Albanese will pay the price if Chalmers eliminates tax cuts

Anthony Albanese reiterated that Labor’s position on tax cuts had not changed during his visit to Perth where he attended the official opening of the Metronet Airport Line with WA Transport Minister Rita Saffioti, left, and WA Premier Mark McGowan, right. Picture: NCA NewsWire /Philip Gostelow

The British Chancellor has done untold damage with his mini-budget to new Prime Minister Liz Truss. Jim Chalmers will be very conscious of the potential to do the same to his own Prime Minister with his October 25 budget and the repeal of the already legislated stage three tax cuts.

They say a week is a long time in politics, so it must feel like an eternity for Truss, who has gone from being seen as the next Iron Lady to the turkey being dressed for Christmas.

Politics is a hard game and they say if you want a friend, get a dog. Truss was elected by the party membership on a platform of lower taxes and capping the impending energy costs of British citizens as the long winter of discontent arrives.

She and her long-term close friend, Chancellor Kwasi Kwarteng, announced only a little over a fortnight ago one of the biggest personal income tax cuts since 1972, reversals of company tax increases as well as capping household energy bills at £2500 a year. Most of the package has bipartisan support. Much of it was smart politics.

The political overreach was, however, in abolishing the top tax rate of 45 per cent.

The pound started to plunge within minutes of the Chancellor’s address, continuing to fall sharply to its lowest level versus the US dollar ever until a massive market intervention involving the Bank of England buying UK government bonds occurred.

That the new free marketeers in charge of the UK Treasury and His Majesty’s government would receive such a stinging rebuke from the markets is ironic. It would actually be quite funny if it didn’t also have the potential to damage the global economy, already in a nervous state as we wean off Covid-era stimulus. The Bank of England will have to continue to fight inflation with higher interest rates as the mini-budget will provide even more spending power in an overheated UK economy.

In addition to the markets, political commentary turned sharply negative in the UK press, even among Truss cheerleaders such as The Telegraph and The Sun, which previously treated her as the new Margaret Thatcher.

Anglophiles such as Alexander Downer are saying this is the end of Truss’s prime ministership. Thatcher famously said “This woman is not for turning”, but Truss has shown she can be turned, indeed rolled, by political pressure.

As flagged previously in this column, and confirmed in other coverage since, the stage three tax cuts may well be abandoned in the upcoming budget. There’s been lots of background briefing going on in recent weeks, more kites being flown than at a Banksy exhibition. Last Friday we saw open speculation being encouraged by the Treasurer under the guise of a “conversation” with the electorate. The latest argument being spun is that financial markets could react similarly here as in the UK, for a measure that doesn’t kick in until 2024.

Markets in the UK reacted so badly because of the “cut and borrow” surprise move. Stage three by comparison has been in legislation since 2019, has Liberal support and supposedly Labor’s. The markets might have already factored in their concern, if any, by now, don’t you think?

The only person that changes to legislated stage three tax cuts ultimately damage is Anthony Albanese. His Treasurer is laying out his own moral high ground – “economy before politics” – defence already. Albo was the one on the record constantly making equivalent statements to Paul Keating’s L-A-W tax cuts. He was the one who flipped the Labor cabinet from not supporting them to voting them into legislation after the 2019 election. He was the one who confirmed his commitment to keep them as recently as May.

Albanese, if he breaks his word, will be regarded by many as just another lying politician. The trust he has established will be shattered permanently. He needs to hold true and keep the trust with the electorate by reaffirming his commitment to stage three in full.

That the Treasurer’s October 25 budget could inflict untold damage on the Prime Minister’s trust with the electorate is even more understandable after the Treasurer was confirmed in the AFR’s power list, compiled by lobbyists and journos seeking favour, as the second-most powerful person in Australia, ahead of Richard Marles and Penny Wong and behind only Albanese.

The Treasurer knows that to change the law will require his Prime Minister to vote down his own electoral promise. Everyone in Labor knows all too well what happened to Julia Gillard when she reneged on a carbon tax; Albo did the numbers for the return of Kevin Rudd and Labor lost the next election.

The Romans have a great saying, “cui bono” – translated as “who benefits?” – as a test to define the motive for a crime. The only person who benefits from goading Albo into doing a Gillard is his overly ambitious Treasurer.

The calculus for Chalmers, who admitted jostling momentarily for the leadership with Albo in 2019, is that by saying he’d listened to markets and the mood of the Greens and many on Labor’s Twitter feed, such as Wayne Swan and Doug Cameron, he would look fiscally responsible.

Such a move might take time to take full effect, like a Roman courtier’s best poison, but by allowing the trust in the Prime Minister to be irreversibly damaged, by Albo breaking his solemn electoral promise, Chalmers’s ambitions to be prime minister rapidly move closer.

As they say, a week’s a long time in politics; if you want a friend, get a Toto.