Ideas@TheCentre brings you ammunition for conversations around the table. 3 short articles from CIS researchers emailed every Friday on the issues of the week.
Labor has formally announced it will abandon many of the tax policies it took to the last election. Significantly, they have committed not to overturn the government’s legislated stage 3 tax cuts, as well as dropping planned negative gearing changes.
While this has upset some progressive commentators who thought the Shorten 2019 election campaign signalled a positive, progressive shift in policy, the change in direction is certainly understandable.
First, Labor lost the last election despite the perception that they were well in front, and some have suggested that the negative gearing changes in particular were part of the reason. Labor was correctly perceived as a big taxing and big spending government.
Despite these recent announcements, it’s not at all clear the fundamental position has changed. Voters seem to be far more okay with the spending than they are on the tax front.
Even in normal circumstances, you would expect some change to the platform following a surprising election defeat, and these are hardly normal circumstances.
Indeed, we live in a vastly different world in 2021 to the one we saw in 2019. It is one thing to take a (relatively) bold agenda of change to an election when things are moderately prosperous. Quite another to do so 18 months into a global pandemic.
Recent state elections have shown that the public values stability and safety exceptionally highly at the moment.
Moreover, COVID and zero interest rates have seemingly thrown the fiscal responsibility rules out the window. The government has announced a series of large deficits across the remainder of this decade. Huge new spending programs, and tax cuts, are all financed on the nation’s credit card.
This has freed Labor from any need to balance its spending plans with unpopular tax increases.
While certain cynics among us argued that this restraint was a mirage in 2019, and Labor had in fact committed to spend far more than it could credibly expect to receive in increased revenue, Labor’s notional attempt to balance the budget was both commendable and electorally dangerous.
No such mistake will be made in the coming election. Whatever Labor says about a crackdown on multinational tax avoidance will be nothing more than a fig leaf.
Governments of both sides have announced a number of such crackdowns. None have ever delivered anything like the money necessary to fund the kind of deficits Australia is facing, much less new spending.
Of course, it’s worth noting that there is no guarantee that whatever the opposition says now is what they will do when / if they are in office.
Indeed last time Labor were in office, then prime minister Gillard used the excuse of signing an agreement with the Greens to resurrect a policy she had been forced to drop to win the election.
While the negative gearing changes are unlikely to be resurrected, it’s easy to see the stage 3 tax cuts acting as a bargaining chip for a similar agreement with the Greens.
Such an agreement would be no more necessary now than it was then: the far left Greens are unlikely to create a stable partnership with any right wing government, much less this government specifically.
Such an agreement is just a way of dumping promises you don’t want to keep.
This means the stage 3 cuts — despite being legislated and having the notional support of both major parties — are still vulnerable. Supporters still need to make a positive case for change.
The strongest case is one based on fairness: treating people the same is fair.
Importantly, the system remains strongly progressive for those who are on lower incomes. Those earning under $20,000 will still pay little or no income tax, and almost all those earning under $45,000 will pay less than $5,000 at a marginal rate of 19%.
The 2018-19 stats show that 35% of those who filed a tax return were in the bottom two brackets (which then topped out at $37,000). A further 3.6 million people didn’t have to lodge a return at all, most because their taxable income was $0.
While no-one should pretend earning $50,000 is the same as earning $175,000, that doesn’t make it inherently unfair to ask them to pay the same marginal tax rate (mathematically, the average tax rate continues to increase for every dollar earned).
Someone on $50,000 actually doesn’t have a moral claim to the income of a person on $175,000.
One of the drivers of big government has been the cultivation of this very idea: the middle class is entitled to an ever-increasing share of tax revenue, both in the form of higher spending and lower taxes.
This has arisen largely because supporters of smaller government have allowed progressives to monopolise the discussion on fairness to such an extent that only equity seems to matter now. Every element of the tax system must be as progressive as possible.
This is a far bigger issue than tax policy of course. Treating people equally is increasingly seen as unfair.
In the school system, activists are pushing back against standardised testing, with the aim of replacing it with subjective measures taking into account disadvantage. Merit based admission to university is the next target.
This movement in Australia follows a strong emerging trend in the US, opposing merit generally in favour of diversity quotas.
Another example is the way senior US politicians, including President Biden, have openly discussed prioritising COVID relief funding and vaccinations on a racial basis.
Gender quotas are a perennial topic in Australia; initially just for political representatives but increasingly in businesses: from boardrooms of public companies to newspaper columnists and, of course, government departments and businesses.
Once, progressive politicians argued that you only had to give poor and disadvantaged people an equal chance and they would show they were as good as anyone. Now such thinking is bigoted, condemned as structural discrimination.
The understanding of fairness has seen a remarkable transformation that has really accelerated over the last 10 years.
The government’s stage 3 tax cuts can hardly be expected to turn around a social movement. But the fact that Labor is no longer actively arguing against these cuts opens space for a defence of equality of opportunity.
It’s time to push back against equity, in the name of fairness.