The Stage 3 Tax cut should not go ahead

Contributed by Joe Montero

The Stage 3 Tax cut are due to come into effect in July next year. The call not to go through with it is getting louder and Labor is divided on this. Its difficulty is that it voted with the Morrison government when the legislation came before he parliament. Whatever the motive was then, it has become a burden now.

The Albanese government’s current position is that it must honour the prior commitment. Plenty disagree. The circumstances of today are different. There is a new government and the pressure to make this compromise is no longer there. The economy has continued to worsen and calls for a bolder approach.

The tax cut was no good to start with. They deliver a 30 percent flat rate for those whose incomes are between $45,000 and $200,000, and it will cost the budget at least $244 billion over 10 years. On top of this, the higher your income the bigger cut you get in terms of dollars. Finally, the global economy is heading into a storm, and the Covid pandemic is still being felt. The tax cut is both economically unsound and unfair.

There are shades of Lis Truss in Great Britain. It may go further, and the circumstances are worse. But there is a lesson in it. Handing over to the best off while those further down are suffering is not popular. The Albanese government would do well to consider this.

Sensing trouble, there has been some kite flying. This is what usually happens when a government wants to create some wiggle room for itself. A hint of the possibility of shifting form supporting the cuts to postponing them or abandoning them altogether come from Treasurer Jim Chalmers and Finance Minister Katy Gallagher. They are the ministers responsible and have bene busy preparing the ground for potential changes.  We will see what happens in either the October or May budgets.

Image from the ABC News: Katy Gallagher and Jim Chalmers

Labor’s internal discussions on the matter are continuing in a context where even some within the Liberal camp are turning against the tax cut. The latest is the federal member for Bass Bridgit Archer. As we get closer to the October budget the voices will be getting louder.

Sally McManus the Secretary of the Australian Council of Trade Unions (ACTU) is arguing against the tax and warns against “…massive tax cuts for the rich during a period of high inflation.”

“Good policy is having an open and honest national conversation about the problems we face and providing leadership to find the best solutions. It requires adaptation to changing circumstances and it means involving the voices of the Australian community in all its diversity. What do we actually want – better services for all and cost of living relief for those who need it or more giveaways for those who do not?”

Sound economic policy depends on having the means and will to take on the real challenges faced by the economy and Australian society.

If the Albanese government does not go ahead with the Stage 3 Tax cut it will benefit from the kudos it receives. Should it decide to plough on with them, it will be a huge mark against it, increasingly generating anger as those who can least afford to find themselves paying the bill, and as a round of austerity comes into effect. We should not kid ourselves. Someone will have to fill in the revenue shortfall and balance the government budget.

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