What tax cut betrayal reveals about Anthony Albanese
If Anthony Albanese was prepared to revert to old-fashioned Labor ideology to revive his government, what other policy might he abandon or resurrect when electoral and party pressures intensify?
Over summer Anthony Albanese has been searching for a cause and a fight. The Prime Minister has broken a repeated promise in order to salvage his declining electoral fortunes. It is a resort to old old-fashioned, class war redistribution by turning the stage three tax cuts into a political contest with the Coalition.
Albanese has no mandate for this tax change revamp. He is doing what he pledged not to do. His message to the Australian public is: pocket your money and forget my breach of trust – you are all the winners. The road to this fractured promise is paved with good intentions – easing cost-of-living pressures for about 12 million Australian taxpayers.
That’s important. Australians will be grateful for the extra tax break. But a distrustful electorate will distrust Albanese even more. Gratitude and distrust – they sound contradictory but they are tied together in this betrayal. For Albanese, it is the biggest gamble of his prime ministership, because it goes to his judgment about the Australian people.
He got this wrong with the voice. He cannot afford another such blunder. His calculation now is hip-pocket cynicism: there will be seven or eight winning taxpayers for every losing taxpayer, a good ratio for Labor, hence it thinks it will come up trumps.
The tactical geniuses that were convinced the voice referendum would pass have made their follow-up tactical call: that larger tax breaks for low and middle-income earners will resurrect Labor’s electoral fortunes.
This is Labor old-style, re-distributional politics. It is Labor’s statement of belief under Albanese. It is five years since the great union boss Bill Kelty called for Labor to be the aspirational party and cut the top marginal rate to about 40 per cent. Such ideas are heretical inside today’s Labor.
The decision is about one thing: Labor’s self-interest. It is about saving the Albanese government from sliding into minority government. It is the core insight into Albanese’s character. That he felt driven to such a dramatic, integrity-busting reversal after 20 months in office only reveals the extent of his alarm about Labor’s polling decline and his search for a rallying cause. Albanese has lusted for a cause to inject his government with conviction. But how tenable is the cause?
This is a divisive policy. The message is: we need to punish the taxpayers earning more than $146,000 in order to reward the taxpayers earning less than $146,000. Smart politics? Invoking equity, it assumes the politics of envy and redistribution still work. But it brands the Albanese government as anti-aspirational in policy and untrustworthy in its commitments. It comes with a stack of risks for a Labor government that got just 32-plus per cent of the primary vote in 2022.
Albanese is betting the house that voters will decide that he listens, cares and wants to help. His policy means 13.6 million people get a July 1 tax cut compared with 10.8 million under Scott Morrison’s model. A person with a taxable income of $40,000 gets a tax cut of $654 compared with nothing under stage three. A worker on the $73,000 average wage will get a tax cut of $1500 a year, double the gain under the Morrison plan. A full-time worker on $100,000 gets a tax cut of more than $2100, which is $804 more than stage three offered.
This package seeks to tie the female vote to Labor and is a political dagger at the heart of Opposition Leader Peter Dutton’s strategy to make the Coalition the champion of hardworking battler Aussies. Albanese said 90 per cent of female taxpayers will receive a bigger tax cut. The big winners are nurses, truckies, teachers and aged care, welfare and disability workers while the losers are executives, white-collar professionals, miners and IT specialists.
The Albanese tax redesign costs the same overall – about $105.7bn over the forward estimates – but Treasury projects it will raise an extra $28bn over the decade, partly driven by bracket creep and the creation of the 37 per cent marginal rate from $135,000. Dutton signalled that just as Albanese made Scott Morrison’s character an issue, he will do the same with Albanese, branding him a “liar”, saying his leadership was terminal and calling for the tax package to be put to an election.
Have no doubt, the next election will be dominated by the tax battle – not about serious tax reform and diminishing the nation’s aspirational-sapping reliance on personal income tax, but a narrow, equity and envy slog fest that generates much heat and little light.
In a highly deceptive speech to the National Press Club, Albanese said: “This is a plan for middle Australia that delivers for every Australian taxpayer, right up and down the income ladder.” He said there was “a tax cut for every taxpayer”. At no stage did Albanese explain what he was actually doing – reducing the legislated tax cut for all workers earning above $146,000. Workers from about one million households are being punished by having the tax cuts that were promised, that were legislated in 2019, being substantially reduced.
