The politics of not doing Stage 3 (Part 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.
This post will continue to 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
Let’s get into it.
The announcement of a $250 ‘tax cut’ in July 2023 will attract criticism and this will reinforce the message that ‘Labor are offering a tax cut’
Last time we looked at the political benefits of the increased childcare subsidies and earlier start date for 26 weeks of Paid Parental Leave. Today, we will start to look at how to respond to criticism from the Coalition that Labor aren’t delivering on the tax cut that was promised.
At the outset, I will say that the $250 ‘tax cut’ paid to voters when they file their taxes in Jul-Oct of 2023 is the element of this plan that I am the least certain about.
This is because I question the economic and political value of giving people an additional $250 at a time when inflation is at 7.3%.
It’s worth noting that this element could be removed from A Better Plan without impacting any of the other policy measures.
For the moment, I humbly ask that you humour me and put aside this concerns so that we can explore the potential political benefit of the $250 tax cut.
A successful political message is one that gets repeated
A few months ago, I was listening to a podcast with political messaging expert Anat Shenker-Osorio and she said something which has stuck with me. She said that a key element of successful political messaging is to have it be repeated.
Let me say that again, a key element of successful political messaging is having it be repeated.
She says that a successful message is repeated by both your supporters and by your opponents.
Simply making your points in a press conference or posting it on social media isn’t enough to reach voters. You need for other people to amplify your message.
Labor should therefore try and identify opportunities where hostile and non-partisan media will amplify popular Labor messages.
For example, during the Federal Campaign one of the strongest moments for Labor was when Albanese said that he would “absolutely” support an increase in the minimum wage in line with inflation.
The trick here is that journalists believe that the ‘sensible’ position is to let real wages fall. It is therefore somewhat ‘scandalous’ to say that you think low-income earners wages shouldn’t go down.
Sacré bleu: Labor Leader outrageously says that people’s wages shouldn’t go down
This moment got written up and amplified way more than other policy announcements or ideas.
I don’t have any polling on this, but my assumption is that Albanese’s position was actually quite popular amongst the general public. It was therefore good for Labor’s campaign that this moment got extra coverage.
Source: The punters in the comments
Labor should find more instances where it can get a lot of coverage by doing something that is ‘unconventional’ to journalists but is also very popular amongst the voting public.
The announcement of a $250 tax cut to all voters in July 2023 is one such opportunity.
It will attract the ire of commentators in the AFR, scorn from News Ltd and even questioning from the ABC.
They will dedicate many column inches to decrying “Labor’s reckless tax cut”.
There will probably be some economists who will be complaining that it “isn’t even really a tax cut”.
You could imagine the following exchange on the 7:30 Report.
Sarah Ferguson: Economists are saying that the $250 tax cut that you are giving everyone is expected to add to inflationary pressures. Is it wise to give a tax cut while inflation is high?
Jim Chalmers: Thanks Sarah. We understand that with the cost of living pressures at the moment Australians are doing it tough. We see high inflation primarily because of Russia’s invasion of Ukraine and other global factors that are outside of our control.
We are providing a $250 tax cut to support Aussie families this winter to help them pay their electricity bill or buy a weeks worth of groceries. We recognise that inflation is high but believe that this is a balanced measure that provides support to families at a time when they need it.
All of this attention, although a bit stressful for MPs and their staffers, might actually be politically advantageous.
Because the ‘political storm’ will spread the message that “Labor are doing a tax cut”.
For your average voter, who is not a macroeconomist, this coverage and the $250 in their bank account will cement the idea in their head that “Labor are doing a tax cut”.
This will further muddy the waters and diminish the effectiveness of the Coalition’s claims that Labor “aren’t doing the tax cut they promised”.
For voters who aren’t deeply engaged in the news, it will seem confusing that the Coalition is claiming that Labor aren’t doing a tax cut while also simultaneously decrying Labor’s tax cut as irresponsible.
The Coalition may come across as hypocritical to be criticising a tax cut this year (because it is bad for inflation) while supporting a tax cut next year (while the RBA still expects inflation to be above 3%).
Perhaps the Coalition will argue that it is “stimulus” and not a tax cut. Given that the $250 will be transferred into people bank accounts from the ATO and will be given out when people file their tax returns, most voters will believe that it is a tax cut.
Labor should maintain its position that the $250 is a tax cut and that the government is focused on helping Australian families.
If anything, a spirited back and forth on whether or not the $250 sitting in everyone’s bank accounts is a “tax cut” or a “stimulus payment” will simply reinforce in voter’s minds that they have received $250 from the Labor government.
Voters may be left thinking the following
Who cares about this political squabbling!
All I know is that I’ve got an extra $250 in my bank account from the ATO
Cheers Albo!
If voters are confused about who is the one advocating for a larger tax cut or believe that Labor is the party advocating for larger tax cuts, then the effectiveness of the Coalition’s political messaging will be dampened.
At $250 a person for the roughly 14 million people who file a tax return the total tax cut would be worth about $3.5 billion. According to Treasury, This would be about 1% of the size of the $291 billion total economic response to COVID-19.
If the risk of exacerbating inflation is small, it might be worth taking that risk in order to achieve the political benefits described in this article.
Onwards to Part 4!