With parliament back in session for 2024, the Albanese government has introduced its controversial stage 3 tax cut overhaul to the House of Representatives, intending for the changes to take effect on July 1. Marketed by the government as a “cost of living tax cut” to middle Australia who has been hit hard by increased interest rates and prices, the relatively small change to a tax code unreformed for decades is emblematic of how politically toxic discussing tax has become for the major parties. Fundamental debates, like the one Keating and Howard had over the GST over 20 years ago would be unheard of today. The Australian tax code badly needs reform, but it may take a crossbench push to achieve it.
It’s undeniable that the Labor shift on stage 3 is a purely political judgement. Tax has traditionally been a politically dangerous issue for the Labor party in government or in opposition. The introduction of a carbon tax by the Gillard government brought on a coalition scare campaign which was partially to blame for the election loss in 2013. Similar Murdoch media scare campaigns were directed at Bill Shorten’s attempt to reform negative gearing and franking credits in the 2019 federal election. As even small changes to tax policy are complex and difficult to explain to voters, it is all too easy to misrepresent or poke holes in them.
The current federal budget surplus of $22.1 billion is misleading. The 2023 Intergenerational Report, which makes long term projections about the Australian economy, argued it would likely be the last budget surplus in 50 years. The current artificially inflated commodities market and higher than expected tax revenue hides foundational flaws with how and where government revenue is coming from.
Simply cutting spending is not an option. The cost of the NDIS, aged care, health, and defence is expected to balloon in the coming years with total federal spending reaching more than 27% of GDP, up from 25% now. However, there is a lot of waste in the current budget. Subsidies to the fossil fuel industry could be redirected to renewables or cut altogether, which would save $11.6 billion a year. State governments have also negotiated favourable tax agreements which could be rolled back. WA has the best budget position in the country but has a special deal on GST which costs the federal government $5 billion a year. States have also increasingly used the NDIS as a way to cut other disability support services to save money. Better sharing of the burden of services like the NDIS could lead to billions more of savings.
The government also needs to examine a broad range of new revenue sources. One of the simplest things the government could do is reduce capital gains tax exemptions and reduce negative gearing deductions which will cost the budget a combined $157 billion in the next decade. The introduction of a resource super tax, something introduced by Gillard and Rudd but repealed by Abbott, is another enticing option. Most other nations that rely on commodities, like Norway, have profit taxes and they would be charged on top of royalties which have not kept up with the increase in commodity prices. The government could also expand its existing commitment to reduce superannuation tax concessions on accounts with high balances who’s owners already have the means to retire. More blunt measures could include the introduction of a direct carbon and inheritance tax.
Albanese has given himself a smaller target with the stage 3 tax cut changes. The narrative that times have changed and therefore more needs to be done to help Australians is hard to dispute. With a byelection in a mortgage belt seat in early March, the strategy becomes clearer. The simplicity of the message seems to be working. Internal Labor polling, as well as independent surveys, show about 66% of voters supporting the change including 53% of Coalition voters with less than a quarter opposing them. While the changes shift the budget pressure to higher income earners, the policy will still cost the budget an estimated $20 billion a year.
Labor has also placed the Coalition in a political bind. As Dutton has consistently attested that they are the “party of lower taxes,” voting against the Bill would go against party room principles even if it is a rebuke to the Coalition’s initial version of the policy. Dutton also wants to avoid Labor having to negotiate with the Greens who hold the balance of power in the Senate, when the Coalition votes against government policy. The Greens want the tax cuts scrapped entirely. With Dutton signalling last week that the Coalition will support the change even if their amendments failed, it’s likely the Bill will move through the Senate quickly.
However, this political bind has meant the Coalition refuses to debate or engage with the policy on its own merits, but rather defer to a ‘broken promise’ narrative, sidestepping the tax issue altogether. While it is fair to question the breaking of an election promise, the media’s pushing of this narrative further stifles future discussion about tax reform. Headlines like “PM’s tax on trust,” in The Courier Mail and “He’s now a liar-bility,” in The Daily Telegraph frame midterm policy shifts as inherently flawed no matter how the context has shifted. As some commentators have rightfully pointed out, when Abbott and his treasurer Joe Hockey broke multiple promises in the 2014 budget by cutting Medicare and defunding the ABC, most media organisations hailed them for being fiscally responsible.
With neither major party willing to stomach a public debate about the merits of tax reform, the crossbench in both the House and Senate has attempted to start the discussion. Independent Senators David Pocock and Jacqui Lambie have called on the government to review negative gearing. Pocock noted that “it’s arguably easier to buy your second house than your first house,” because of the tax concessions on investment properties. Labor has rebuffed those calls even though the same argument that is being made about the tax cuts could be made about the current housing crisis. House prices and rents have skyrocketed since 2019. If there is any context where the calculus for negative gearing has changed, it’s now.
Teal Independent Allegra Spender has gone further. She hosted a tax summit in March 2023, inviting former Treasury Secretary Ken Henry alongside other tax experts in the academic and corporate sphere to put together a Green Paper by the end of 2024. Spender nailed the problem when she was critical of the “piecemeal approach” to tax reform that has been the standard for decades.
If her persistence does not shift the current major party apathy, however, its likely her Green Paper will suffer the same fate the last full review of the tax system suffered. Commissioned by the Rudd Government, released in 2010, and led by Ken Henry, the Henry Review made 138 recommendations to overhaul the tax system. The Rudd Government only accepted three, a mere 2% of the changes deemed necessary.
Until Labor and the Coalition are brave enough to have a genuine debate about significant changes to the tax system, the reform will likely remain piecemeal. The media and voters have a crucial role to play. Until Australia acts like a genuine representative democracy and allows politicians the wide mandate to discuss significant policy changes, we will continue to experience the timid political games we have all witnessed around the stage 3 tax cuts.
