The first Albanese budget and those tax cuts

Since the welcome change of Australia’s federal government in May, few, if any, political topics have been written and spoken about more than what is known as ‘the stage 3 tax cuts’. With the new government scheduled to introduce its first budget on 25 October, discussion of those tax cuts has become quite febrile, amid heightened expectations of a definitive decision. Will they be dumped, or at least amended? Or will the government be too scared of an electoral backlash to break their pre-election promise to leave them in place?

The tax cuts were legislated in 2018 and are due to take effect in July 2024. There are two main reasons why, four years after they became law, there is so much interest in the fate of the tax cuts.

Firstly, the cuts will give a lot of financial benefit to a small number of Australians whose income is already very high, and much less benefit, on a pro rata basis, to Australians whose incomes are about average or less (see this report by The Australia Institute). This is not what a Labor government would normally aim to achieve; the opposite in fact.

Secondly, the fiscal and economic circumstances have deteriorated markedly since 2018. The new government inherited a massive debt from its predecessor, with little prospect of that being reduced significantly any time soon. So, the cost of the stage 3 tax cuts – more than $200 billion over the first decade – now looks foolishly profligate. Meanwhile, inflation and slow wage growth are combining to push more households into dire financial straits. To help rich people through tax cuts when so many other Australians need help just to put food on the table looks plain wrong.

So, why wouldn’t the new government use its imminent first budget to foreshadow legislation to rein in the cost and improve the fairness of the proposed tax cuts? I am just one of the majority of Australians who would welcome that. I am also one of many who began to believe as recently as last week that the move was on – I said as much to Maggie – only for the week to end with a definite ‘it’s not going to happen’ slap-down from the Prime Minister.

My disappointment was assuaged somewhat when I read Sean Kelly’s analysis of what took place over the course of last week, which he characterised as even longer than the proverbial week in politics. You can read his column, published in The Age newspaper, here.

One of the characteristics of our new government, one to which we are adjusting slowly but happily, is that most of its senior ministers speak about challenging topics in a way that is not designed to feed the unquenchable thirst of professional journalists for ‘sound bites’ on a daily basis.

The Treasurer, Mr Jim Chalmers, is the leading exponent of this approach, which is in stark contrast to how ministers in the Morrison government behaved. In the Treasurer’s case, he understands that, in order for the Labor Government to do all the things over the next few years that it believes are essential for the nation’s well-being, it will have to persuade a majority of Australians to accept the need for government revenue to increase. And that requires a sustained and disciplined conversational process.

So, it might have sounded like there was going to be a decision about those tax cuts but that wasn’t the point of him talking about the imminent budget in terms of being ‘responsible’ and ‘fair’, or mentioning the need for a conversation about how we pay for what we want. (I pause to note that many of those who appear on my Twitter timeline have been much quicker to recognise and accept the change in the manner of discourse. Hoo-bloody-ray we say!)

Anyway, back to the budget and those tax cuts.

There are at least two main ways of looking at a budget handed down by a government. Obviously, it is a statement of expected expenditure and revenue for a period of, typically one year plus four ‘out’ years. This includes the array of assumptions that underly the financials.

Secondly, the budget is a political statement. It purports to reflect and articulate the government’s priorities, both specifically and by the use of themes and catch-phrases. I have been well aware of this way of interpreting a budget since the late 1980s, when one of my jobs in the Premier’s Department of my then home state was to prepare booklets and newspaper inserts that waxed lyrical about the state budget’s many virtues (and studiously ignored its few shortcomings).

For a new government, especially one that attracted an historically low primary vote at the election, it is imperative that the positive political impact of its first budget is optimal. The last thing it wants to do is give its opponents, rabble that they are, an opportunity to score political points of their own – think ‘tax increases’ and ‘broken promises’ – and generally create a smokescreen to cloud the electorate’s view of the budget’s strengths.

That is not a good reason to avoid amending those tax cuts but it is a very good reason to defer that decision until a time that is more advantageous politically for Labor.

Unless the government ends up disappointing the likes of me, I intend this to be my last word on those tax cuts. Let’s talk about something else!

Cheers for now
Rick Grounds

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About rmgtravelsandfood

Maggie and I are both in our late 60s and live in Melbourne, Australia. This blog is devoted to our shared passions for travel and fine dining at home. Recently, I added Australian politics to the scope of the blog, inspired by the election of a Labor Government at a national level. Rick Grounds
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