By Shane Wright
John Howard often talked of the iron law of arithmetic.
Collect more votes than your political opponent, you won.
Anthony Albanese is now doing his own arithmetic with the stage 3 tax cuts the starting point.
Anthony Albanese is making a political calculation that criticism for breaking a promise will be outweighed by relief among low and middle income workers.Credit: Marija Ercegovac
No matter how the PM couches his language, this is a broken political promise. Labor voted for the passage of the tax cuts and he has been consistent in saying that his party’s position had not changed.
Peter Dutton and the Coalition will climb every mountain between now and election day to shout clearly that the PM had breached the electorate’s trust.
Albanese knows the criticism will be sharp and loud. But he will be drawing on Howard’s insight.
The calculus is simple – while his political opponents will hammer Albanese, the prime minister is betting that 10.5 million working Australians will overlook that broken promise because of the extra cash in their pockets from July 1.
There are about 10.5 million or so people who earn under $135,000 a year. They will be the winners out of Albanese’s changes. There are about 900,000 earning more than $190,000 who – while getting a tax cut – won’t be getting one as large as has been promised to them since 2019.
In other words, 12 winners for every one “loser”. That’s the iron law of arithmetic that Albanese is banking on.
Economics, politics and the original design of stage 3 have got Labor and Albanese to this point.
The economics is the combination of inflation and interest rates (and more than two years of falling real wages) that is biting across the country. The politics has been Labor’s antipathy to the stage 3 proposal ever since it was unveiled by Scott Morrison in his 2018 budget.
The politics was tied up with the design. While most focus has been on the sheer weight of cash that will flow to high-income earners under stage 3 (who, as the biggest taxpayers in the country, would always get a substantial benefit), a problem was inserted by Morrison and then exacerbated by Josh Frydenberg.
This was the creation of the low- and middle-income tax offset (the LMITO or so-called Lamington) and its subsequent supersizing by the Morrison government in its bid to cling to power in 2022.
A person earning $65,000, after the $1500 Lamington for the 2021-22 financial year was taken into account, paid $10,092 in personal income tax.
The end of the Lamington last year meant the same person on $65,000 delivered $11,592 in tax to Canberra’s coffers.
The stage 3 tax cuts will deliver some respite to the person on $65,000, but they’ll still end up paying $11,092 in income tax or $1000 more than back in 21-22. Even someone on $100,000 (who received $1200 worth of Lamington) is just $200 ahead of where they were, or about $3.80 a week.
By contrast, a person on $200,000 will pay almost $9100 (or $175 a week) less in tax in 2024-25 than in 2021-22.
Factor in inflation and higher mortgage repayments and you can see the additional financial pain being caused to millions of people. Those are the millions Albanese’s tax changes will benefit most.
Deputy Liberal Leader Sussan Ley on Wednesday promised to restore the stage 3 tax cuts.Credit: Alex Ellinghausen
There are already complaints from the Liberal Party and its fellow ideological fellow travellers about Albanese engaging in a “class war” by the planned tax changes. Of course, that ignores the class aspect that was always at the heart of the stage 3 cuts (which the end of the Lamington highlighted and was exacerbated by ending the 37 per cent tax rate).
Scott Morrison and the Liberal Party had always hoped to wedge Labor through the stage 3 cuts. Labor swallowed its pride and voted with the government while always hoping to find a way to change them.
Now, the wedge has been reversed. Albanese knows that despite all the protestations, Dutton has to decide whether to vote against package that will give billions of dollars to 10.5 million voters or stick with the original stage 3.
There are other political dangers. Deputy Liberal leader Sussan Ley moved quickly to say her party would reverse the government’s changes if it were to form government.
That’s an uncosted, multibillion-dollar pledge that will have to be offset with budget cuts from a Coalition which, as yet, is a policy-free zone.
The iron law of arithmetic stops for no political party.
Cut through the noise of federal politics with news, views and expert analysis from Jacqueline Maley. Subscribers can sign up to our weekly Inside Politics newsletter here.