The case for major reform

If Prime Minister Anthony Albanese wants a second term, he will have fix the causes of the cost-of-living crisis, rather than throw a bit of direct relief at the bottom of the income ladder.

It is a bit like giving people walking sticks when they need joint replacements. It might increase their mobility a bit but it will not remove the pain.

He has to address the causes: tax; immigration; competition; housing; energy; health; and inflation. He is doing some of that, but not all and certainly not vigorously enough. They are all related and interdependent.

The two stand-outs are tax and immigration and it is here that Albanese is at his most vulnerable.

Last week he almost suicidally stuck to the Stage 3 tax cuts. Opposition Leader Peter Dutton must be cackling that his party wedged Labor into voting for the legislation in 2019 and that now Labor is witless enough not to understand the electoral equation.

It will be far less damaging to break a so-called election promise than not to.

If the tax cuts go ahead, they will cost so much (variously costed to around $320 billion over a decade) that there will be too little ammunition left to deal with the pressing policy changes needed to fix the cost-of-living problem without putting the Budget into high inflation-causing deficits with flow-on higher interest rates. That would also add to the cost of living, but not to those on high incomes (with no or affordable mortgages) who will be the beneficiaries of the cuts.

The cuts will also add to inflation by pouring at least $20 billion into the economy in the first year.

Since the cuts were legislated in 2019, we have had a pandemic; a major European war; an inflation spike; and now a Red Sea supply threat. When events and attitudes change, policies should change to meet them. Otherwise, we would be still be sending children down the mines, taxing windows, and hunting whales.

It was insane to legislate tax cuts five years out. By all means have broad long-term plans, but in an uncertain world, they should not have been cemented in.

Albanese should explain this to voters. He has nothing to lose. A broken promise only bites if expectations are shattered or people make arrangements based on the promise. That is not the case here. The loss of $9000 in tax cuts for people earning more than $200,000 would make little difference to their budgets.

The inner-city voters who deserted the Liberals for teal independents, did not do so on economic grounds.

Moreover, high-income people are unlikely to be Labor voters or if they are would be doing so on ideological and moral grounds, not economic ones. So, rearranging the tax cuts would not be a vote loser. To the contrary, redirecting the money away from the 5 per cent of taxpayers on more than $200,000 to the 95 per cent below that would be an obvious voter winner.

It should go to Medicare; public schools (so they don’t lean on parents so much); and rent and power assistance. All these would be anti-inflationary.

In general Australia taxes labour too much and capital and consumption too little, but that is a longer-term issue and one best addressed by subtle tweaking of tax arrangements.

Immigration adds to the cost-of-living burden. It adds to the housing crisis and inflation and worsens labour productivity.

Canada had a similar post-Covid surge in immigration. There, unlike here, some bank economists have not been scared to talk truth to power. National Bank of Canada economists are warning that Canada has fallen into a population trap. Without severe cuts in immigration, the economy simply will not be able cope. Living standards are under threat.

They warn that all available savings are needed to maintain the existing capital–labour ratio, making any increase in living standards impossible.

“We currently lack the infrastructure and capital stock in this country to adequately absorb current population growth and improve our standard of living,” the economists said. Nowhere is this strain more evident than in housing.

It is happening in Australia, but few economists are meeting their professional obligations to warn the public of the threat.

People see it in the form of housing hopelessness; strained infrastructure; congestion; pressure of wages and jobs; and strained health care. These will sound in votes. People will get angry and turn at the ballot box. However, voters will not get angry if immigration is cut to population-replacement levels.

In Canada, the Conservative Opposition has promised to cut immigration to levels that housing supply can meet. It sounds fairly obvious.

The health system is in critical condition. There is something wrong with our social contract when people avoid going to the doctor or dentist because of cost. It is especially broken if they do not send their children. Ultimately, we all pay when the failure to address short-term health matters results in emergency hospital admissions.

The social contract is broken when a government is willing to shower the 5 per cent earning more than $200,000 with a $9000-a-year tax cut while Medicare – even topped up with private insurance – no longer provides quality, affordable health care to everyone.

On competition, the Government is on the right track. The Australian Competition and Consumer Commission has been crying out for years for more power to prevent dominating corporations price gouging. The Government has promised to respond.

Energy, too, is a longer-term matter. But handing rebates out on power bills is badly targeted, even if popular. About 3.3 million households have solar on their roofs, mostly bought with government subsidies. Their power bills are low or even negative. They do not need the subsidy.

The big-long-term issue is to enable renters to take advantage of solar. But there are no incentives for landlords to install it or disincentives not to. Also, it is difficult for apartment dwellers to install and share.

Again, fixing the underlying causes of high energy bills would be better than just throwing some band-aid money at the problem temporarily.

In the past several decades, government policies on tax, immigration, health, and education have slowly moved services and resources from middle- and lower-income households to higher-income households.

That trend should be reversed not added to with big tax cuts for the top 5 per cent, and the underlying structural policies should be changed not swept under the carpet with a few cash breadcrumbs disguised as action on the cost of living.

Crispin Hull is a former editor of The Canberra Times and regular columnist.

2 thoughts on “The case for major reform”

  1. Gee, what a surprise, it’s still raining migrants, we’ve hit 27 million, thirty years earlier than “predicted”. You can’t always rely on those ABS “projections”, as Dr Andrew Leigh likes to smirk.

    Hence Labor fakery of: housing accord, migration reform, power rebates, grocery review, cost-of-living relief, and now “tax cut backflip”. Anything to avoid discussing the insane immigration impost (Albanese’s incredible 60% hike, on top of Rudd’s 24-month record) itself. That’d be racist.

Leave a Reply

Your email address will not be published. Required fields are marked *