Taxes and trust
Perceptions are very significant in politics. They are formed by the response of parties and their leaders to various events, but they can come to colour the attitude of individuals and the populace to other issues. They may take time to be established in the minds of people, but once formed, they can be like concrete: very difficult to reshape.
This is the situation facing Anthony Albanese’s Labor government as it seeks to change its approach to tax cuts.
The taxation package
The taxation package, introduced by the Morrison government, and supported by the then Labor opposition, involved three stages. Stage 1 of the tax cuts introduced the temporary low- and middle-income tax offset, which ended in June 2022. Stage 2, which kicked in from 2020-21, increased the existing low-income tax offset – a tax refund for those earning up to $66,000 – from $455 to as much as $700.
The Stage 3 tax cuts are due to take effect from 1 July 2024. They involve removing the $120,000 to $180,000 tax bracket; increasing the top tax bracket threshold from $180,000 to $200,000; and reducing the marginal tax rate faced by the $45,000 to $200,000 tax bracket from 32.5 per cent to 30 per cent.
These changes have been legislated by the Parliament. They counter the impact of bracket creep which results in taxpayers being pushed into higher tax brackets over time and paying more tax. To change the stage 3 provisions requires a bill to pass the Australian Parliament.
The issue is particularly sensitive in Australia as there is more reliance on personal income tax here than in many overseas jurisdictions.
Labor’s proposed changes
Mr Albanese proposes to change the package, increasing the tax cuts for those with taxable incomes under $150,000. For those earning over $150,000 the government plans to reduce the tax cuts that have already been legislated.
For those with a taxable income of $200,000, the tax cut is expected to be reduced by $4,400.00. Having been legislated, taxpayers were entitled to rely on the legislated changes.
The government will undoubtedly endeavour to sell these changes as advantageous for middle income earners. Faced with criticism over the rising cost of living, the prime minister and treasurer will claim this is a responsible change.
Some cross-benchers have expressed skepticism about the proposed changes, suggesting that passage of the measures through the Parliament could be messy for the government.
Dangers for Labor
There are real dangers for the government, not the least being the perception that its word cannot be trusted. Mr Albanese is on record over one hundred times stating that his government would stand by the stage 3 tax cuts, a promise he made in opposition prior to the 2022 election.
Just as Julia Gillard suffered for reversing her promise about the carbon tax, Mr Albanese will be condemned for his broken promise. What’s worse, his prevarication in recent times about the issue creates a perception of weakness.
The government looks weak, more interested in a measure that will help it retain the seat of Dunkley in a by-election, and not serious about tax reform.
If the tax rates had been indexed, the highest threshold would now be $250,000, not the current $150,000.
The government will also be open to the charge that it has reverted to class war, and is uninterested in aspirational Australians who are striving to get ahead economically.
The changes provide another opportunity to the opposition to attack the government. Having drifted for months following the Voice referendum, Labor ceded the political momentum to the Coalition last year.
With the prime minister being the drag on Labor’s vote, it could weaken his position in the caucus.
The opposition will frame the changes about trust in the government. If the perception that Mr Albanese and Labor are untrustworthy becomes established, it will hinder the government’s efforts to project a policy agenda for the remainder of its term.
This is the greatest danger for Mr Albanese and Labor.
First published in the Epoch Times Australia.
