Stage three tax cuts cannot undo the economic damage being done

The new financial year brings with it a raft of changes to tax and investment rules and the promise of tough challenges for the Albanese government. The Prime Minister has been keen to focus on the remodelled stage three tax cuts, which, as Tom Dusevic reports, the government would prefer to be known as the cost-of-living tax cuts. This serves to highlight the fact that what is being delivered is a long way from what was intended under the Coalition’s stage three tax cut proposal. As the name suggests, the stage three cuts were the final instalment in a series of tax reforms that would have capped the top marginal tax rate for most taxpayers at 30c in the dollar. The reworked cost-of-living tax cuts spread the cuts more broadly but halve the benefit flowing to top-income earners who pay the lion’s share of personal tax. In doing so the government has sacrificed the reform dividend at the centre of the stage three proposal that was geared towards encouraging people to work harder with an eye to the long term.

The stage three backdown was conceived by Labor over the summer parliamentary break and used to revive the government’s flagging fortunes following the defeat of the voice referendum. Given the dire financial situation many households now find themselves in as a result of high inflation and interest rates, it is reasonable to assume most of the additional income from tax cuts will be easily swallowed without trace. If the Reserve Bank is forced to lift interest rates further, as many now expect, the situation will only be worse. The political reality for the federal government is that after getting a sugar hit from the tax revisions in January, it is back in political turbulence.

Midway through the winter sitting of parliament the Albanese team has lost discipline on the issue that matters most to voters, cost of living. Despite priming MPs to focus on nothing else immediately before this sitting fortnight, Anthony Albanese has been distracted by everything but. For the opposition, after setting the agenda on immigration, Peter Dutton has made himself the stronger voice on energy reform with a nuclear option that lacks detail but not political punch. To make matters worse, Mr Albanese has been publicly challenged by the Israel-Palestine issue on what has long been Labor’s holy writ of party loyalty and discipline. Western Australian senator Fatima Payman defied her party’s position and backed a Greens motion in the Senate to recognise Palestine as a state. The “strong leadership” shown by Mr Albanese was to forbid Senator Payman from attending a single caucus meeting before parliament rises for a five-week break. He was further distracted by his embrace of convicted traitor to the United States Julian Assange, a relationship that might well come back to haunt him. As national editor Dennis Shanahan writes on Saturday in Inquirer, as the final parliamentary sittings unfold before the long and crucially important winter break, Labor is grasping at political distractions; issuing contradictory statements; fudging its own policy costings while demanding numbers from Mr Dutton; losing on greenhouse gas emission targets; denying energy shortfalls; ceding ground to the Greens and Coalition on the vexed Israel­-Palestine question; and bathing in the glow of a hero’s welcome for someone convicted of espionage against our most important ally, Five Eyes intelligence partner and crucial AUKUS nuclear-powered submarine supplier.

Back in the real world, the Australian Bureau of Statistics released its consumer price figures for May showing inflation had risen from 3.6 per cent to 4 per cent, the third monthly rise in a row. This has sparked fears the RBA might be forced to lift the cash rate in August and made it much more likely that there would be no fall in interest rates before the election. Jim Chalmers sought to reclaim the initiative on Friday with confirmation Labor was on track to be the first government in almost two decades to deliver back-to-back budget surpluses. The broader picture is less positive with confirmation labour productivity increased by just 0.1 per cent in the March quarter, with public sector productivity going backwards.

The situation is only worsened by the government’s industrial relations reforms that will increasingly add more weight to the saddle bags of the productive sector. AMP chief economist Shane Oliver has noted that higher public spending was adding to demand in the economy and keeping inflation and interest rates higher than otherwise would be the case. In other words, big government is squeezing out the private sector and households. Mr Albanese must work hard to bring things back on track. If current trends continue voters will be right to ask whether Labor is up to the job.