or an expensive artwork) held by an individual’s self-managed super fund.

Instead, the treasurer has chosen to negotiate with the Greens, who also want tweaks, but who are much more likely to eventually pass the tax in its original form.

So, notwithstanding the huffing and puffing from the opposition and some in the more conservative sections of the media, this debate is likely to end up with Chalmers getting his way and securing the new tax – which raises the tax rate to 30 per cent on superannuation balances over $3 million – in its unamended form.

The treasurer’s mistake is not so much in not compromising on the detail with the Coalition (arguments can be made for and against the proposed changes). Rather, it’s in the signal sent to the Coalition about how he intends to negotiate in the coming term of parliament.

Chalmers’ PhD, Brawler Statesman, was written about Labor’s legendary former treasurer and prime minister, Paul Keating, and how the one-time member for Blaxland implemented and then bedded down ambitious and necessary economic reform over more than a decade.

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

Keating’s record of reform (backed by Bob Hawke) is part of political folklore now – he floated the Australian dollar, opened up the economy, reduced tariffs, welcomed foreign banks, privatised major government-owned companies such as Qantas and more.

Chalmers should remember that his political hero got some of his biggest early reforms done by working with the opposition – including then-deputy opposition leader John Howard – to ensure a political consensus, which then had the flow-on effect of ensuring they would not be unpicked by a future Coalition government.

Chalmers and Anthony Albanese frequently argue they have an ambitious reform agenda, and they’ve already made big changes to the economy.

That is an overstatement, though they deserve full marks for taking a political risk and altering Scott Morrison’s stage 3 tax cuts last term – their bravest moment was also one of their best.

These super changes are not earth-shattering, though in 30 years time the number of people with a balance over $3 million will grow to an estimated 1.2 million people. And after a stunning election win, Labor can – in its second term – afford to be more ambitious and to go beyond its policy program.

But the only way that this can be achieved is to seek bipartisan consensus from the opposition on bolder changes such as a reduction in the company tax rate, winding back the 50 per cent capital gains tax discount or even winding back the diesel fuel tax rebate which, according to the Australia Institute, cost the budget an estimated $10.2 billion in 2024-25, including $4.8 billion for the mining industry and $1.4 billion for the coal industry.

Thirteen years ago, in her Quarterly Essay, Great Expectations, Laura Tingle observed that Australians’ “expectations of what government will do have seemed to grow over the years”, even as politicians’ willingness to have honest conversations about how to pay for improved services has declined.

At the same time, Australians’ willingness to pay additional tax to fund these services has also diminished. But we do not have a right to expect an ever expanding, European-style welfare state with strong social programs while simultaneously desiring an American-style tax system. We can’t have it both ways.

To increase defence spending, to maintain NDIS funding at current levels, to increase bulk-billing rates and introduce universal childcare something has to give, a point Chalmers made himself on the ABC’s 7.30 program, when he noted “we need to make the budget more sustainable over time”.

This challenge to make the budget more sustainable – and to explain to Australians that some more ambitious tax changes may be needed to structurally reform the budget – lies at the heart of the challenge facing Albanese, Chalmers and Labor in the second term.

Which brings us back to superannuation. If Chalmers wants to be remembered as a reforming treasurer he needs to work with the Coalition at least sometimes.

On super, by refusing to cede a little ground to the Coalition and forego some revenue, Chalmers has missed an opportunity to send a clear, early signal that he will pursue budget reform from the political centre.

Taking that path offers a political dividend too, as it would entrench Labor as a centrist and magnanimous government and in so doing marginalise the Coalition a little more and help bed down Labor as the natural party of government.

The 48th parliament has yet to meet. There remains a window of opportunity for Chalmers and Labor to reach across the aisle. There may well be a deal to be done that trades company tax cuts for a winding back of the diesel fuel rebate, for example, or reduces the capital gains tax discount in exchange for something else.

It’s now up to the treasurer to meet the moment.

James Massola is chief political commentator.

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