Two of Australia’s best known and wisest voices on the economy say conventional wisdom about politics is bunk and are calling on Anthony Albanese to break a promise and raise taxes.
Former RBA governor Bernie Fraser and the ex-head of the Australian Competition and Consumer Commission (ACCC) Alan Fels are among 100 economists backing a call to dump the stage three tax cuts.
Labor had promised to keep the cuts, which will hugely advantage the wealthy.
The economists’ call will give the Prime Minister and MPs something to think about over summer.
And it’s clearly not a debate for the dispassionate.
Let’s be honest
“The cuts are strikingly inappropriate,” Professor Fels says.
The cuts, which would take effect after the next two budgets if not scrapped, offer a smidgen to those on lower incomes but nearly half their planned benefit is concentrated on the 3.7 per cent of the population on salaries of $180,000 or more.
But as a group of about half a dozen Labor MPs said when they thought he might be preparing to dump them: The PM has often sworn publicly that he would keep them.
Scott Morrison artfully wedged Labor into passing them through Parliament by stapling them to policy for reducing taxes on low and middle incomes (stages one and two).
“Really, let’s be honest about this: They didn’t say they would support the tax cuts because they thought this was a great social reform,” Mr Fraser says.
“I can’t regard it as a serious commitment, compared with the commitments that have been made to improve an older person’s health care or child care.”
Polling from the Australia Institute, the progressive think tank whose call they’re counter signing, suggests Mr Fraser and Professor Fels are not alone; ditching them (41 per cent) was favoured by nearly twice as many economists as keeping them (21 per cent).
“I think the electorate has a subtler understanding and know that he (Albanese) wasn’t promising no change whatsoever after the election,” Professor Fels said.
“I thought [John Howard fighting an election promising a new tax with] the GST would be suicidal.
“Keeping (tax cuts) during inflation would be irresponsible, but there’s an emerging crisis in our public sector over expenditure.
“There needs to be significant tax reform and higher taxes as part of that.”
Change is coming?
The cuts would take $250 billion out of the budget over the next decade, just as the government was acknowledging a structural deficit (we take in less than we spend and the gap is widening with big increases looming in the NDIS and defence).
One well-placed Labor MP said they expect caucus to move on the cuts, but not while the government is still setting its agenda.
Labor MPs hate them but everything in politics is a choice and that goes for choosing not to act too, they said.
But Mr Fraser is – who knew? – not as inclined to be patient.
He says it’s a different broken promise he thinks of: Bob Hawke’s unfulfilled vow that no child would live in poverty by the end of the ’80s.
“And what happened? There wasn’t enough money,” he says.
The pandemic has happened since Labor’s promise was made to keep the stage three tax cuts, he says, and should be a similar spur to change course because it has hit poorer Australians much harder.
“It’d be a pity if all that revenue that would be saved by that change were to go to relatively well-off people and be spent on personal consumption,” he said.
“The sooner they grab the bull by the horns and say ‘look, we’re going to renege’, if you’d like to call it that, the sooner they can start planning reforms,” Mr Fraser said.
“Say: We’re going to redirect this to challenges – to more worthy projects.”
