I’ve been trying to develop a politically attractive (and Labor values aligned) alternative that Labor could put forward in May 2023 to replace Stage 3.
I’ve come up with the following:
A $500 tax cut for everyone (first paid in July 2023)
Even cheaper childcare (less than $20 a day per child for 60%+ of families)
More rent assistance (40% increase)
Phase 1 of Medicare Dental (covering 7.7m Australians)
26 weeks of Paid Parental Leave (in July 2024)
Pay off $4.2 billion of the Coalition’s debt
Jim Chalmers could announce this plan via a short video announcement.
If you’ll indulge me, I’ve written a script.
A Better Plan (Treasurer’s Script)
Hi everyone, it's Jim Chalmers here.
Thought I'd give you a 2-minute sneak pre-view of the budget.
First off, we will be giving everyone an extra $500 back on their taxes. So when you file your taxes in the next few months, you will receive an additional $500 to help you with the cost of living.
And next year everyone will receive a $500 income tax cut.
We will be doing this instead of the Stage 3 tax cuts which would have gone overwhelmingly to the top 1% of income earners who earn over $200,000 a year.
Everyone is struggling with cost of living and we don’t think that it is fair that such a small group of people should get most of the benefit.
(Chart appears in the background)
Stage 3 would have cost the budget $18 billion per year.
That's why we've come up with a plan where everyone benefits and is better for the budget.
What else will we do?
We're going to give families even cheaper childcare.
Under our plan, most families will pay less than $20 a day per child.
We’ve also decided to bring forward the 26 weeks of Paid Parental Leave to July next year so that new parents can afford to spend more time with their little ones.
Making childcare cheaper and 26 weeks of Paid Parental Leave will cost $4.7 billion.
We're also going to start adding Dental to Medicare.
Our team is working hard on our plan to roll this out.
(Holds up a Medicare card)
But once it's set up, you will be able to use your Medicare card whenever you go to the dentist.
Just like when you see your GP.
The first phase of Medicare Dental which will cover around 8 million Australians and will cost $1.9 billion dollars.
We will also be increasing Rent Assistance by 40% to help Australians who are struggling to keep a roof over their head.
What about the rest of the money?
Well, we’re going to use that to pay off $4.2 billion dollars of the Coalition’s debt.
Our plan will better for both your household’s budget and the Federal government’s budget.
So that's it.
$500 coming your way
Cheaper childcare
And we’re adding dental to Medicare
Feel free to tune in tonight to watch me announce this in a longer…
(as if sharing a secret)
…and probably more boring speech.
Or if you want to watch MasterChef…
…go for it!
You’re now up to speed on Labor’s plan to help you with the cost of living.
END SCENE
How would you release this video to maximise views?
By making the release of the video a surprise
By releasing the video at 9:30AM on Budget day (defying normal budget day proceedings)
By posting it on all social media channels (and sharing it on other MP's accounts) and sending it to major media outlets
The goal will be for millions of people to have seen the video before the traditional budget night speech (e.g they might watch it during the day at work or see it when scrolling through Facebook).
This approach will hopefully reach hundreds of thousands of people who will not tune in for the budget speech.
News Ltd and the Coalition are going to attack Labor’s plan, so you need to get on the front-foot and speak to as many voters as possible before they can.
How did you come up with these costs estimates?
All costs mentioned are for FY25.
Stage 3:
The PBO estimated the FY25 cost of Stage 3 at $17.7b. The PBO estimated the total cost between FY25 and FY33 (inclusive) would be $243b. Recent Treasury modelling suggests that the cost to FY33 is now $254b. I don’t have an updated per year cost and so I’ve applied the ratio of the total costs to the existing FY25 estimate.
FY25 Stage 3 Cost = 17.7 * (254/ 243) = $18.5 billion
Cheaper Childcare
The policy to cover 95% of the childcare cost for most families was put forth by the Grattan Institute in this report in August 2020 (FY21).
Grattan cited a figure of $5b for this policy. I’ve inflated this figure by 4% per year for 4 years to get a FY25 figure ($5.9 billion).
Because the Labor government announced additional childcare funding for FY25 in the October Budget ($1.6 billion) I’ve assumed that the ‘net cost’ of the new funding will be the difference between these numbers.
