Editorial
Political guts and policy muscle needed for true tax reform
New analysis showing that the benefits of the Albanese government’s stage 3 tax cuts will evaporate within two years must serve as a fresh reminder of the need for wholesale reform rather than piecemeal tweaks that only produce short-term political benefits.
Research compiled for the Herald by the Australian National University’s respected Centre for Social Research and Methods shows average tax rates for 80 per cent of taxpayers will be back to their current level or even higher by 2027.
Stage 3 tax cuts start from July 1 but their value will soon be wiped away by bracket creep.Credit: Erin Jonasson
In dollar terms, a middle income earning household will be paying more income tax in 2025 than in the 2023-24 financial year despite the deep tax cuts that start from today.
The stage 3 cuts, first announced by then-treasurer Scott Morrison in his 2018-19 budget and then rejigged by Jim Chalmers in January, will deliver $23 billion for all taxpayers in their first year of operation. Over the next decade, they will reduce tax collections by more than $330 billion.
Labor has sought to frame the cuts as a cost of living measure, but the package is really only giving back bracket creep to taxpayers.
As senior economics correspondent Shane Wright notes today, many treasurers have, over the years, claimed that simply reducing tax rates or increasing thresholds was some sort of policy achievement “up there with floating the dollar or making the Reserve Bank independent of political control”.
“The personal income tax system has become just a rinse and repeat of bracket creep adjustments with neither major party prepared to properly look at improving how we are taxed,” Wright observes.
“Further, taxes on superannuation, on companies, on finite resources and on alcohol and tobacco are groaning under years of tinkering and short-termism.
“And that has fed into an economy that itself is struggling to generate the tax revenues sufficient to do what voters want and the country needs, such as an improved defence force or much better aged care.”
Decades have passed since a federal government has embarked on genuine tax reform, and shelves in Canberra offices are filled with reviews that sank without a trace. For example, the former Treasury secretary Ken Henry’s 2010 review of the tax system advocated a three-threshold personal income tax system that, adjusted for inflation since then, would give Australia a $35,000 tax-free threshold, a 35 per cent rate up to $256,000 and a 45 per cent rate beyond that point.
As Wright notes today, Australia has a tax system that is holding back the economy, encouraging people to work on avoidance schemes while hindering governments’ ability to pay for the services demanded by voters.
Treasurer Jim Chalmers likes to frame himself as a reformer. But the Herald has so far seen few signs that Labor has the political guts and policy muscle needed to embark on much-needed root and branch change.
Voters are rightly fed up with the lack of vision for our economic future.
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