Real tax reform in budget would offset bracket creep

Jim Chalmers’ rather surprising promise on Wednesday that next week’s budget would have an “emphasis on tax reform” raised a prospect devoutly to be wished for. The nation has had no significant structural tax reform since the Howard government introduced the GST in 2000. The Coalition’s stages one and two personal tax cuts, and stage three, which Labor altered (not for the better) in January to increase benefits for lower-paid workers from July 1, were needed. But if the Treasurer is serious about reform beyond the stage three changes, he should start by addressing bracket creep next Tuesday. The measures to start on July 1, EY chief economist Cherelle Murphy told The Australian, would return only about half of the bracket creep that smashed workers’ take-home pay last year.

Business leaders say they believe Dr Chalmers will avoid significant structural reforms and was referring to a suite of tax incentives focused on Labor’s clean energy and Future Made in Australia priorities. That remains to be seen. We hope for better, including measures to improve productivity – a major economic challenge, closely related to containing inflation and avoiding further interest rate hikes. As the Reserve Bank board said after Tuesday’s meeting on monetary policy: “Wages growth appears to have peaked but is still above the level that can be sustained given trend productivity growth … measured productivity growth picked up in the second half of last year. This trend needs to be sustained over time if inflation is to continue to decline.”

As Geoff Chambers reported in The Australian on Wednesday, housing will be a centrepiece of the budget, with measures to be included to help achieve Labor’s pledge of 1.2 million new homes by 2029 to overcome the nation’s chronic housing shortage. Experience shows government intervention in housing markets, such as first-home buyer schemes, often produces unintended adverse consequences. Construction apprentices reportedly are set to receive wage subsidies, and skills assessments will be fast-tracked for 1900 British and other foreign tradies. The measures are designed to address industry concerns about labour shortages fuelled by apprentices exiting the sector early and red tape blocking access to inter­national tradies with comparable qualifications. Cutting red tape that is holding up progress is always good policy. If immigrants are able to fill labour shortages they should be encouraged.

But the idea of using taxpayers’ money to subsidise apprentices’ wages would raise problems. It follows a misguided pattern the Albanese government has set of using taxpayer money to fund hefty wage rises for workers employed outside the public sector, including in aged care and childcare, where staff shortages are also a problem. It is wrong on principle and a creeping form of bigger government. Are the construction apprentices’ wage subsidies to be baked into government spending? At what cost to the budget bottom line? Once increased, pay levels are unlikely to be allowed go backwards. If and when worker shortages are resolved and subsidies are withdrawn, are building companies and tradies who work on contract to pick up the tab at a cost to consumers, including home buyers?

The decision that taxpayers should pay trainee teachers, nurses and social workers up to $8307 to learn on the job in schools and hospitals is also dubious. So is expanding the New Energy Apprenticeships Program, giving apprentices up to $10,000 across the duration of their training. Like their parents and grandparents, university students with an eye to the future should be prepared to study without pay until they graduate. Trade apprentices, most of whom go on to lucrative careers, should regard their apprenticeships, when wages are low, as an investment in their futures. Victorian CFMEU charts suggest second-year apprentices should earn from $1095 to $1427 a week, plus fares and leave loadings. Many builders and contractors would find such rates prohibitive. Governments should not dip into the public purse to help pay them.