Labor eyes ambitious tax reform but it must be ready for vicious backlash from vested interests
There was a hint of frustration in Anthony Albanese's voice when he spoke to the Canberra press gallery for the first time after Labor's thumping election victory on 3 May.
In the prime minister's courtyard at Parliament House, he was asked if he planned to use his soaring political capital for major reforms of the tax or superannuation systems. Badly needed, and often talked about in the abstract, this kind of action had waited for a long time for the necessary political ambition.
Albanese said he wouldn't get ahead of himself in the opening weeks of his second term in power. He insisted Labor had already been bold, delivering on its promises in the first three years.
Sign up for Guardian Australia's breaking news email
Fast forward to Wednesday, while the PM was pressing the diplomatic flesh at the G7 summit in Canada, the treasurer, Jim Chalmers, showed the first signs of that reform ambition.
In a speech to the National Press Club in Canberra, Chalmers signalled Labor was willing to consider changes to the tax system at the looming productivity summit in August, recognition that fixing longstanding problems was needed to right the budget's structural deficit.
The speech was an implicit recognition that Labor's tax changes in the first term barely touched the edges of deeper structural problems in Australia's tax system.
Chalmers, a student of economic reformer Paul Keating, said any progress on productivity or budget sustainability would be impossible without proper consideration of tax reform, a challenge he conceded would be 'hard and contested' with benefits that were not always immediate.
Even someone with a passing interest in federal politics should know the scale of the problem is vast: some $1tn in government debt and soaring spending, held up by a system overly reliant on income tax from an ageing population – a problem that will only get worse due to the ageing population.
For years Chalmers has been eager to point out the five main pressures on the budget are not going to get any easier without proper attention.
Spending on health, aged care, the national disability insurance scheme, defence and interest from government debt will keep treasurers and finance ministers up at night for years to come. The government's revenue base is being eroded from declining fuel and tobacco excises, and in the long term will take a hit from lower tax receipts from fossil fuel extraction.
The early stages of Labor's plans seem to include lower income taxes, but no changes to the 25-year-old GST. Chalmers is upfront, saying tax overall needs to rise. Whether it is indeed possible to meaningfully lower income taxes without broadening or raising the GST is unclear.
Economists argue taxing consumption through mechanisms such as the GST is efficient, while taxing incomes isn't. Parliamentary Budget Office figures show the GST causes about 8 cents in economic loss for each dollar gained, compared with 24 cents for income tax or 40 cents for corporate tax.
Two major pieces of work should be the starting point, acknowledging that any change which makes it into law will inevitably create some winners and some losers.
Chalmers was working for then treasurer Wayne Swan when Ken Henry handed his landmark tax review to the Rudd government in late 2009. Both men marked up copies of the document over the course of the summer, leaving them to 'disgorge' sand from the beach by the time they made it back to Canberra.
Many of the review's 138 recommendations never saw the light of day. Today, the former Treasury secretary says, the system is in even worse shape.
Henry has called for wholesale reform, including increasing the GST to pay for company and personal income tax cuts, as well as comprehensive road user charging, replacing stamp duties, increasing taxes on super profits from the mining sector, an economy-wide price on carbon and changes to fringe benefits and superannuation taxes.
Henry's review is best remembered for recommending the mining tax, an idea which prompted a furious campaign of resistance against the government. Chalmers has acknowledged the politics of the review were mishandled, that it was kept secret too long before ultimately crashing into Labor's leadership wars.
Sign up to Breaking News Australia
Get the most important news as it breaks
after newsletter promotion
The second substantive report with proposals ready to go is the white paper released by teal independent Allegra Spender in the last term of parliament.
In a different political reality, Spender would be part of the Liberal party's economic team, and her significant work comes with buy-in from Henry and other leading tax voices including Robert Breunig from the Australian National University's Tax and Transfer Policy Institute, and Robert Carling from the Centre for Independent Studies. Chalmers assigned a staffer to monitor the white paper process, at a time when Spender was one of the few MPs actually prepared to talk about meaningful tax reform.
The Wentworth MP wants the coming reform push to look at business investment and corporate taxes, the under-performing petroleum resource rent tax, road user charging, indexation of income brackets, unhelpful state taxes and the GST.
