Anthony Albanese has chosen to break faith with the Australian people in the biggest political decision of his career.
The Prime Minister’s claim to restore integrity and accountability to politics - to restore trust following the Scott Morrison era - has been exposed as hollow, with Albanese brazenly going back on his promise to keep the stage three tax cuts in full.
Albanese is gambling with his political future. And Peter Dutton has just been handed a fresh opening to develop a powerful political critique against the government until the next election.
The Prime Minister is betting the public will accept the logic that changed economic circumstances justifies a major redesign of the stage three tax cuts. He will also make a virtue of the amendments which will hand greater tax relief to those earning less than $150,000 while leaving wealthier Australians relatively worse off, arguing the changes are squarely targeted at Middle Australia.
But the political consequences of Albanese’s decision are dangerous and far-reaching. And he will need to be prepared for all of them.
First, and most immediately, it was apparent there was no need for a special caucus meeting. Albanese has already taken the decision and it will be presented to Labor MPs as a fait accompli late on Wednesday afternoon. With some MPs sceptical of reneging on the stage three promise, it is critical Albanese can unify his team around the decision. Failure on this score will harm his leadership.
Second, the package will be critiqued as an old school Labor policy that punishes aspiration, with those earning more than $150,000 not seen as stakeholders in Middle Australia. This is a call-back to the Labor party that lost the elections of 2016 and 2019 when Bill Shorten embraced a policy platform informed by the politics of class-war.
Third, Albanese will be under major pressure to pass the changes through the parliament as soon as possible. With the tax cuts scheduled to commence from July 1, he will need to win the support of the Greens and at least two crossbenchers to secure the passage of his amendments. This will enhance the negotiating position of the Greens and present new political risks for Labor.
Fourth, it risks a powerful electoral backlash from mortgage holders crippled by the weight of 13 interest rate hikes who will resent a government taking away tax cuts with no electoral mandate just months out from their delivery. Their assessment of Labor’s true political character will now be fundamentally altered.
Fifth, Albanese will have to endure the criticism that he is a tricky and deceptive prime minister whose word cannot be trusted. While Julia Gillard broke her carbon tax pledge, she did this in the context of a minority parliament when it was imperative Labor secure working arrangements with the crossbench to secure stable government. Albanese - who promised to restore integrity to government - has no such excuse. His promises going into the next election will not carry the same credibility and he risks inflicting major reputational damage on the party for years to come.
Sixth, Labor has picked a series of fights halfway into its first term by rewarding its traditional constituencies including the unions. The business and resources sector are already at war with the government over its contentious industrial relations changes, its environmental policies which have contributed to major project delays, its management of energy policy and its failure to make the case for more competitive tax settings. The latest backflip on stage three will only reinforce their suspicions that Labor is more interested in delivering for its base than in serious reform that benefits all Australians.
Seventh, the proposed overhaul of stage three looks like a panicked and desperate response from a prime minister searching for a political cause and an issue on which to take up the fight to Peter Dutton. Labor initially flirted with changes to the stage three tax cuts after taking office, but stood by the package in the 2022 October budget and the May 2023 budget. This shows the overhaul is a recent decision and will fuel speculation the government has brought on the fight over stage three as part of a push to reset politics in 2024.
Eighth, the decision will be seen as the death knell for real tax reform. The threshold for the highest tax bracket has remained at $180,000 since 2007 when Peter Costello was treasurer. Had it been indexed, the threshold would have lifted to more than $250,000. More and more Australians - including Labor voters - are being penalised by the government’s failure to properly address the consequences of bracket creep.
Speaking on Wednesday morning, Albanese said he would be giving a “full exposition of economic policy and our response to provide assistance to Middle Australia” during his address to the National Press Club on Thursday.
This will be one of the most important moments of Albanese’s political career and a turning point for his leadership. He will need to be at his most persuasive to bring the Australian people with him and convince them of the necessity for his broken promise.
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