The politics of not doing Stage 3 (Part 4)
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).
This article will continue to look at how Labor could respond to the Coalition’s claims that Labor “isn’t delivering the tax cuts they promised”.
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 FY25 (costing details here).
Source: FY25 Costs - My estimate based on existing Treasury and Grattan work
The more progressive tax cuts in A Better Plan will help blunt the effectiveness of the Coalition’s attacks
The Coalition’s most potent argument will be that “Labor promised you the Stage 3 tax cuts and they didn’t deliver them”.
If A Better Plan is adopted, Labor could use the following counterarguments
“More Australians will get a tax cut under our plan”
This would be true as Stage 3 provides a tax cut to incomes over $45k. My alternative, which raises the tax-free threshold, provides a tax cut to anyone earning more than $18.2k.
Using ABS data, I estimate that my alternative would provide 2 million more Australians with a tax cut. This is the number of people who earn between $18.2k and $45k.
“People will get a tax cut sooner under our plan”
The Stage 3 tax cuts would start in July 2024.
Assuming that the $250 tax cut is implemented (discussed in Part 3), A Better Plan gives everyone who files their FY23 incomes taxes an additional $250 back in July 2023 regardless of income.
This would be given to people via a separate transaction from the ATO when they receive their tax return.
Doing it in this way will make it salient and obvious to people that the Albanese government is giving them a tax cut and helping them with the cost of living.
Source: My graphics department
For regular people, who aren’t across the details, the Coalition’s message that “You were promised a tax cut and didn’t get it” will not seem as compelling when there is a surprise $250 from the ATO sitting in their bank account.
This plan allows Labor to take the ‘moral high ground’ on ‘debt and deficit’
In general, concerns about government debt are overblown. However, by having a plan which will reduce the deficit (relative to implementing Stage 3) Labor can take the mantle of being ‘fiscally responsible’.
Stage 3 presents a unique opportunity to expand spending on social programs while still taking the ‘moral high ground’ on government debt.
Let me explain.
Normally, if Labor were to increase the deficit by $18 billion the Coalition could claim that this is ‘irresponsible’.
However, if Labor adopts my alternative plan which increases the deficit by $14 billion (relative to doing nothing), Labor can credibly claim that the deficit is $4 billion lower than it would be under the Coalition (who would have implemented Stage 3).
The Coalition cannot credibly argue that they would have both given voters bigger tax cuts and that the deficit would be lower.
Of course, if the Coalition claim that they would be able have both a lower deficit and provide larger tax cuts, Labor can respond by asking them “What spending are you willing to cut to achieve that?”.
In general, Labor probably won’t want to lean too heavily into discussions around tax but given that they it is inevitable it’s important to have some good arguments up your sleeve.
By adopting A Better Plan Labor can make the following arguments
Our plan gives more Australians a tax cut
People will receive the tax cut sooner under our plan
Our plan helps address the cost of living by helping people with the cost of childcare, rent and going to the dentist
Our plan improves the budget by billions of dollars each year
It’s always going to be a fraught conversation, but this plan and these arguments give Labor a strong case to make.
By biting the bullet now and fighting to get billions of dollars to use to expand child-care, rent assistance and Medicare Dental, Labor will be setting themselves up nicely for 2025 because they will have a slew of signature policies which materially benefit the lives of voters.
This will be discussed further in my next post, but if you give up $27b* of revenue each year by letting Stage 3 come into effect, where will you find that an equivalent amount to fund election-winning and Labor legacy defining programs?
*$27b a year is the PBO estimate of the average annual revenue lost from Stage 3 between FY25 and FY33.
Onwards to Part 5!