Spender has more guts than either of the major parties in one specific area as well. She has called for a review of Western Australia's insanely generous GST deal, which respected economist Saul Eslake calls the worst public policy decision of the 21st century.
WA's state Labor government handed down a budget with a $2.5bn surplus this week, but taxpayers from every other state are paying $54bn to the state due to perceived unfairness in the grants commission process. This special treatment agreed by then treasurer Scott Morrison and locked in by Anthony Albanese to maintain Labor's political stocks in the West will see the nation's richest state receive an extra $21.1bn from federal taxpayers over the next four years alone.
Family trusts, the legal tax structures used by millions of Australians to lower their tax liabilities, also look likely to come under increased scrutiny as part of the latest reform push.
Chalmers and Albanese will convene their productivity summit in the cabinet room on 19 August. If they want their record to be considered alongside the Hawke-Keating and Howard-Costello governments, the political conditions could hardly be better.
Labor must prepare itself for the predictable backlash from vested interests unwilling to countenance changes to cushy arrangements and handy loopholes. Only a serious government prepared to expend political capital will be able to make the system fairer and fit for a 21st century country facing major demographic and economic challenges.
If Labor really has the ambition Anthony Albanese insists it does, meaningful tax reform might become the make-or-break test of the government's second term.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Independent
an hour ago
- The Independent
Republicans weigh Medicaid changes amid ‘One Big, Beautiful Bill's' unpopularity
This week, Senate Republicans released the tax and health care parts for their version of President Donald Trump's desired 'One Big, Beautiful Bill.' But they face a huge problem: The bill is becoming incredibly unpopular. A poll from Ipsos and The Washington Post found that a plurality of Americans oppose the bill, with 42 percent opposing it, 34 percent saying they have no opinion and 23 percent saying they support it. Specifically, they are grappling with the unpopularity of the bill's changes to Medicaid. And it does not show signs of letting up. On Monday, the Senate Finance Committee released the text of its part of the bill. During the debate around the bill in the House, Republicans made it so that able-bodied adults without dependent children would have to work, participate in education or community service for 80 hours a month. Conservative Republicans lobbied to make the work requirements begin in 2026 rather than 2029. The Senate bill goes even further. For one, it lowers the age at which children are considered dependent to 14 years old. That means parents of children older than 14 would have to work to keep their Medicaid. Sen. Jim Justice, a freshman from West Virginia, defended the work requirements. 'Biblically, we are supposed to work,' he told The Independent. 'We have taken the dignity and the hope and the belief away from a lot of people where they are hopeless, they think they can't. ' According to the non-partisan Kaiser Family Foundation, about 29 percent of West Virginians are on Medicaid and 62 percent of West Virginians on Medicaid work either part-time or full-time. It seems Republicans know how politically caustic touching Medicaid might be. Sen. Bernie Moreno, a freshman from Ohio, tore into reporters. 'You guys really need to report it accurately, though, which is we're actually increasing the amount of money we're spending on Medicaid,' Moreno told The Independent this week. 'We're spending more on Medicaid. We're also eliminating the abuse by able-bodied adults, and we're reinstating the fact that Medicaid is for people who need it.' Trump has said he wants the bill done by the July 4th holiday. Earlier this week, Centers for Medicare and Medicaid Services administrator Mehmet Oz, the television host, met with Senate Republicans to discuss the bill. The legislation also seeks to cap the level of provider taxes. To pay for Medicaid, many states levy taxes on facilities like hospitals or nursing homes. This often allows for states to collect the money to receive matching funds from the federal government. Under the proposed bill, states that did not expand Medicaid under the 2010 Affordable Care Act signed by then-President Barack Obama, would be prohibited from raising provider taxes. States that did expand Medicaid would see their provider taxes reduced by 0.5 percent annually until they are capped at 3.5 percent in 2031. 'The provider tax is a way around the match,' Sen. John Hoeven of North Dakota told The Independent. 