If the Labor Party wins today’s election, it will likely need support to pass its reforms from Centre Alliance, whose senators have vowed not to back changes to franking credits. By Mike Seccombe.

Exclusive: Labor tax plan faces block by Centre Alliance

An incoming Labor government may be unable to deliver on much of its ambitious reform agenda, with key senate crossbenchers committed to blocking the revenue measures that would pay for it.

Labor’s plans to hugely increase spending on health, education, childcare and a raft of other social goods hinge on achieving savings of $154 billion over a decade by reducing concessions to those it characterises as “the top end of town” – in reality, largely older, wealthy individuals.

Almost 60 per cent of that money, some $90.7 billion, would be raised through just two measures. One is reform of the system of share dividend imputation so that those who pay no tax would be denied cash refunds from government for “excess” imputation credits.

The second would change the provisions for negative gearing – which allow investors to offset losses on property against other income – so it would apply only to new properties, and also cut the discount on capital gains tax from 50 to 25 per cent. Those currently making use of negative gearing would be “grandfathered”, meaning the new rules wouldn’t apply to existing investments.

The two measures would save $58.2 billion and $32.5 billion respectively over the decade.

Labor claims a strong case on equity grounds for these and its other big revenue measures, relating to planned reform of the taxation of family trusts and superannuation concessions for high-income earners, in that all are loopholes that overwhelmingly benefit the rich.

They cite statistics to bear them out: only 10 per cent of taxpayers negatively gear property, and 70 per cent of all capital gains flow to the top 10 per cent of income earners. Just 4 per cent of people – overwhelmingly well-heeled self-funded retirees – benefit from excess franking credits. Likewise, only 5 per cent of superannuants on high incomes will be touched by the changes to super policy and only 2 per cent of taxpayers affected by the reforms to trusts.

In short, the Labor plan is to make the wealthy pay more for the benefit of the many.

Its problem is that the one near-certainty in this surprisingly unpredictable election is that even if it wins government, the ALP will not have the numbers it needs in the senate. Even with the support of the Greens, a majority is so unlikely as to amount to a miracle.

“Electoral miracles do occur now and again,” says Adrian Beaumont, of the University of Melbourne’s School of Mathematics and Statistics.

But the most likely scenario, he says, is that Labor and the Greens will end up with 36 or 37 of the senate’s 76 seats. That is, two or three shy of what is needed to get legislation through.

Those votes clearly would not come from the Coalition parties, whose small-target election strategy is the opposite of Labor’s both in scope and intent. It is largely focused on one big policy – massive tax cuts heavily skewed to high-income earners.

Nor could the votes be expected from the right-wing populist parties led by Pauline Hanson and Clive Palmer. Nor from Cory Bernardi, the sole senate representative of the Australian Conservatives.

That leaves a South Australian minor party, the Centre Alliance, as the likely holder of the balance of power. It has two continuing senators, Rex Patrick and Stirling Griff, and possibly will add a third, Skye Kakoschke-Moore, after this election.

But the Centre Alliance now has confirmed its opposition to Labor’s biggest revenue measure – franking credits – and is lukewarm at best about the second- biggest measure, negative gearing.

In the case of franking credits, this is a very recent development.

On Monday, when The Saturday Paper spoke with Patrick, he suggested his party might support the measure subject to grandfathering or the imposition of a cap on the benefits people could receive.

On Tuesday morning, Adelaide’s Murdoch paper The Advertiser carried a story in which Patrick also said CA was open to negotiation.

But later that day, we received a call from him, saying his earlier suggestion of compromise was no longer operative.

After “a bit of a chat” with colleagues, both the options he had previously suggested – grandfathering and capping – had been deemed “problematic”.

“So the party is of the view that if we said we were open to those things, it would be a bit misleading. We’re not supporting it,” he said.

Which is to say they would support favourable tax treatment for the wealthy over increased spending on childcare, education, hospitals, pensioners’ dental care, et cetera.

Assuming the party’s position does not change again – and there are reasons it might – Labor faces a $58 billion shortfall in the funds to pay for those things.

And probably more, for Patrick suggested the party was wary of the negative gearing changes too.

“We would like to see modelling on the effect on the rental market, what it would do to house prices,” he said. “Our normal routine is to deal with government legislation. After Saturday we’ll turn our minds to all the policies.”

It was put to him that given that the Centre Alliance would likely have the decisive senate votes on those measures, its opposition would blow a huge hole in Labor’s plans. He agreed.

He then went on at some length, unbidden, to justify such action against any claim that the Labor government would have a mandate to implement the policies with which it went to the election.

“The argument from government that ‘we have a mandate’ does not exist under the constitution,” he said. He later emailed a 20-year old parliamentary research paper to back his argument.

Clearly Patrick, if not his whole party, is acutely sensitive to the suggestion that by frustrating Labor’s ambitious and long-articulated agenda, they would also be frustrating the electoral will of the people.

Let us zoom out now, from the micro-focus on the alleged party of the centre in the senate, to the big electoral picture, which is not pretty.

The background to it is an electorate with historically low levels of trust in politics in general and a polarised environment that pits the detailed policies of the progressive forces against the vast spending power of the conservatives and a highly partisan media, particularly the Murdoch media, and pits dissatisfaction with the status quo against fear of the consequences of change.

The polls have long indicated that Labor will win easily. The pundits agreed, for the objective reality was a chaotic government engaged in internal conflict between its hard right and moderate factions, which had driven out its most saleable electoral assets, Malcolm Turnbull and Julie Bishop.

