Scenarios for stage three tax cuts: Albanese’s big dilemma

Breaking unequivocal promises made during election campaigns is risky political business. Just ask Julia Gillard.

Prime Minister Anthony Albanese addressed the House in a joint motion of condolence for Her Majesty Queen Elizabeth II and congratulatory message of accession for His Majesty The King took place in the House of Representatives in Parliament House in Canberra. Picture: NCA NewsWire / Gary Ramage

The government sure is sending mixed messages about its intentions regarding the stage three income tax cuts. It promised at the election not to repeal them, but that was a few months ago. Now – who knows?

This week’s budget update revealed a $50bn improvement in the bottom line courtesy of higher commodity prices and a strong labour market. But Jim Chalmers also warned of sizeable deficits across the forward estimates. The news cuts both ways.

The stage three cuts were legislated by the Morrison government years ago, first announced back in 2018, but Labor also voted for them.

Now the Greens are putting pressure on the new government’s left flank and Labor’s continued support for the tax cuts appears wobbly.

The Treasurer refused to explain their economic purpose earlier this month. They do have one, but I doubt he wanted to be seen making that argument.

Last month at the National Press Club Anthony Albanese left himself wiggle room were he to break his election promise and repeal the already legislated tax cuts. The Prime Minister was asked twice and demurred both times.

Any move to repeal the tax cuts would happen with parliamentary ease. Labor controls the House of Representatives and it would win the support of the Greens and enough of the Senate crossbench to do so.

The Greens have done well hammering the unfairness of the stage three cuts. Flattening the tax rate to 30 per cent for earnings from $45,000 to $200,000 is neoliberal in outlook, even if Australia is too reliant on income taxes as opposed to wealth and consumption taxes.

There is nothing the Coalition can do to stop Labor if the government chooses to team up with the Greens and unwind the legislated cuts. But you can bet the opposition will use any backflip as an election weapon. Breaking unequivocal promises during campaigns is risky political business; just ask Julia Gillard.

This is Albanese’s dilemma. Chalmers may be less concerned about the possible fallout: prime ministers wear the odium of broken promises. Chalmers may even benefit from any blowback against Albo breaking the promise: he’s an obvious alternative leader.

The tax cuts don’t take effect until halfway through 2024, so no one should expect a final decision any time soon. However, this issue will come more sharply into focus before the next election.

The cuts take effect roughly a year before the election is due.

To be sure, Labor has options beyond the binary choice of sticking to its promise or simply breaking it.

For example, it could call an early election (before the July 1, 2024, start date for stage three). Were the government to head to the polls after only two years (in May 2024) instead of three (in May 2025) it could do so pledging to repeal the stage three tax cuts if it wins a second term.

Such a move would justify an early election and alleviate the criticism of breaking an election promise.

Bob Hawke went to the polls the year after his 1983 victory and John Howard went to an election in 1998, campaigning to introduce a GST (having promised he would “never ever” do so during the 1996 campaign).

Howard chose that option to avoid breaking a promise. A fresh election gives voters the chance to decide for themselves if the change of mind suits them.

Going to the polls early could also suit the new government because it likely locks Peter Dutton in as the alternative prime minister. Recent polls have highlighted how unpopular the Opposition Leader is. While there are no obvious leadership alternatives right now, in the final year of the electoral cycle, if the polls remain devastating for the Coalition, self-interest could motivate enough Liberal MPs and senators to seek a solution. An early election could pre-empt any such move.

If Albanese doesn’t want to go to the polls early, remembering Hawke won ugly in 1984 when he did so, Albo could defer the stage three cuts by a year and do exactly as suggested above without the need for an early poll. It would still give him a chance to whitewash his backflip courtesy of a new poll and a new mandate that includes the pledge to repeal.

Such a move would require the support of the Greens and the Senate crossbench because delaying measures that are already legislated needs the approval of parliament. But unless Greens leader Adam Bandt wants to be accused of being responsible for the stage three cuts taking effect, he would need to go along with Labor’s strategy.

After all, what does he have to fear from an election campaign built around something he wants to see happen? That is, the abolition of the stage three cuts.

Perhaps a lot, because if that is the binary fight between Labor and the Coalition in an election campaign there is a risk for third parties that they get shut out of the debate. The Greens are defending a strong showing from this year’s election. They will want to hold on to the lower house seats they picked up, not to mention their near control of the balance of power in the Senate.

The third option Albo has is to keep the electoral cycle at three years, let the tax cuts take effect, but promise to repeal them after a year of operation if he wins a second term. This must be his least desirable option. Who wants to fight an election telling people earning up to $200,000 that if returned to power you will take away their annual tax cut of up to $9000. Not to mention the opposition’s capacity to mislead with its campaign attacks that Labor wants to repeal tax cuts for all.

I have little doubt the Labor brains trust would rather break an election promise and repeal the tax cuts before they take effect than embark on this journey. They are more likely to pick one of the other scenarios so they can’t be accused of breaking promises. The contagion effect of breaking a clear-cut election promise is a major risk.

In an era of rising interest rates, rising inflation, low wages growth, ballooning debt and talk of a recession or at the least slowing growth, the dilemma of what to do regarding the stage three income tax cuts is delicate, to say the least.

There are few good options for Labor, which may point to delaying what must happen until after the next election in the name of living up to the fairness mantra and the promise not to break election commitments without the electorates consent.

Peter van Onselen is a professor of politics and public policy at the University of Western Australia and Griffith University.