The moment Albanese and Dutton both jumped the shark

The third Sunday of the 2025 federal election campaign will go down in history as the one where good policy was jettisoned in the race for votes.

Both sides used their campaign launches to unveil a combined $24 billion in plans with little regard to recent economic history, the state of the budget, or what their plans will mean for future taxpayers and future governments.

Labor’s plan to build 100,000 new homes for first home buyers is likely to drive up demand and cost of construction. Credit: Alex Ellinghausen

Remember, both Jim Chalmers and Angus Taylor have been talking at length about the need for fiscal rectitude, what with a deficit of $42.1 billion next financial year and gross debt beyond $1 trillion. But you wouldn’t know it after listening to Sunday’s speeches.

First, the least worst.

The government’s plan to bankroll every first home buyer by reducing their required deposit to 5 per cent and to go on a $10 billion building binge will clearly add to demand.

Yes, the program will increase supply, with the government saying it will build 100,000 affordable homes in the next few years. That is its saving grace, but also needs to be taken with a grain of salt.

Those homes won’t just be plonked down in the outer suburbs by some sort of stork that’s given up on babies and moved into housing construction. These homes will need bricklayers, carpenters, plumbers … you get the gist.

The previous government’s COVID-era HomeBuilder measure fuelled a renovation surge that lifted housing construction inflation to 20 per cent. This scheme will add to inflation in a sector that is the single largest part of the inflation basket.

This is the least worst.

But the Coalition, according to independent economist Saul Eslake, has come up with a policy that rivals the worst policy cobbled together this century (the out-of-control GST deal for Western Australia).

Allowing first home buyers to deduct the interest of their mortgage from their taxable income is a guaranteed way to drive up house prices. There is a huge amount of evidence from overseas that this is what happens.

From Belgium to the United States, wherever analysts have examined such policies, allowing people to claim back some or all of the interest on their home loan ultimately pushes up prices.

At least the Coalition has limited the policy to first home buyers who buy a brand-new home. But that’s offset by the Coalition’s policy of allowing the same people to take up to $50,000 out of their super to get into the market.

You can see higher prices and bigger mortgages flowing from the combination of the two policies.

And is there anyone who believes that in five years, when people using this scheme will lose the tax deductibility, a future government won’t extend it to prevent tens (if not hundreds) of thousands of home buyers from incurring a huge increase in their tax burden?

Secondly, the creation of a “cost of living tax offset” will add to inflationary pressures across the economy.

The Coalition has banged on about the big lift in tax paid by Australians under Labor. Just a few weeks ago, shadow treasurer Angus Taylor argued the average taxpayer was “forking out $3500 more in tax compared to when Jim Chalmers became treasurer”.

Much of that lift is due to wages going up. Your wage rises, you pay more tax.

But $1500 of that increase is due to the end of the Coalition’s low- and middle-income tax offset (known in tax circles as the lamington).

Peter Dutton revealed the mortgage tax deduction policy at the Liberal Party launch on Sunday.Credit: James Brickwood

In early 2022, as the Morrison government contemplated its political mortality, the lamington, which had already been extended by one year, was super-sized to $1500 – on top of a $6 billion in fuel excise cuts.

Together, they pumped almost $18 billion into an already inflation-afflicted economy.

The government was warned by commentators that this cash splash would be inflationary. They were correct.

It was bad economic policy then.

The lamington finally ended in 2023, the single largest tax increase most Australians have ever faced.

Now, the lamington could be reheated.

If elected, Dutton has already said he would “review” the fuel excise cut when it ends, while the Coalition would be under extreme pressure to continue its “cost of living tax offset”, pushing up by $1200 the tax bill on 10 million Australians.

Across all three policies, there was no mention by either major party of how the policies would be paid for. Even Labor’s $1000 standard tax deduction – a solid policy first proposed in the Henry tax paper in 2010 – didn’t come with a full accounting of how it will hit the budget bottom line.

From inflation to the budget, April 13 will go down as a very costly day for taxpayers – both now and in the future.

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