'The whole point is for us to get after waste, fraud and abuse, and the provider tax is a way for states to avoid putting up their share of the match.' Sen. Ron Johnson, a fiscal hawk who has wanted the bill to slash even more spending, went a step further. 'It's legalized fraud, it's not health care,' the Wisconsin Republican told The Independent. 'Why are we paying for taxes reimbursing state taxes and fees? It's absurd.' But the proposal in the bill raised alarm bells for hospitals, since Medicaid accounts for 19 percent of all hospital revenue, according to the Kaiser Family Foundation. Many rural hospitals also rely on Medicaid given the large number of rural residents who are on Medicaid. Chip Kahn, the CEO and president of the Federation of American Hospitals, said in a statement earlier this week that the Senate text made the bill worse. 'Rural communities across the country will be the hardest hit, with struggling hospitals compelled to face difficult decisions about what services to cut,' he said. 'It's imperative Senators take a detour on this text and reject its deepening of the House cuts already on the table.' But it's not just the hospital lobby that hates the text so far. Sen. Josh Hawley of Missouri, the biggest defender of Medicaid among Senate Republicans, criticized the provisions. 'I'm totally surprised by what they proposed to do on the provider tax I don't know why we would defund rural hospitals to pay for Chinese solar panels,' he told The Independent, referring to the fact that Senate version draws down the renewable energy credits from Joe Biden's Inflation Reduction Act at a slower pace than the House's version of the bill does. Hawley later said that he spoke with Trump about the subject. 'I think that you know he's he does not want to have Medicaid benefits cut,' Hawley said, adding that Trump doesn't want to see rural hospitals hurt either. But Hawley is not the only Republican worried about the effect on hospitals. Sen. Susan Collins, who faces a tough re-election in Maine in a state Trump lost. 'I'm looking at whether there would be receptivity to a provider relief fund that would be aimed at rural hospitals, nursing homes and community health centers,' Collins told reporters on Wednesday. 'I've not endorsed in any way, a provider tax change.'
Telegraph
2 hours ago
- Telegraph
Keir Starmer's chipmunk incident
A chipmunk came close to menacing Sir Keir Starmer's leg just as Robert Peston, ITV's political editor, was grilling the Prime Minister in an outdoors interview in the shadow of Canada's Rocky Mountains at the G7 on Tuesday. 'Can't you do something about this?', whispered an adviser to a security guard. Before any drastic action could be taken, the chipmunk sloped away. Peston insists his questioning had nothing to do with it. Angie's near-miss Angela Rayner was so excited to be chairing this week's Cabinet in Sir Keir Starmer's absence that she nearly ran over Larry, left, No 10's resident cat when her Government car driver had to brake sharply. Rayner then texted her boss. 'All good while you were away,' she told Starmer, alongside an emoji. Is 17-year-old Larry running out of lives? Vine's lamps Journalist Sarah Vine spoke to me on Chopper's Political Podcast this week about the 'unpleasant' experience of being involved in the 2009 MPs' expenses scandal. I was The Daily Telegraph journalist who had contacted her then MP husband Michael Gove over his claims for £134 elephant lamps, a £493 Manchu cabinet and a £331 Chinon armchair from Oka, David Cameron's mother-in-law's shop. Vine, whose memoir How Not To Be A Politician's Wife was launched on Thursday, said the experience was 'very, very unpleasant'. She added: 'I've got the lamps. I might auction them one day for charity. What do you think?' Great idea. Macca's pants Writer and broadcaster Stuart Maconie visited the home of Beatles' friend and biographer Hunter Davies for his new book, With A Little Help From Their Friends. Davies gave Maconie a tour of his Beatles books and other Fab Four memorabilia. 'At one point he took a Ziploc bag from a filing cabinet with what appeared to be a pair of Y-fronts in it: 'Would you like to see Paul McCartney's underpants? He left them behind in the villa when he and Linda stayed with us in Portugal'.' Boris's birthday boat Happy birthday to former Daily Telegraph columnist Boris Johnson who turned 61 on Thursday. The former prime minister is marking his big day today with a trip down the River Thames, three men in a boat-style. All the Johnsons have been invited, including his sister Rachel who will meet Boris's month-old daughter Poppy for the first time. Baby on board! Brandreth's other job Cuddly jumper wearing polymath Gyles Brandreth, 77, has barely any downtime. 