The purpose of this article is to explore 3 options (that are better than Stage 3) and hopefully convince you that they are worth fighting for.
To quickly recap, the Stage 3 tax cuts will
Significantly reduce the amount of money available for funding education/ health/ welfare (~$27b per year)
Damage the budget for the entire length of Labor's time in office (and beyond!)
We will look at 3 preferred options.
Option 1:
A $250 tax cut for 99% of people and a 2% 'inflation fighting' levy on incomes of $320k+
Achieved by increasing the lowest tax bracket from $18.2k to $19.5k and applying a 2% levy on the top marginal tax bracket
The $250 will be ‘brought forward’ a year by giving everyone a $250 ‘cost of living’ payment when they file their taxes in Jul-Oct 2023
Option 2:
A $500 tax cut for all income-earners
Achieved by increasing the lowest tax bracket from $18.2k to $20.8k
The $500 will also be ‘brought forward’ a year by giving everyone a $500 ‘cost of living’ payment when they file their taxes in Jul-Oct 2023
Option 3:
Keeping the 37% income tax bracket ‘as is’ but adjusting the 32.5% income tax bracket to 30% (as is proposed in Stage 3)
Each of these 3 options perform significantly better than Stage 3 (in terms of cost).
Source: Political Will Institute analysis based on ABS income data by percentile
At the outset, it’s worth noting that you could pursue any one of these 3 options AND an ambitious policy like adding Dental to Medicare AND still have a lower budget deficit than if Stage 3 were to come into effect.
This strategy would
Improve the health of all Australians
Ease pressure on household budgets
Build on Labor’s legacy and
Provide a platform for winning elections
Source: Political Will Institute analysis based on ABS income data by percentile. Medicare Dental cost estimated by the Grattan Institute in FY19 dollars (cost escalated by 3% FY19-FY25, escalated at 5% from FY25)
Shared strengths and weaknesses (compared to Stage 3)
Our 3 preferred options share the following Pros and Cons.
Pros
They provide more revenue which can be used to fund things that make people’s lives better (Medicare, childcare, NDIS)
They allow you to take the ‘high ground’ on fiscal responsibility
Their benefits do not as disproportionately go to high-income earners and thus do not exacerbate inequality as much
Noting that Option 3 does skew benefits towards higher income earners (although not by as much as Stage 3)
Cons
Some voters will receive lower tax-cuts than they would have under Stage 3 and will be unhappy about that
By not implementing Stage 3, you will attract criticism from the opposition, News Ltd and the AFR
Let’s dig into the specific strengths and weaknesses of each option.
Option 1: $250 tax cut for 99% of people, 2% inflation fighting levy on $320k plus
Messaging (PM Statement)
We recognise inflation and the cost of living is affecting everyday Australians.
Our plan is for 99% of Australians to get an extra $250 back on their taxes.
And we know that families can’t wait until next year so you will receive an additional $250 when you file your taxes this year.
We do not think it is fair that CEOs would get a large tax break while some hard-working Australian’s were getting nothing.
For those who are fortunate enough to be earning over $320k, such as myself and Jim (Chalmers), there will be a 2% ‘inflation fighting’ levy which will help reduce the deficit.
Our government will use these funds to repair our education and health systems after 9 years of Coalition neglect.
Pro
Small impact to the budget ($1.5b per year compared to $27.1b for Stage 3)
The PM and Treasurer increasing their taxes (while giving everyone else a tax cut) will show that they have 'skin in the game' and counters people’s negative perceptions about politicians
More people will receive a tax cut under this plan than would under Stage 3
Simple and easy to communicate (“Everyone will get a $250 tax cut except for those earning more than $320k per year”)
Provides ‘cost of living’ support to households earlier than Stage 3 would
Shifts conversation from “Is $200k rich?” to “Is $320k rich?” which probably boosts support for Labor’s position (as there is less sympathy for someone on $320k)
Con
The complexity, albeit limited, might make it easier for opponents to mislead voters about this policy and frame it as an overall tax increase
The 2% levy may attract additional opposition from people on more than $320k (although Tony Abbott was able to implement a similar levy)
Option 2: $500 tax cut for everyone
Messaging (PM Statement)
We recognise inflation and the cost of living is affecting everyday Australians.
Our policy is simple. Everyone will get an additional $500 back on their taxes.
And we know that families can’t wait until next year so you will receive an additional $500 when you file your taxes this year.
In reviewing the budget line-by-line we did not think it was fair that CEOs were getting a large tax break while hard-working Australian’s were getting nothing.
We believe that all Australians deserve to benefit. Not just the few.
Our policy will be better for the budget and our government will use these funds to repair our education and health systems after 9 years of Coalition neglect.
Pro
Modest impact to the budget ($5.6b vs $27.1b for Stage 3)
This option has the simplest message ("Everyone will be getting a $500 tax cut") and will therefore have the best cut-through to disengaged voters
More people will receive a tax cut under this plan than under Stage 3
Provides ‘cost of living’ support to households earlier than under Stage 3
Con
Giving everyone a $500 tax cut may undermine the positioning of being ‘fiscally responsible’.
Option 3: Change the 32.5% tax bracket to 30% and keep the 37% bracket
Messaging
We recognise inflation and the cost of living is affecting everyday Australians.
And in reviewing the budget line-by-line we did not think it was fair that CEOs were getting a large tax break while some hard-working Australian’s were getting nothing.
That’s why we’re modifying Stage 3 so that more of the benefits go to every-day Australians.
Our plan is better for the budget and we will use some of these funds to repair our education and health systems from the 9 years of Coalition neglect.
Pro
Moderate impact to the budget ($15.2b vs $27.1b for Stage 3)
Retaining elements of the original Stage 3 design may help boost support
Higher income voters will receive greater tax cuts (compared to Option 1 or 2) and this may help boost support
Con
More complicated to explain than Option 1 or 2 (i.e the tax cut each person receives will vary more by income)
Voters are not economists and not familiar with the specific details of Stage 3 and so they won't give you much credit for retaining elements of the original proposal
This option will skew benefit towards higher-income earners (although not as disproportionally as Stage 3)
Which one is your favourite?