Cheaper Childcare Cost = $5.9b - $1.6b = $4.3b
Source: Oct 2022 Federal Budget: Budget Paper 2
26 Weeks of Paid Parental Leave in July 2024
This figure is calculated by assuming that the full implementation cost (of $619m) is brought forward to FY25. The net cost is calculated by comparing this against the costs in the October Budget.
The October Budget has $262.2m in Payments in FY25 and $80m in additional receipts.
26 Weeks of PPL Cost = $619.3 - $262.2m + $80m = $437.1m
This figure can be rounded and expressed in billions as $0.44b
Source: Oct 2022 Federal Budget: Budget Paper 2
Medicare Dental:
In FY19, The Grattan Institute estimated the cost of Phase 1 of their plan to roll-out Medicare Dental (which covers ~7.7m people) at $1.1 billion. I’ve escalated this cost at 4% per year for 6 years (to get a FY25 figure) of $1.4 billion.
I’ve then assumed that there will be $0.5b in costs associated with expanding tertiary education programs for dentists and dental hygienists/technicians to ensure that there are enough dental professionals to meet the demand of later phases of Medicare Dental.
The total cost is therefore $1.9b.
$500 for everyone:
My modelling is based on ABS income data by percentile.
The basic calculation is that you’re providing a $500 tax cut to roughly 11 million people (those who earn above the tax-free threshold).
Cost = $500 * 11m = $5.5 billion
This is slightly lower than the figure I calculate using a more detailed method ($5.6 billion).
The cost in FY24 (not in the chart) would be higher as you’re paying it to everyone who submits a tax return (~14m people). Low income people are the ones who will be struggling the most at the moment and therefore this additional cost is worthwhile.
FY24 Cost = $500 * 14m = $7 billion.
The FY24 payment will be mildly inflationary however the need to win public support for a Stage 3 alternative outweighs this concern.
Commonwealth Rent Assistance
The Grattan Institute estimated the cost of boosting rent assistance by 40% at $2 billion.
They do this by calculating 40% of the Rent Assistance cost figure in the Coalition’s FY23 Budget
The cost in that budget for Rent Assistance in FY23 was $4.96 billion. I have calculated 40% of this figure and escalated it at 4% for 2 years to get a value of $2.1 billion for FY25.
Paying off the Coalition’s debt
This figure is simply the difference between the cost of the terrible Stage 3 tax cuts and the cost of funding all of the policies above.
Coalition Debt Paid Off = Stage 3 Cost - Our Plan Cost
Coalition Debt Paid Off = $18.5b - $14.3b = $4.2b
There are big issues with this plan.
Firstly this is miserly. The government should deliver tax relief which is, at least initially, more generous than the coalition's plan. A more miserly scheme violates their commitment to deliver tax cuts.
The second issue - paying off debt i.e.: a surplus.
Since the private sector generally wants, and should have, net financial assets there should always be government debt, in the form of bonds and exchange settlement balances. It should never all be paid off.
These generally have been close to free. The real rate of interest on these balances, taking into account inflation, has been close to zero. This year, with inflation at 7%, the real deficit/surplus is ~ $35B surplus, due to the change in the value of ~$1T in outstanding debt, after a cash deficit of ~$35B. It is the debt that delivers the surplus.
The surplus/deficit - change in debt - should be set to balance the economy. If the economy is in a boom, the surplus should be large. If the economy is in recession then there should be a large deficit.
The Government's balance should mirror the private sectors savings preferences, which are rarely zero.
Thirdly, there is no reform here.
Some taxes are too low - there should be no discount on capital gains, company tax should be 45%, and the top marginal rate should be 65%.
Some taxes are too high - e.g.: "depreciation" should be instant at 100%. Also there should be no effective marginal tax below minimum wage (the effect of tax and loss of benefits for dollars earned below minimum wage should be zero or less).
Fourthly rent assistance is mainly assistance for investors, who charge rents the market will bear, not renters. The government should be building and maintaining houses to cut the cost of accomodation, not subsidising the profits of private owners.
Dental is great, the out of pocket for existing services also needs to be addressed, along with the crisis in general practice.