A taxpayer on $180,000 gets a tax cut of $3729 not $6075 as the current law, based on the Coalition policy, specifies. A taxpayer on $200,000 gets a tax cut of $4529 not $9075, as the current law specifies. This policy is about redistribution.
Albanese says his new tax breaks are for “middle Australia”. The opposition will say if you earn above $146,000 Labor will regard you as rich and that means you need to pay a higher proportion of tax under Labor’s policies. There are different ways of looking at fairness and equity.
The bottom 40 per cent of taxpayers pay no net tax.
The top 10 per cent of taxpayers will now pay about 47 per cent of all income tax revenue. The top 5 per cent of taxpayers paid about 32.9 per cent of revenue back in 2017-18 and under Labor’s plan that will rise to about 34.6 per cent. Economist Chris Richardson calculates that the top 1 per cent pay as much income tax as the bottom 71 per cent. But Labor says this is unfair: those above $146,000 need to pay an even higher share of the tax burden.
Australia, in case you missed the point, has a highly progressive income tax scale – and Labor and the Greens want it more progressive.
In another deception, Albanese boasted that he was lifting the threshold for the top rate of 45 per cent so it will now kick in at $190,000, up from $180,000. No, he’s actually cutting that rate from the $200,000 threshold in stage three so it kicks in earlier than the Morrison model.
If this threshold had been indexed it would now be about $250,000 – stark evidence of a cardinal problem with our tax system: a low threshold for taxpayers forced to pay a high top rate of 47c (given the 2 per cent Medicare levy). Not only has Albanese broken his promise to honour stage three but his speech explaining his policy was riddled with misleading claims.
Understand what has happened: Labor backed stage three tax cuts in 2022 for its electoral self-interest; it now revises stage three for its electoral self-interest. It makes promises and breaks promises according to its self-interest.
Labor, notably Treasurer Jim Chalmers, always had reservations about stage three, as a Coalition-designed policy.
But Labor in opposition voted for stage three; it promised at the 2022 election to honour stage three; it has spent 20 months in office standing by that promise. It said last week it would stick by stage three when fully aware that it wouldn’t. The moral is obvious: Albanese never offered an alternative tax policy in the 2022 campaign because he feared that might cost him the election and the chance to become prime minister – a very cogent assessment.
He could have produced his own tax policy back then and sought a mandate for it. He didn’t. He refused to take the risk – and that comes with consequences.
Dutton accuses Albanese of having “knowingly and willingly lied” to the people. His deputy, Sussan Ley, said Albanese had won the 2022 election “on a lie” and that “every single Labor MP lied to their community”. Yet there is no evidence to sustain this conclusion.
The evidence, on the contrary, suggests that Albanese, however reluctantly, intended to honour the tax cuts, that he resisted pressure from the Treasurer in 2022 to change them and, until recently, still intended to retain them.
What changed over the summer was Labor’s political decline driven by the cost of living. This was the decisive factor. Albanese pretends Labor’s tax reversal is because the economy has changed and Chalmers, trying to make this argument, has released Treasury advice. But this is another deception. The Treasury highlights the obvious: that since the stage three tax cuts were legislated the world has changed courtesy of the Covid pandemic, global inflation, the war in Ukraine and cost-of-living pressures due to rapid increases in food and energy prices.
Of course, prolonged cost-of-living pressures are hurting low and middle-income earners. But we didn’t discover these factors since December. Many were apparent at the May 2022 election. During the past 20 months, the Albanese government has been dealing with these pressures including over two budgets. That’s when it could have altered the stage three tax cuts but declined to do so. Trying to pretend this change of policy now is purely motivated by changed economic circumstances – as distinct from political circumstances – is fatuous.
Even more embarrassing is Albanese’s refusal to admit he has broken any promise. Albanese is brazen. He actually claims this reversal and breach of the public trust is an act of bravery. Indeed, he expects to be rewarded for it. “We are doing the right thing, for the right reason,” he says. He declares it wasn’t an “easy decision”. Asked about integrity, he got indignant, saying: “I tell you what my integrity is. Not looking at lower middle-income earners and saying ‘Sorry, I’m just the Prime Minister’ ”.
