Anthony Albanese didn’t leave behind his political heat detector kit when he dismounted the last campaign bus of his successful May election bid – which is why as prime minister he knows he is heading into a scorcher.
Albanese this week gave unadorned confirmation he will install a stark national tax division, a fiscal fissure he regrets but says he can’t retreat from.
The threat comes from stage three of the Morrison government’s tax cuts, which in a few years – unless legislated out of existence – will benefit the wealthy over the strugglers, and men over women.
Further, Albanese is risking funds for his own policies to deliver Morrison’s. Revenue foregone in tax cuts can’t be spent on Labor’s preferred projects.
The total cost of the stage three package will be $243.5bn – between 2024-25 and 2032-33 – at a time when the Albanese government says it can’t afford its own full wishlist.
The bulk will go to those earning more than $180,000 a year. And because of the gender pay differential, more men than women will clean up – $160.6bn versus $82.9bn by one independent calculation.
Albanese, a man on $560,000 a year plus expenses, would be a prominent stage three winner. So would all members of parliament as they have a base pay rate of $217,000.
That ploughs fertile ground for conspiracy theorists to accuse politicians of looking after themselves ahead of ordinary punters.
The handout for the wealthy means it is some distance from being a pure progressive tax scheme.
It is difficult to believe Albanese will allow a tax regime that contradicts his political priorities to survive. But at the moment he claims he can’t stop it.
The legislated cuts are a product of former primer minister Scott Morrison’s apparent belief that reducing tax on big earners would encourage lower income people to earn big, a theory which doesn’t survive practical examination.
More clearly, Morrison wanted to politically discomfort the then Labor opposition, hoping it would fight tax relief. He wanted voters to see a contrast between his massive reductions and Labor’s policy at the 2019 election to increase tax by removing hefty concessions.
“We took that (stage three cut) to the election, the Australian people supported us, we made it law, it’s law now,” Morrison said in October 2020, daring Albanese to say he would dump it should he win government.
To add to Labor’s discomfort, Morrison handcuffed the tax cuts for the rich to modest reductions for lower income earners – stages one and two. Labor had to vote for the entire tax package or rob those lower income earners of any benefit.
Albanese said in the May election a Labor government would not scrap stage three. Now he is sticking to that and branding it a demonstration of integrity – a politician keeping an election promise.
He also argues proceeding with the cuts would reinforce fiscal certainty – protecting stability.
But any voter gratitude for integrity and tax certainty could disappear when Labor programs are frustrated by a lack of cash, and inequities become obvious.
The treasurer, Jim Chalmers, this week said the 25 October budget will offer cost-of-living relief, including as a centrepiece extra funding for childcare – “a gamechanger” – and help with the cost of medicine and “getting wages moving again”.
But there also were blunted spending aspirations such as for 26 weeks parental leave, which Chalmers said he would introduce “if I can find a way to pay for it”.
“We’ve been pretty up front with people – I think you’d agree – about our capacity to fund much beyond that given the budget circumstances that we’ve inherited,” Chalmers told ABC radio on Wednesday.
That inheritance includes a government debt of close to $1tn, a growing defence bill, and the stage three tax cuts.
In the lead-up to the budget the imbalances in the tax changes will become more familiar to voters, will further agitate outspoken crossbench MPs, and will heighten the political embarrassment and pressure on the government.
One moderating option would be for the budget to continue the low and middle income tax offset, a pandemic measure which was stage one and has expired.
If it is not extended by the budget, wage earners such as teachers, nurses and midwives will be paying $1,080 more in tax.
But that measure would not come anywhere near the windfall for the well-to-do.
Earn less than $45,000 and the stage three cuts have nothing for you.
But in 2024-25, the year the changes are set to start, the top 1% of earners would get a $1.4bn tax cut – the same benefit given to the lowest-earning 65% combined, says an analysis by the parliamentary budget office commissioned by the Greens.
By 2033, the top 20% of earners would get nearly $188bn of benefit, more than 77% of the total package, according to the budget office analysis.
“The stage three tax cuts also mainly go to men. Men get 67% of the tax cuts while women get 33%,” said Richard Denniss, the chief economist at the Australia Institute.
That’s because men earn more than women, and it means that for every dollar of tax cut going to women, men get $2.
“The stage three plan not only fails the pub test, it’s bad economics,” said Denniss.
“Low and middle-income earners are more likely to spend their tax cut back into the economy, creating jobs and growth, while the highest income earners are more likely to stash the additional cash away.
“This plan will increase economic inequality in Australia.”
The Liberal MP Russell Broadbent summed up the view that stage three was no longer relevant.
“The tax cuts we legislated in different circumstances should be thrown out. When things change, we should change,” he told ABC TV this week.
Albanese might do well to note that timing is everything in political history.
The stage three tax formula is a Morrison legacy, but if it goes ahead and is hugely unpopular it will belong to the Anthony Albanese prime ministership.
