Liberal moderate Bridget Archer says the federal treasurer, Jim Chalmers, and the finance minister, Katy Gallagher, are right to be questioning the stage-three tax cuts, declaring governments have “got to have an open mind if circumstances change”.
With Labor divided over whether to keep, delay, amend or axe the Morrison government’s stage-three cuts in the October or May budgets, Archer said the Albanese government needed to craft policy responses relevant to the times, rather than be hamstrung by perceptions about broken election promises.
“We are now several years down the track from when that [stage three] decision was made,” the outspoken Liberal told Guardian Australia.
“We’ve had a global pandemic, things have changed, it seems sensible to me that policymakers should be making policy with an eye on the circumstances of the time.
“If the facts change from what you thought or expected them to be it’s OK for you to change your mind too. Maybe we need to go in another direction or find a path down the middle.
“A pragmatic solution might be: look maybe this is not the right time for this given everything else that is going on, so maybe we delay by 12 months and review it at that time. What’s wrong with that? But somehow we get into a situation where if you do that, it’s the wrong thing because you’ve broken a promise. It’s nonsense.”
Archer’s comments echo a view expressed by veteran moderate Liberal Russell Broadbent in late August.
Broadbent told the ABC: “When things change, we should change. The world has turned on its head since the tax cuts were introduced. So people like me don’t need tax cuts.”
The stage-three cuts were introduced by the Morrison government and are scheduled to come into effect in July 2024. The changes create a 30% flat tax rate for anyone earning between $45,000 and $200,000. Flattening the tax scales would cost the budget $244bn over 10 years – with the benefits flowing predominantly to higher-income earners.
Labor ultimately backed the stage-three tax cuts in opposition and committed to delivering the package as legislated during the run-up to the May election. It maintained that commitment in the opening months of the new government.
But over the past week, Chalmers and Gallagher have prepared the ground for potential changes in either the October or May budgets.
Both ministers say there has been no change to Labor’s position at this point, but have suggested the deterioration in the global economic outlook is one factor guiding current decision-making. Another is ensuring fiscal and monetary policies are working in tandem to reduce inflationary pressures.
The kite flying from Chalmers and Gallagher has prompted public debate among colleagues about whether it is more important to tailor policy to current conditions or to abide by commitments made during the election campaign.
There were discussions under way across the government on Wednesday. Some Labor MPs insist the government must keep its election commitments and to do otherwise would incite a voter backlash. Others say voters understand the change in economic conditions – including the risk of a new global economic downturn – and will set a higher premium on service provision than tax cuts.
The British government this week abandoned a contentious mini-budget proposal to scrap the 45% top-tier tax rate for those earning more than £150,000 a year and lower it to 40% for everyone earning more than £50,270 on the argument that cutting tax would be growth enhancing. The unfunded tax cuts spooked the financial markets and the proposal was scrapped after an internal revolt.
Sally McManus, the secretary of the Australian Council of Trade Unions, will use a speech on Thursday to argue the case against the legislated tax package, saying the Conservative party in the UK had provided a “precautionary tale of the effects of massive tax cuts for the rich during a period of high inflation”.
“We shouldn’t make the same mistake,” McManus will say, according to a draft copy of her speech to be delivered at the Australia Institute’s revenue summit.
“Good policy is having an open and honest national conversation about the problems we face and providing leadership to find the best solutions. It requires adaptation to changing circumstances and it means involving the voices of the Australian community in all its diversity. What do we actually want – better services for all and cost of living relief for those who need it or more giveaways for those who do not?”
McManus said the stage-three tax cuts were “grossly unfair”.
Chalmers told reporters on Tuesday: “I will always put the right economic outcome above a political outcome, I will take a difficult decision if it’s necessary working with my colleagues, because these are difficult times and people should expect a solid budget, they should expect a considered budget.”
Gallagher on Wednesday told the ABC the government was looking at the deteriorating economic context internationally and pressures domestically as it finalised the October budget.
“Let’s not pretend that the economic circumstances aren’t changing and haven’t changed since May,” the finance minister said.
