Extract from ABC News
It was a very different world in July 2019.
Scott Morrison's Coalition had just won an election against a Labor Party proposing radical tax change.
Economic growth was plodding along below its long-term average of around 2.75 per cent. Wages growth was stagnant. There was rising underemployment.
In that "never satisfied" way of politics and economics that sounds a little weird to 2023 ears, the inflation rate at the time of just 1.3 per cent was seen as a bad thing: a sign of the sluggishness of the economy, not just here but around the world.
The new opposition leader, Anthony Albanese rose to speak in the House of Representatives on July 2, 2019, to debate the legislation for the Morrison government's staged tax cuts, proposed before the May election: tax cuts which would be delivered in three stages between 2019 and 2024.
Labor wanted to pass the first two rounds of tax cuts — but bring the second one forward three years — which would deliver relief to lower income people, but not pass the stage 3 proposal.
"We on this side of the house are talking about bigger tax cuts sooner," Albanese said
Stage 3 was the most expensive and radical change. They have been widely criticised for their gigantic cost and their inequity — the fact they deliver a $9,000 annual tax cut to people earning over $200,000 a year but very little to those on average incomes.
The Opposition would eventually blink and agree to the stage 3 cuts and go to the election promising to deliver them.
Whether that now will — or more importantly should — happen is the biggest question facing a government which is confronted by a sullen electorate facing a squeeze on the cost of living.
A big change in economic variables
It is indeed a very different economic world now to that of July 2019. Economic growth is forecast to be even weaker than it was in 2019 — just 1.75 per cent. Inflation is forecast to fall from 6 per cent to 3.75 cent.
The other thing that has changed is the budget position: the wafer thin "back in black" surpluses promised in 2019 rapidly turned to dust in the wake of the spending unleashed in the early months of 2020 to stave off the economic impact of the pandemic.
This week's mid-year review is now forecasting a wafer thin deficit in 2023-24.
However, Labor actually produced a surplus last financial year, and the forecasts in the budget look for all the world like they could turn into surpluses by the time the forecasts are revised again in the May budget.
And while the government gets little credit for it, Jim Chalmers and Finance Minister Katy Gallagher have overseen cuts in spending of just under $50 billion since last year's election, and banked rising tax collections to the bottom line, too.
All this change in the economic variables means the stage 3 tax cuts should be seen through a very different prism six months before they are due be delivered in July next year, compared to the way they were seen in 2019.
Their cost is still massive. But the mid-year budget figures Chalmers and Gallagher released this week — showing the budget getting close to balance in each of the next four years, despite the pandemic and factoring in the cost of the tax cuts — somehow reduces their fiscal spectre.
The real political danger — and the political opportunity — that now confronts the government is that as nominal wages rise, the very issue that the stage 3 tax cuts were supposed to address is coming into play: bracket creep.
The breaking of promises problem
That is, as nominal wages rise, people on low to middle income earnings are finding themselves either pushed into higher tax brackets or about to confront higher tax bills, as the stage 1 tax "cuts" — which were in the form of a temporary tax rebate known as the low and middle income tax offset (worth $1,080) — has been abolished. Even with proposed tax cuts, many households will be worse off.
The debate about the stage 3 tax cuts has snaked around since 2019 through the issues of equity, and cost, whether or not the money could be better spent in some other way, and whether they would be inflationary.
The issue that now confronts Albanese and Chalmers should be whether the foregone revenue allotted to the tax cuts should be reallocated to give more tax relief to those on lower incomes who have been squeezed by rising interest rates and inflation.
Lots of tax experts have proposed changes of tax scales and brackets to achieve this.
With the economy slowing and inflation falling, the upside of tax cuts going to people who need them for day-to-day living rather than people who may save them or splash them around would seem to outweigh the downside.
The prime minister has made it an article of faith that he doesn't break promises.
And it is generally a bad idea. Commentators point to previous episodes like Paul Keating's LAW tax cuts or the campaign against Julia Gillard on the misleading basis that she had promised not to introduce a carbon tax, but then did so.
But the LAW tax cuts involved stopping getting money in the hand that had been promised — the money was instead diverted into superannuation which people didn't see in their pockets.
The current government has the opportunity of delivering more largesse to taxpayers immediately upon making the announcement — an outcome which would, you'd think, rather ameliorate suggestions of a broken promise.
The 'story' of Chalmers' third budget
The year is finishing with the government struggling and needing a reset.
Chalmers was continuing to say this week that the government's position on stage 3 tax cuts had not changed.
But an answer to one question in a flood of media appearances after the mid-year review was released suggest the treasurer still wants to give himself some wriggle room.
Asked, given the cost-of-living pressures, if he was considering any extra tax relief to low and median income-earners separate to the stage three tax cuts, he said:
"That's not something that I'm prepared to flag or something that we have been working up. But … if we can do more for people, whether it's in the tax system or more broadly with some of these other initiatives which are working to put downward pressure on inflation, obviously we consider that from budget to budget."
He added: "That's not unusual to factor in the economic conditions, the budget pressures, the pressures that people are under to try and do the best for people. That's the story of our first two budgets and that will be the story of our third as well."
And, of course, that will be a third budget handed down just that much closer to the next federal election.
Laura Tingle is 7.30's chief political correspondent.
No comments:
Post a Comment