Labor Is boiling The Frog Of Higher Taxes

Written by:
24 August 2023
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If you wanted to increase taxes you’d do it precisely the way the government is doing it. Bit by bit, step by step, avoiding anything that looks remotely “big bang” or Whitlamesque.

Hopefully the ABC is wrong. According to its political correspondent the Intergenerational Report is “one of the most important documents that will help shape public policy for decades to come”. If that’s true, then Australia’s path for the next 40 years is higher taxes and bigger government.

The softening up has already started. Superannuation will be the first target for more tax (as it always is). Labor’s lines are all there in the ABC news story. “Superannuation tax concessions, as a share of GDP, will rise from 1.9 per cent to 2.4 per cent. If realised, that will see these concessions overtake aged pension spending in the 2040s.”

Before too long we’ll be hearing things like “superannuation is costing us more than it’s saving”. But rather than acknowledging that compulsory superannuation has failed its objectives and should be abolished, taxes on retirement income will just go up. To be fair, when it comes to superannuation Albanese and Chalmers are doing nothing different from what was done by Turnbull and Morrison. The Coalition started the attack on principle that the rules for superannuation should be inviolable and Labor will sound its death knell.

Meanwhile government will continue to grow. Again as the ABC reported – “spending on health, aged care, the National Disability Insurance Scheme, defence and interest payments on government debt will go from accounting for a third to half of government spending”.

Labor is smart, though. If you wanted to increase taxes you’d do it precisely the way Labor is doing it. Bit by bit, step by step, avoiding at all costs anything that looks remotely “big bang” or Whitlamesque. You’d raise taxes the same way you’d boil a frog – gradually. Which is the opposite of how you’d cut taxes. The Coalition got zero electoral benefit for its “stage three” tax cuts. They were announced in 2019 to take effect in 2024. If you’re lowering taxes you take the “avalanche” approach – everything at once so people notice. On the other hand, raising taxes (or cutting welfare) is done in the same way as salami is sliced. If the pension age had been increased from 65 years of age to 67 in one go there would have been outcry. Instead the eligibility criterion was tightened over six years, so that now most Australians probably wouldn’t be aware the pension age has been changed.

There’s little prospect of Labor implementing a major overhaul of taxes or increasing the GST rate in its first three terms of government. To do so would draw too much attention.

The key problem with reports of this kind is that nothing is inevitable. Governments make choices about how much to tax and to spend

This is again from the ABC: “Dismissing calls for a major tax shake-up, the government intends to continue pursuing incremental reform in what it calls ‘bite-sized chunks’, including its already announced changes to superannuation tax breaks, tobacco excise and petroleum resource rent tax. Sources have told the ABC there would be neither GST changes nor income tax changes beyond the already legislated stage three tax cuts.

To see how Labor is going to increase taxes one only need to look at how it is implementing its industrial relations “reforms”. It’s not one big package of change – it’s a never-ending series of adjustments and tweaks that end up being a comprehensive re-regulation of the labour market. No single element of Labor’s plan is enough to provoke a full-scale war with business (assuming, of course, business has any inclination to fight an ALP government).

Anything like the Intergenerational Report is only as good as the assumptions upon which it is built. Many of the assumptions of previous reports have proved hopelessly wrong.

The key problem with reports of this kind is they forget that nothing is inevitable. Governments and the public make choices about how much to tax and to spend. For example, the claim drawn from the report that “the care economy is forecast to account for 15 per cent of GDP by 2063, up from 8 per cent at the moment” assumes that such an outcome is preordained – but it’s not.

In the years to come we’ll hear from Labor with increasing urgency, “we have no choice but to raise taxes” and unless something changes it seems that’s exactly what an increasing number of Australians will come to believe.

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This article was originally published in The Australian Financial Review and was written by the author in their capacity as a contributor for that publication. It has been republished on the IPA website with permission. The views expressed are those of the author alone.

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