It had lost a number of its more competent and moderate people, such as Christopher Pyne, Craig Laundy, Julia Banks and, most notably, its rising star Kelly O’Dwyer, who quit the parliament after reportedly lambasting her party’s right-wing “ideological warriors” and saying the Liberals were widely regarded as a collection of “homophobic, anti-women, climate-change deniers”.

Several of the government’s senior people – Energy Minister Angus Taylor, Small Business Minister Michaelia Cash and Environment Minister Melissa Price – had to be hidden on account of scandal or incompetence. And leading the show was a man so evasive even his own party could not be sure which faction he belonged to.

Add to the mix flat wages, escalating cost-of-living pressures and growing public concern about climate change, and you might expect electors to be eager to remove a government that offers as a solution to all these concerns greater inequality, trickle-down economics and environmental inaction.

Yet as the country nears the finish of an election campaign that has presented the sharpest policy contrast in a generation, the outcome is far from clear.

One pundit spoken to by The Saturday Paper predicted a “Trump moment” on Saturday night, when all the polls and experts are proved wrong. Others continue to hold that Labor will romp home.

Statistician Beaumont has a bob each way, writing that “there’s a realistic chance the Coalition could win, but a Labor blowout can’t be ruled out either”.

Let’s canvass the options. If the Coalition wins government in its own right then Labor’s ambitious reform agenda is dead. Instead we will see economic redistribution towards the wealthy and little action on the great issue of our time, climate change.

A more likely outcome is that the government will prevail in the house with the support of minor parties and independents. The Coalition has a better chance of controlling a hung parliament because, with the exception of a couple of seats in Victoria where the Greens look competitive, most of the other potential crossbenchers are standing in what have traditionally been Coalition seats, as more progressive alternatives to the right-wingers they seek to supplant.

Given the choice between backing a minority Labor government or a minority Coalition one, the likes of Zali Steggall (if she beats Tony Abbott in Warringah), Kevin Mack (who stands a good chance of winning Farrer) and the Centre Alliance’s Rebekha Sharkie (odds on to beat Georgina Downer in Mayo) might be expected to favour the Coalition.

In that eventuality, we will likely see slightly stronger action on climate and the environment, and a push for such things as a federal anti-corruption commission, electoral funding reform and other more socially progressive policies. But they will not back Labor’s economic agenda.

The most likely outcome remains that Labor will win the house, and that there also will be at least one and possibly a couple more Greens MPs who are supportive of Labor’s agenda. Indeed, as one reminded The Saturday Paper this week, much of what Labor is offering, particularly on the revenue side, was first championed by the Greens. “Of course we’ll support them, they were our ideas,” he said.

The Greens’ Adam Bandt looks to have a lock on his seat of Melbourne and, according to the polls, the party is a chance to take two other Liberal seats in Victoria: Kooyong, held by Treasurer Josh Frydenberg, and Higgins, formerly held by O’Dwyer.

The possibility of the loss of two blue ribbon seats and, in Frydenberg, a potential future leader, and to maybe see Labor govern with Greens support, has the Liberals waxing hyperbolic.

Asked this week whether Clive Palmer was “fit to be in parliament”, former prime minister John Howard refused to pass judgement, other than to claim the Greens were “far more extreme than Clive Palmer or One Nation”.

At least he did not say they were as extreme as the openly racist Fraser Anning’s Conservative National Party, as Peter Dutton did in the wake of the Christchurch massacre.

Now, back to the senate where, as things currently stand, Labor and the Greens are four votes shy of a majority.

As Beaumont writes: “Effectively, that means Labor needs to gain four seats, as the Greens are defending seats in every state, and are very unlikely to win two seats in any state. The only possible gain for the Greens is in the ACT, but that would require the Liberal vote to fall well below 30 per cent.”

He can’t see where those extra votes might come from. Nor can Ben Oquist, executive director of The Australia Institute, whose most recent polling, out on Thursday, continues to show neither major party will have a senate majority.

It also suggests a few interesting movements at the margin.

One Nation has firmed to beat Clive Palmer for the final senate spot in Queensland. The Greens, too, have improved their chances, and now appear likely to hold all their seats. The Coalition looks more likely to defeat One Nation for the final spots in New South Wales and Western Australia.

But the big picture remains the same. Labor’s best-case scenario is 28 seats, and 37 with the Greens.

“It’s fantasy to think Labor and the Greens can get to 39,” says Oquist.

But he still thinks all is not necessarily lost for the reform agenda, which he supports.

“In general the senate is inclined to pass measures,” he says. “Crossbench senators have to be seen to be open to negotiation.”

Much will depend on the election result in the other house. If Labor were to enjoy a decent majority in the reps, it would greatly increase the pressure on the senate.

And it’s not hard to see how that pressure might be applied. Imagine Labor members telling their constituents: “Sorry, parents, but you can’t have cheaper childcare because the Centre Alliance has sided with the Liberals and the rich”, or saying the same to pensioners, in relation to their free dental care, or similar in relation to hospitals, schools, et cetera.

Bottom line: unless Labor is defeated outright at this election, a mighty battle looms in the senate, between private privilege and community benefit.

This article was first published in the print edition of The Saturday Paper on May 18, 2019 as "Exclusive: Labor tax plan faces block by Centre Alliance". Subscribe here.

Mike Seccombe
is The Saturday Paper’s national correspondent.