By PETER VAN ONSELEN, POLITICS AND ECONOMICS EDITOR, AUSTRALIA
Jim Chalmers is signalling the possibility of further income tax cuts as Labor’s political fortunes continue to weaken.
The Treasurer suggests the government’s amazing financial management has created room to offer taxpayers more relief.
The timing is undeniably convenient: the claim has emerged just as the government is searching for a compelling message to take to voters.
Chalmers is using the seventh Intergenerational Report to showcase Labor’s economic credentials while presenting a vision of a more prosperous Australia in the decades ahead.
But neither claim should be accepted simply because the Treasurer makes it.
Consider the Budget first. Across the forward estimates, the government continues to record deficits as far into the future as the projections extend.
An improved result compared with earlier forecasts is welcome. But borrowing less than expected is not the same as having money available to spend.
Tax cuts may still be justified. Workers deserve income tax relief, and reducing the penalty on work should be a central economic goal. However, permanent tax reductions require sustainable funding, whether through spending restraint, additional revenue or a credible combination of the two.
Who knew? Apparently, the Albanese government’s financial management has been so impressive that it can now afford tax cuts for voters.
A more favourable long-term projection does not remove that responsibility.
Nor should Chalmers receive unlimited credit for returning money raised through bracket creep. When wages increase in nominal terms while tax thresholds remain unchanged, average tax rates rise—particularly during periods of high inflation—even when people have not experienced a real increase in purchasing power. Returning part of that money is not an act of extraordinary generosity.
Australia needs a broader tax debate covering income, consumption, land and investment, with compensation for people who require it. Property tax changes could form part of that discussion, but they would not resolve the wider questions surrounding incentives, the revenue base and the level of government spending that base must fund. That spending remains too high.
The real test is whether a tax package improves the system while strengthening the Budget. A pre-election hint about another income tax cut does neither.
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The Intergenerational Report’s handling of the fertility debate also warrants close examination.
The report also projects that households could save up to $4,300 a year by 2050 through electrification, solar panels and batteries. Given steadily rising energy costs—and the broken pre-2022 election promise by Albo to cut power bills by $275—it is difficult to imagine many Australians accepting that forecast without question.
Before treating the claimed $4,300 as a genuine improvement in household finances, voters need to understand precisely how the figure has been calculated and which costs are included. The important details are likely to determine the answer.
Renters cannot install solar panels, while households without savings may struggle to finance the required equipment. An average saving can conceal major differences in who can access it. At this stage, the promises look decidedly uncertain.
These concerns relate to the policy’s detail and distribution, not to the case for cleaner energy itself.
Voters ultimately judge governments by their 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.