The Stage 3 tax cuts are dead, long live the Stage 3a cuts

Repost from December

Albanese has finally reshapred Morrison’s regressive Stage 3 tax cuts. Fittingly, this is happening just as Morrison leaves Parliament. Apart from cheering, I don’t have anything to add to what I wrote in December

‘Progressive’ Labor is dead — supporting stage three tax cuts is pointless

The public won't reward Labor for sticking to an election policy when its multi-term strategy has failed across the board.

In his piece published yesterday, Crikey‘s Bernard Keane makes the case that if Labor fails to deliver the stage three tax cuts, it will derail its strategy of offering “competent, predictable government that voters will reward over the long term”.

As he observes:

Under Albanese, Labor has ditched a risky, ambitious agenda for a cautious, centrist economic management model aimed at achieving multiple terms in government and making reforms a permanent part of the fabric of Australian life — more Medicare than carbon price. The selling point to voters is stable, competent government that provides certainty and delivers for working families

So far, so neoliberal. As a reconstructed former neoliberal, Bernard might have observed the extent to which the thinking of Prime Minister Anthony Albanese and Treasurer Jim Chalmers was formed by the 1990s and early 2000s. This is reflected in Chalmers’ comparisons to the Howard government and reference to Tony Blair as a personal hero.

But neoliberal or not, Labor’s strategy has already failed. It rested on doing a better job of implementing the previous government’s policies while raising living standards, implementing just enough progressive reforms to build the case for more active policy in the (putative) second and subsequent terms. The most notable examples were to be the Voice to Parliament, the Housing Australia Future Fund (HAFF), and the National Anti-Corruption Commission (NACC).

Labor has failed to deliver on both fronts. We are finally seeing some growth in real wages, but most working families will have lower real incomes by the next election than when Labor came to office. The Reserve Bank, freed of any remaining constraints by Chalmers, is determined to ensure this. The “cost of living” crisis is not that prices have risen but that wages have failed to keep pace.

The situation is even worse when taxes are taken into account. Although Scott Morrison is often derided as a fool, his tax reform strategy was a political masterstroke. The benefits to low- and middle-income earners in stages one and two locked Labor into supporting the entire package.

Having won office, Labor has had to implement effective tax increases for most workers — through bracket creep and the expiry of the low- and middle-income earners (LMITO) tax offset — to save up for handouts to high-income earners. The end of LMITO alone is more than enough to offset the $20 billion or so of “cost of living relief” trumpeted by the government and its media supporters.

The reform component of the strategy has also failed. The LNP sunk the Voice, the Greens took the housing issue and showed HAFF for the sham it was, and Labor’s persecution of whistleblowers highlights that legislating a NACC will make no real difference. The failure of these reforms was not a matter of bad luck: it reflected fundamental failings in Labor’s strategy and Albanese’s understanding of the political situation.

The prime minister assumed that Labor, having achieved a majority of seats in the House of Representatives, had a “mandate” to implement its program, despite receiving less than a third of first preference votes. But as the US saying (popular when prices were much lower than today) has it, “that and a nickel will buy you a cup of coffee”. A lower house majority gives Labor the capacity to form a government but not to pass legislation through the Senate, let alone carry a referendum.

The Voice referendum was always a long shot, but Albanese’s mishandling of it ensured a crushing defeat. Referendums can only pass with bipartisan support, but the treatment of the Voice as a specific Labor policy gave the LNP every reason to oppose it, and encouraged Albanese to resist even the appearance of negotiation over the infamous “details”.

Labor’s approach to housing policy showed the same hubris. But even more importantly, it was crippled by the commitment to the stage three tax cuts and debt reduction. These constraints meant that the program had to kept small and off the budget books. So instead of a program for public construction of social housing — seen as a high priority by most Australian economists — we got an off-budget fund.

HAFF was touted as a $10 billion fund that will “provide disbursements used to deliver 20,000 new social and 10,000 affordable homes over five years”. In reality, the fund was supposed to use borrowed money to invest in shares, then use the profits (average value $400 million a year) to support housing. At current costs, that would be enough for around 1,000 homes a year, but the plan wasn’t to build houses but to provide a modest subsidy. Even accepting the dodgy accounting, 30,000 homes over five years would have been nowhere near enough to impact Australia’s housing crisis.

The bogus HAFF scheme crumbled as soon as it was exposed to scrutiny. The Greens took ownership of the issue of rental housing and extracted commitments of billions of dollars in direct public spending before letting an amended version of HAFF through Parliament.

As the opinion polls are confirming, Labor’s multi-term strategy has been a comprehensive failure. Without a new tax policy, the question isn’t whether Labor will retain (let alone expand) its majority but whether it will get a second term at all.