Comment

Chris Wallace
The stage three tax cuts are Albanese’s turning point

After a protracted stasis, a cool breeze blew into national life this week.

Failed former prime minister Scott Morrison announced his departure from federal parliament and serving prime minister Anthony Albanese unexpectedly went “full Labor” on the vexed stage three tax cuts spending package, legislated to start on July 1 this year.

Labor’s recasting of Coalition tax cuts for the rich into a cost-of-living fix focused on “Middle Australia” was a turning point for this government. Lifting the Medicare levy threshold so many low-income earners paying it now won’t have to in the future was an unexpected bonus.

Just when everyone had pretty much given up on Albanese being willing to do something big, he did, transforming a regressive $21 billion tax handout into progressive economic and social policy.     

The redesign takes a package overwhelmingly skewed to benefit high-income earners, whose ranks are dominated by men, and applies it to the other end of the labour market, dominated by women, young people and other lower-income earners.

It puts money in the pockets of those who really need it and lifts the incentive and reward for them to work more in an economy crying out for workers.

It contrasts starkly with the original package designed by Scott Morrison as treasurer in the Turnbull government, which lavished almost all of the stage three cuts on already incentivised high earners.

Opponents accuse the Albanese government of the politics of envy, but what about the politics of fairness?

It would have been better to take the change to an election, to avoid crushing attacks on the integrity of the government and Albanese personally. Still, it’s better it happens this way rather than not at all.

The broken promise it represents to high-income earners means they will now get only a very large rather than an absolutely massive tax cut this year.

Morrison foreshadowing his departure for an encore career in (surprise!) consulting, just as one of his most regressive policy moves was reworked into something fair and economically effective, was fitting.

The Dutton opposition struggled to manufacture an air of crisis around Labor’s tax package redesign, but the logic and merit of delivering the tax cuts the fairer way Labor has proposed was overwhelming.

Treasury assessed the redesign as non-inflationary, revenue neutral and with positive impacts on workforce participation – crucial in a full-employment economy, where employers are scratching to engage enough staff.

This left the Coalition in its standard position – promoting the interests of the already well-off but from a more exposed place than usual.

Opposition Senate leader Senator Simon Birmingham coded his attack in terms of the evils of bracket creep, but Labor’s revamp eases bracket creep for vastly more Australians than just the highest-income earners lavishly attended to under the original stage three plan.

The deputy opposition leader, Sussan Ley, went further, rashly promising the Coalition would roll back Labor’s package in government. Marque Lawyers quipped on X that Ley had made “a solemn pledge to increase income tax for everyone earning less than $150,000 a year, while further reducing it for everyone earning more than that”.

Funny and literally true, but also an index of how detached from real life the Coalition has become. Ley’s line was so far out she had to walk it back the next day.

 

The government basked in its own MPs’ and supporters’ relief over this canny recrafting of the package to reflect Labor rather than Coalition values.

It re-energised caucus members bowed by the pounding low- and many middle-income earners are experiencing in the current cost-of-living crisis, on which they’ve been getting sharp feedback in their electorates for months.

They quietly celebrated with a sherbet at The Lodge on Wednesday evening, at the prime minister’s invitation and on the Labor Party’s tab.

It was relaxed and low key. Albanese was in a T-shirt and there were no speeches.

In a nice and possibly symbolic touch, two senior Albanese staffers, Paddy Batchelor and Mal Larsen, handed around the nibblies. Many MPs went on to dinner in their tribal groupings afterwards.

This week’s triumph of policy good over evil has not come easily. That it has come at all suggests the government is capable of significant leaps forward in a way supporters had almost given up hope of seeing.

To do this, Albanese, stubborn and hypersensitive to future leadership alternatives, had to become open to Treasurer Jim Chalmers’ long-held private view that something could and should be done about the stage three cuts.

This required Albanese to steel himself to face down the 100-plus hostages to fortune he created with repeated statements that fetishised promise-keeping over good government. Then Chalmers had to get over his sensitivity to caucus colleagues’ feedback that constituents were telling them they were struggling despite his “10 ways we are helping Australians with the cost of living” menu of assistance.

Chalmers had tended to suggest in response that this was a failure of political communication by those MPs rather than a real thing.

The polite pushbacks spurred a caucus request – at its final meeting in November – for Chalmers to meet with backbench Labor MPs worried about whether the government was doing enough for their struggling constituents.

Between then and this week, things came together.

With Albanese’s net approval rating cellar-dwelling around that of Opposition Leader Peter Dutton, and criticism over inaction mounting, the pressure on the prime minister to do something became acute.

Meanwhile, the economic data Chalmers was receiving backed up caucus feedback to which his ears had by now become fully open.

This included, for example, backbenchers relaying how emergency food organisations in their electorates had never seen anything like the demand they’re now facing, including, for the first time, from people who are actually employed.

“It does feel that this is genuinely about listening to the feedback caucus members are providing,” one Labor backbencher said on Wednesday, referring to the government’s change of stance.

The overhaul shaped between late November and this week shows Chalmers harnessing an in-form Treasury to great effect. The design of the revamped package that emerged really is good.

Earlier work in other portfolios from the time the government was elected set the scene for and contributed to that design.

Work commissioned by the minister for finance and minister for women, Senator Katy Gallagher, from the Women’s Economic Equality Taskforce she established, and which reported last year, is a key example.

The Sam Mostyn-chaired WEET recommended reviewing “the taxation and transfer systems with a gender lens to identify negative gender biases and examine options to address the high effective marginal tax rates (EMTRs) experienced by women”.

The gender lens is clearly evident in this government move and Gallagher had a proud moment herself talking about the package in Wednesday’s caucus meeting.

Chalmers mentioned women explicitly in his ABC Television 7.30 interview on Wednesday night, as did Albanese in his National Press Club speech.

Leading male ministers are mostly talking to their audience as though it’s an undifferentiated blob. Yet as the marketers say: if you don’t know who you’re talking to, you’re talking to no one.

Albanese and Chalmers made a start this week. They need to keep that up and other male ministers should take their cue. Making the Morrison mistake of thinking, speaking and acting like all voters are male tradies would be a dumb and electorally damaging mistake.

Labor people arguing this internally say the same logic needs to be carried over to young people, who are being picked off too easily by the Greens.

    

The government’s bold move this week makes the need for an Albanese-plus approach all the more urgent, featuring the government’s best ministers rather than the overly exclusive focus on the prime minister.

Amid Labor’s rejoicing at Chalmers’ stage three redesign and Albanese’s willingness to run with it, Labor hardheads haven’t forgotten that people believe what they hear most often.

Albanese is going to need his strongest colleagues to help him defeat the Coalition campaign set to run endlessly between now and the next election, which will say he is a liar and a welsher whose word, contrary to his claims, is not his bond.     

On Wednesday the prime minister asserted the primacy of doing the right thing over his word being his bond.

Luckily for him, media vox pops with voters midweek suggested people support the commonsense proposition underpinning the government’s policy shift.

Handing $21 billion a year to the highest-earning Australians and giving the rest none or, at best, crumbs during a cost-of-living crisis not anticipated at the time the legislation was passed doesn’t make sense, even to many Coalition voters.

Albanese followed a proper and respectful process to make the change, with cabinet meeting to discuss the package on Tuesday, caucus meeting to discuss it on Wednesday, and a public announcement of the full details in Canberra on Thursday.

This is how government is supposed to work. 

Paul Bongiorno is on leave.

This article was first published in the print edition of The Saturday Paper on January 27, 2024 as "Albanese’s turning point".

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