Albanese's long game on reform
By Nico Louw
First published in the MRC’s Watercooler newsletter. Sign up to our mailing list to receive Watercooler directly in your inbox.
After months of hype, the Government’s economic reform roundtable didn’t amount to much.
Economists and journalists may be impatient for much needed reforms, but Albanese is in no rush. He is governing for survival, not reform.
He knows that while voters say they support ‘big reforms', their support tends to evaporate when they see the details, especially if it’s a surprise.
So although there is a broad consensus that we cannot tax and spend our way to prosperity, there is a significant risk that this remains Albanese’s preferred approach.
Albanese’s strategy
Research shows that many voters have become more cynical. They have shifted from thinking the system isn’t working for them, to believing it is actively rigged against them. An astonishing 64% of Australians agree the "economy is rigged". Only 12% disagree.
Despite being in Government, Albanese is positioning Labor to harness this wave of discontent. He wants to be seen as the one protecting Australians from a rigged system, rather than fixing it.
This means not surprising people with new reforms, dismissing concerns about spending and taxes, and spending whatever it takes in the name of delivering for voters.
Albanese doesn’t mind dismissing calls for reform, because he is playing the long game. He told Radio National on Monday that “the economic roundtable wasn't about just this year or this term”.
When challenged on the mismatch between spending and revenue, Albanese dismissed the question:
“Academics talk in [the] academic world, what I do is live in the real world. And in the real world, my Government's focused on delivering for people.“
The potential tax agenda ahead
Albanese’s comments should be interpreted against the three guiding principles Jim Chalmers outlined for the tax system, which can be summarised as:
A ‘fair go’ for working people and intergenerational equity.
Incentivising business investment.
A sustainable Budget.
What Albanese’s language tells us is that he believes none of these require a lower tax burden.
When he sees that Government spending is now the highest it has been in 40 years outside of the pandemic, exceeding revenue by 1.5 per cent of GDP, he doesn’t see a spending problem — he sees a revenue problem.
This problem can be solved with higher taxes. The ‘intergenerational equity’ objective gives Chalmers a way to lower income taxes while increasing others — the most likely candidates being superannuation, trusts and capital gains.
The Productivity Commission has at least started a conversation about lower corporate taxes. If Chalmers wants to achieve this, it might mean abolishing fuel tax credits and/or increasing the bank levy.
The long game
We have some sense of the what, but not yet the how.
The Government has political capital to burn. Chalmers seems keen to strike the match now.
Albanese looks like he is dithering, but it’s just as likely he has his eye on winning a third term. He knows his large majority rests on a low primary vote.
He would also be well aware that Keir Starmer was similarly elected in the UK with a low primary vote and a mandate to do nothing, and is already in deep trouble. A misstep this early in the term could put Albanese in the same position.
This means the Opposition needs to be ready for a potential scenario that looks something like this:
Having adopted the Abundance Agenda, the Government cuts red tape, especially to speed up housing and environmental approvals. They also drop plans for an AI Act to avoid overregulating a potential source of productivity growth. These would all be welcome moves.
The Government progresses NDIS reforms to constrain unsustainable growth, especially in participants with autism, with the bipartisan support of the Coalition (after years of cynically blocking similar Coalition attempts).
Albanese declares mission accomplished for this term. He can say he has ticked the box of supporting productivity with red tape cuts, and can point to the NDIS every time he is accused of not getting spending under control.
Albanese could then decide the right way to risk his political capital is through a “win now, tax later” approach — i.e. seek a mandate for higher taxes through an election, perhaps even an early election.
He promises more spending for services and a path to universal childcare, maybe even income tax cuts, but argues that the Budget has a revenue problem. He’s on your side to protect you against a rigged system and fix intergenerational equity, which means no more reductions in spending (he’s already done the work on the NDIS afterall).
All you have to do is give him a mandate to change the tax mix to go after business, and wealth tax concessions.
Why it matters for younger generations
We should not underestimate the cynical appeal of this message. It is easier to spend political capital giving people what they want in the short term, instead of making the case for what’s needed in the long term.
The irony is that a tax and spend agenda will be packaged and sold as supporting intergenerational equity, when it’s younger generations who will pay if spending isn’t brought under control. This is not to say there are no changes needed to the tax system, but these must be coupled with action to restrain spending.
At the Menzies Research Centre, we believe genuine intergenerational equity demands more than higher taxes. We will continue to put forward policies and reforms aimed at ensuring the next generation do not pay the price of today’s short-term politics.
