The politics of not doing Stage 3
Why adopting an alternative is more politically attractive than you might think
If the government wants to do something other than Stage 3, they need to announce it in the Budget this year.
In this series of posts I will explore the politics of adopting an alternative set of policies (A Better Plan).
A Better Plan
Instead of Stage 3, the Labor government could do the following
A $250 tax cut for everyone in FY23 (paid retrospectively in July 2023)
A $500 income tax cut for everyone (from July 2024)
Even cheaper childcare (less than $20 a day per child for 60%+ of families)
More rent assistance (a 40% increase)
Phase 1 of Medicare Dental (covering 7.7m Australians)
26 weeks of Paid Parental Leave (in July 2024)
This plan would cost less than Stage 3 and allow the government to pay off $4.2 billion of the Coalition’s debt in that year (costing details here).
Source: FY25 Costs - Estimated based on existing Treasury and Grattan work
Today, we will look at 2 reasons why an alternative to Stage 3 may not be as politically toxic as you might think.
Let’s get into it.
1. Stage 3 is an inefficient way to ‘buy votes’ because its primary beneficiaries are a tiny slice of voters who do not live in marginal seats
John and Susan are a 50 year old couple who live in what they would describe as a ‘modest’ waterfront property in Vaucluse. They are both lawyers who work in the Sydney CBD earning a combined $530k per year.
They have never voted for the ALP and never plan on doing so. Susan however has been tempted by the Independents that have run in their Electorate (Wentworth).
Stage 3 will give John and Susan an additional $18,000 per year.
They intend to use the money to outbid a first home buyer and snag their 4th investment property.
While this hypothetical couple is a slight exaggeration, it is correct to say that a large chunk of the Stage 3 benefits will go to voters like this.
As analysis from the PBO and Greg Jericho shows, roughly 50% of the tax cuts will go to the top 4% of income-earners.
For the moment, let’s focus in on this $9 billion a year that will go to this small group (we will return to the other voters later).
Source: Guardian - Greg Jericho
To estimate the number of additional votes you may win from giving away $9 billion I looked at how many voters
Earn over $180k
Have partner’s whose vote is linked to their high-earning partner’s income
Are committed voters (for the LNP, Labor or others)
Live in marginal electorates
As shown in the table below, my rough estimate is that you’re spending $9 billion a year to target 0.8% of voters.
This is not ‘fiscally responsible’ vote buying.
For the same cost, you could fund Medicare Dental for 100% of voters and their children.
Which do you think will win more votes?
My money’s on Medicare Dental.
Fundamentally, it’s okay to disappoint this bloc of high-income voters because there are so few of them. Losing their votes will have a insignificant impact on the overall election outcome.
John and Susan will have a whinge to their friends, over hors 'd’oeuvres, at their next dinner party.
But honestly that’s fine. Soon they will move onto complaining that the wait staff are taking too long to top-up their bubbly.
The Labor party was not built to serve these people.
Of course, the remaining 50% of the tax cuts, while still concentrated towards those on high incomes, will go to a larger pool of voters.
This leads nicely onto my next point.
The policies in A Better Plan aim to replace the financial benefit that voters would have received from the tax cut and therefore mitigate the political damage.
2. Large groups of voters will financially benefit from A Better Plan and this will offset the loss of benefits they would have received under Stage 3
The following groups of voters will benefit from A Better Plan.
2 million parents have children in childcare and will benefit from the increased child-care subsidies
14 million people will receive an additional $250 tax cut in July 2023 that they would otherwise not have received
4.5 million income-earners will pay less tax than they would have under Stage 3
8m people will benefit from the first phase of Medicare Dental
1.2m new parents will benefit from bringing the 26 weeks of Paid Parental Leave implementation date forward from Jul 26' to Jul 24'
1.5 million individuals or couples will benefit from a 40% increase in Commonwealth Rent Assistance
Naturally there is overlap between these groups and it would be a mistake to simply add them together to calculate the number of voters who benefit. But given that Australia has only 17.3m registered voters, this plan provides meaningful benefits to large sections of the electorate.
What does this broad group of beneficiaries look like?
There are high-earning young families who will be a bit disappointed that they didn’t get a large tax cut but this may be more than offset by the large reduction in their child-care fees.
There are socially conservative or politically disengaged pensioners who rent and are under significant housing stress (due to high inflation and the tightness of the rental market). Beyond helping these people avoid homelessness, the 40% increase in rental assistance might convince them to vote Labor in 2025.
There will be struggling families living in places like Caboolture in Queensland (in the marginal seat of Longman) who can’t afford to send their kids to the dentist. Perhaps they tend to vote One Nation or LNP but the practical, no nonsense offer of free Medicare Dental for their kids might sway them.
On its substance, Stage 3 shovels most of its benefits to inner-city, fancy pants investment bankers and lawyers. To successful CEOs and surgeons.
A Better Plan appeals to millions of families across the income spectrum but also delivers concrete benefits to working class voters (who are drifting away from Labor).
Source: ANU Australian Election Study 2022
Policies like Medicare Dental and cheaper childcare help Labor in inner-city contests with the Greens but also provide tangible benefits and a ‘reason to vote Labor’ to families living in outer urban areas.
Adopting A Better Plan spreads benefits across a much larger group of voters and in a democracy, this is politically advantageous.
Stage 3 costs a lot of money. So instead of shovelling all those benefits to a small number of voters, why not use the $18 billion a year to fund programs which benefit millions of people?
Why give $9000 to a CEO living in a a safe Liberal electorate when you could give 3 families, living in a marginal electorate, $3000 each in childcare subsidies?
Onwards to Part 2!