'There's not a week, no exaggeration, when I'm not asked to be the voiceover on one of these funeral plan ads', he says: 'This is partly because I host on an annual basis the British Funeral Directors' Awards – the big prize at the end of the night is the lifetime achievement award for 'thinking outside the box'.' Trump's golf challenge Former PMs David Cameron and Theresa May, UK ambassador Peter Mandelson and US ambassador Warren Stephens helped Culture Secretary Lisa Nandy mark the restoration of George Washington's statue, in London's Trafalgar Square this week. 'We are delighted to be able to welcome the President on his historic second state visit to the United Kingdom,' she said. 'Although we are all having to brush up on our golf skills'. Trump is due here in September and has a handicap of 2.8. Better get practising Lisa. O'Flynn's legacy Mourners gathered at Mortlake Crematorium, south London on Monday for the funeral of the journalist and ex-Ukip MEP Patrick O'Flynn who has died aged 59. Peter Hill, O'Flynn's former editor at the Daily Express, revealed how O'Flynn persuaded him to launch an unlikely campaign for Britain to leave the EU in 2011. 'It was the perfect newspaper campaign,' Hill recalled. 'It wouldn't cost any money, and it stood no chance of success, which meant we could return to it at any time on slow news days.' How did it go? Illicit Nigel Nigel Farage is puzzled that he was voted sexiest MP by a dating site for married people looking for extramarital affairs. 'I find this completely and utterly and totally extraordinary,' he told GB News' viewers. 'Could it be that people [on that site] want naughty people, or could it be the clip of me when I was in the jungle on I'm A Celebrity, Get Me Out Here?''
Telegraph
4 hours ago
- Telegraph
The reason Trump is spending as little time as possible at the Nato summit
Donald Trump will spend as little time as possible on European soil next week when he heads to a crucial Nato summit for just 24 hours. He was set to arrive in The Hague on Monday evening before returning to Washington on Wednesday, but the White House says he will now arrive on Tuesday. A week after he left a meeting of the G7 in Canada early, apparently irritated at having to sit through a meeting on wildfires when his mind was on the Middle East, it will raise fears among allies that he has no time for the sorts of summits that underpin international diplomacy. Karoline Leavitt, White House press secretary, said the shortened trip was not a snub, but a reflection of how Nato has tightened the schedule. 'The president is a man of efficiency. He wants to get things done,' she said. 'More action, less talk.' Mr Trump has expressed his irritation with Nato in the past, even threatening to withdraw the US in protest at the way allies were shirking spending targets. But relations have improved in recent years as member states have accepted Mr Trump's arguments. His new schedule means he will still arrive in time for a leaders' dinner and will attend a session devoted to discussing allies' efforts to spend the equivalent of five percent of their gross domestic product on defence. 'He wants to see that happen,' said Ms Leavitt. At the same time, the tight turnaround reflects Mr Trump's impatience with big, multilateral groups. The president upended this week's G7 summit in Kananaski, Canada, hurrying home on Monday night to deal with the escalating conflict between Israel and Iran. He had hinted at his frustration as he addressed the media beside Sir Keir Starmer during the afternoon. He was asked about the chances of reaching a deal with Iran and said: 'As soon as we leave here we are going to do something. But I have to leave here. I have, you know, this commitment. I have a lot of commitments.' With the Middle East in flames, he then had to sit through a session on tackling wildfires. A former White House official said: 'He already thinks these meetings are a waste of time. I think you can see the timeline of a wildfire meeting followed by the announcement that he was leaving and draw your own conclusions.' Nato had already accounted for Mr Trump's mercurial nature, condensing its format from three sessions to a single two-and-a-half-hour meeting. Ms Leavitt said the president's travel plans simply reflected that shift. 'Nato has shortened its schedule,' she said. 'The president is rolling with the schedule that Nato has given us.' Organisers have shortened the summit and drafted an abbreviated joint statement in part to avoid a repeat of Mr Trump's last Nato meeting. In 2019, he left early, abandoning a planned press conference after other leaders were caught on camera joking about him. Brett Bruen, a former Obama official and president of the Global Situation Room, said the shortened trips were 'becoming a pattern.' 'He may not want to sit through a session on wildfires but it is the prerogative of the host of any of these summits to decide the agenda,' he said. More to the point, side meetings and other interactions were the place where a lot of business got done.