There are two issues here. First, Albanese won’t admit his spectacular broken promise – despite being elected as PM pledging to restore integrity after the Morrison government. This claim is now in ruins. Albanese tied his integrity to the stage three tax cuts with varying formulas: “My word is my bond – I’ve always been a man of my word.” The upshot is apparent: integrity matters only when the issue suits one’s political interest. The hypocrisy of this entire debate about integrity in government has been nauseating.
The related problem for Albanese lies in the conundrum: if he was prepared to revert to old-fashioned Labor ideology on this issue, what other policy might he abandon or resurrect when electoral and party pressures intensify?
Second, the policy merit of the new tax revamp is highly dubious. Albanese and Chalmers are up-front: its purpose is to help people with cost-of-living pressures. It will serve that purpose and assist upwards of 12 million taxpayers with low-income earners under intense pressure. It may even purchase an electoral recovery – maybe.
But its credentials as tax reform are extremely modest, even though cutting from 19c to 16c the marginal rate up to $45,000 injects the right incentives into the labour market. As Treasury says, the new policy will encourage more labour force participation, particularly from women, with women on taxable incomes between $20,000 and $75,000 likely to respond to the incentives.
The policy does nothing to fight inflation. Indeed, the risk is it might make inflation worse. It does nothing for the budget bottom line over the forward estimates. It seems to accentuate the bracket creep problem by re-creating the 37c marginal rate that was eliminated in stage three. It does nothing to help those on benefits and welfare, including pensioners, the unemployed and students who don’t pay personal tax – with Chris Richardson saying “those on lowest incomes didn’t get a look in”. It was almost contemptuous of higher income earners by cutting back to $190,000 the threshold for the top rate. This package is about alleviating the cost-of-living pressures. It is not about addressing the source of the problem.
Richardson said: “If you wanted to tackle the inflation and cost-of-living problem, you’d do a combination of what the IMF said last week, cutting government spending and raising taxes or, in the current context, having smaller tax cuts. That’s not what they have done. The job of the Reserve Bank is to take spending power out of the economy. That’s not what this does.”
Albanese seeks to wedge Dutton with this tax policy reversal. The Liberals are furious at Albanese’s betrayal and watching their cherished stage three bite the dust. But Dutton has also got his script for the next election: you can’t trust anything Albanese says; you can’t trust his word, his pledges or his denials.
The Liberals will defend their stage three policy, that’s obvious. After Labor legislates its new package, the Liberals seem to have little option but to accept the new, higher Labor tax cuts for low and middle-income earners while also pledging to restore stage three at the top end.
That means a bigger, more costly package overall. The Liberals seem to have little choice, given their proclaimed stance as the party of lower tax. It would be farcical for Dutton – having declared the Liberals as the party of working Australians – to oppose Labor’s tax cuts for those working Australians.
On inflation, Richardson said the size and timing of the tax cuts – they arrive in five months – worried him. He referred to a recent ANZ analysis saying the tax cuts were the equivalent of two interest rate cuts. At the same time the world was full of uncertainties, with geopolitics constituting more cost-push inflation risks.
Albanese and Chalmers say their package won’t accentuate inflation. But if the Reserve Bank, for whatever reason, further increases the cash rate during the year, then Labor will be far more politically exposed to blame. It’s another risk.
For better or worse, the Dunkley by-election on March 2 in Melbourne, following the death of former Labor MP Peta Murphy, will be seen as the early test of the new policy. Labor now has a powerful tax cut script in its strongest state where it enjoys a 6.3 per cent margin in the seat. Having just made this huge political investment, Albanese will be expected to hold the seat.
Chalmers will do an astute selling job on the revamp. His pitch is obvious: “every taxpayer still gets a tax cut” and “there are bigger tax cuts for more people”. Chalmers knows the tax revamp can’t solve the cost-of-living crisis. But Labor wants to prove to the public that it cares and that it acts.
Labor has made clear it has no intention of substantial reform of the personal income tax system or reducing Australia’s anti-incentive model where income tax contributes a higher proportion of the total revenue base than any OECD nation outside Denmark. In this sense, the coming tax brawl will only verify the nation’s inability to confront serious tax reform.
The bigger, fascinating revelation is Albanese’s tax policy decision as the fighting cause for his government. It is the blueprint for its convictions. And it’s disappointing. It suggests a government mired in the past, focused on redistributional fairness, anti-aspiration and, under pressure, retreating to the reflex instincts and old attitudes that have seen the ALP primary vote decline for the past 20 years.
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