By PETER VAN ONSELEN, POLITICS AND ECONOMICS EDITOR, AUSTRALIA
Published: | Updated:
Jim Chalmers is hinting at more income tax cuts as Labor’s political position deteriorates.
Apparently, the government’s amazing financial management has created room for further relief.
How convenient that this becomes a selling point just when the government desperately needs something to sell.
The Treasurer is using the seventh Intergenerational Report to promote both his economic credentials and the prospect of a better Australia many decades from now.
Neither should be accepted as fact on his say so.
Let’s start with the Budget. Across the forward estimates, it is wall-to-wall deficits as far as the eye can see.
An improvement against an earlier forecasts is welcome, but borrowing less than previously expected isn’t the same as having spare money.
Tax cuts can still be justified. Workers deserve income tax relief, and reducing the penalty on effort should be a central economic objective. But permanent reductions need sustainable funding via spending restraint, other revenue or a credible combination of both.
Who knew! Apparently the Albanese government’s financial management has been so amazing it has room for tax cuts for voters
A favourable projection for the distant future doesn’t remove that obligation.
Nor should Chalmers receive endless credit for returning money collected through bracket creep. When nominal wages rise against unchanged tax thresholds, especially during times of high inflation, average tax rates increase even without an improvement in purchasing power. Giving some of that back is hardly extraordinary generosity.
Australia needs broader tax reform: an examination of how we tax income, consumption, land and investment, with compensation for those who need it. Changes to property taxation can form part of that exercise, but doesn’t settle the larger questions about incentives, the revenue base and the amount of spending it must support, which remains too high.
The test is whether a package improves the system and strengthens the budget itself. An election season hint about another income tax cut answers neither.
The report’s treatment of the fertility debate deserves similar scrutiny.
Then there is the projected household energy saving of up to $4,300 annually by 2050 through electrification, solar and batteries. It’s hard to imagine too many Australians trusting this prediction in the wake of ever rising energy costs, alongside the broken pre-2022 election promise by Albo to cut energy bills by $275.
Before treating the claimed $4,300 savings figure as an improvement in household finances, voters need to know how those costs are accounted for, because the devil is almost always in the details.
Besides, renters can’t install solar panels. Households without savings may struggle to finance the equipment in the first place. An average saving can conceal substantial differences in access. Frankly, the promises seem rubbery.
These are all questions about the details, not objections to cleaner energy.
Voters judge governments by results.
More fundamentally, long-term improvements in living standards depend on productivity improvements. Assumptions about technological progress must be tested against weaker alternatives, rather than allowing hoped for gains to become evidence of present policy success.
One very simple way of lifting productivity in an era of population ageing would be to remove the barriers to people claiming old aged pensions to also work.
The economist Leith van Onselen has done substantial work on this, and the benefits are compelling, but the government won’t even consider it now because One Nation has expressed support for the idea.
Chalmers also distinguishes those who exploit economic disconnection from those seeking to alleviate it. His government naturally occupies the more flattering category.
But voters judge governments by results. Describing their insecurity doesn’t resolve people’s problems, and opponents drawing attention to said problems aren’t responsible for creating them.
Intergenerational reports should expose difficult choices. The Treasurer’s presentation instead invites Australians to credit him for benefits that remain contingent, distant or unspecified.
After more than four years in office, he owes us a funded reform programme with measurable outcomes. Promising another tax cut when the polls turn ugly is no substitute for substance.
