Why Labor can’t afford to ditch stage three tax cuts

Large sections of the commentariat may rightly regard the stage three tax cuts, legislated to commence on July 1 2024, as regressive, unhelpful to low- and middle-income earners, and fiscally reckless given the budget deficits locked in by the Coalition when Scott Morrison permanently expanded the size of government in Australia.

But the idea of Labor ditching them is so profoundly toxic that it is impossible for the government to contemplate for a moment. This is a party still traumatised by the way Tony Abbott crucified the Gillard government over its perceived broken promise regarding a carbon tax. That wasn’t even an actual broken promise. This would be a full-blown breach of faith with the electorate, for which voters would be entitled to feel misled and dudded.

Don’t think a Dutton-led opposition — irrelevant, disunited and ineffective for the moment — wouldn’t seize on it with the enthusiasm of Tony Abbott seizing on a lie about the effect of a carbon price. Some of the same liars — like Barnaby Joyce of the $100-leg-of-lamb fame — remain in Parliament. And News Corp remains News Corp, ready to run a propaganda campaign against Labor. The 2025 election would become a referendum on the tax cuts.

Labor won’t even contemplate adjusting the timing or delivery of the cuts. Paul Keating tried that with his L-A-W tax cuts — bringing half forward a year and paying the other half in super — and copped a hiding for it.

Ditching the tax cuts would also play to the Coalition’s standard line that Labor is the party of higher taxes. As Crikey has repeatedly explained, the Coalition is the party of big tax and has always been. In terms of tax to GDP, Malcolm Fraser and John Howard increased taxes from levels inherited from Whitlam. John Howard and Peter Costello pushed taxes up from the levels inherited from Hawke and Keating. Kevin Rudd and Wayne Swan presided over cuts to tax to GDP. After returning to office, the Coalition increased tax to GDP yet again until the pandemic. Still, press gallery journalists and voters assume the opposite is the case.

And even with the 2024 tax cuts, the Coalition planned to push tax to GDP back up — back to the high levels of the years right before the pandemic, at nearly 23% of GDP. The only sign of the $15 billion impact of the cuts is that the overall tax take is forecast to rise in 2024-25 slightly less briskly than the years either side.

There’s also a basic question once you start breaking promises — why break this one and not another? For the solution of the problem of how to pay for a permanent increase in the size of government, why not a windfall profits tax on fossil fuel companies first? Labor didn’t explicitly rule one out, though it did confine its tax reform promises to the ever-popular multinational tax issue, suggesting everything else was on the table. There’s a far stronger equity and environmental rationale for taxing fossil fuel companies for making a fortune from our resources.

Some observers understand that Labor could never commit to reversing the tax cuts from opposition. But they argue that with the government having the advantage of incumbency, and the capacity to shape debate, it’s time to put these unsustainable tax cuts up for public debate.

But public debate in Australia isn’t some pure contest of ideas held in good faith between reasonable participants. It’s instead infested with vested interests, malicious participants, propaganda and misinformation. This isn’t the mid-’80s when the Hawke government could mull multiple tax reform packages in public.

If only it could put a tax on bad faith, we might get somewhere.

This article was first published by Crikey.