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Labor Retreats on the Principle of Progressive Taxation

Last month Anthony Albanese announced that not only was Labor backing away from contentious reform of Negative Gearing and Capital Gains tax; it was also prepared to back income tax cuts for the wealthy; such that Australia will drift towards a flat and regressive tax regime with Labor’s implicit consent. As Greg Jericho writes for The Guardian, Labor is supporting the entrenchment of a tax regime which will see those on below-median and below average wages effectively paying the same rates of tax as income earners between $120,000 and $200,000.

Rob Harris – writing for the Sydney Morning Herald – explains that these tax ‘reforms’ will cost the Budget “an estimated $137 billion” over their first six years. Specifically, the 37 per cent tax rate will be abolished and a 30 per cent rate will apply to all income between $45,000 and $200,000. This will occur at a time where ordinary Australian workers will need to service the massive debt induced because of Covid wage subsidies and other subsidies for business. Those subsidies were (and at the time of writing still are) necessary; but the debt should not be serviced in a regressive fashion which affects those least able to pay. And because those on lower incomes spend a greater proportion of their incomes, policies which impact negatively upon them will be ‘bad for the economy’ as well.

Yes, there is a very small minority of wage labourers and others earning over $100,000 a year. Maybe ten per cent. But because of their relative privilege parts of this ‘labour aristocracy’ can be inclined to support economically-Liberal distributive taxation policies which minimise redistribution. The vast majority of wage labourers and vulnerable Australians will not benefit from this policy. In fact, the scope will be also reduced for improvement of social security and the social wage. Labor will be restricted in its capacity to deliver reform of Social Security, Medicare, the NDIS, public and social housing, Aged Care. In the field of social security, easing means testing of recipients with partners could also remove a perverse incentive for disabled Australians to shun relationships because ‘they cannot afford not to be alone.’ Reform of the Jobseeker Allowance (previously ‘Newstart’) is also long overdue and widely accepted.

With Aged Care, Labor is committed to staff ratios; but to provide this without regressive user pays mechanisms the funding needs to come from somewhere else. Either reform will be funded progressively or regressively; or otherwise (even after the Aged Care Royal Commission) it will not happen at all. After the Royal Commission findings; which identified gross structural neglect of Aged Australians receiving care; this would be a damning indictment of the major political parties in Australia who failed to mobilise public opinion around reform even after the shortcomings of the system were laid bare for all to see. It is not too late to embrace a progressively structured ‘National Aged Care Insurance Levy’ to fund reform of Aged Care in this country.

True, Labor is also intending to reform labour market regulation; but that in itself will not make up for the distributive consequences of this policy. It will be a case of ‘one step forwards, two steps back’ for Labor where nothing can make up for capitulation on the principles of progressive taxation and redistribution in the most basic sense. Nonetheless if reform of labour market regulation is strong enough it could still make a difference. Specifically minimum wage rates need to increase significantly; as well as Award rates for struggling workers – many of whom work in feminised professions such as Aged Care. Teachers – many of whom also already work unacceptable levels of unpaid overtime – could also do with improved wages and conditions; and this is essential to attract and maintain the most capable practitioners in the system.

Talk of ‘aspiration’ clouds the fact that Labor’s new tax policy will favour the top ten per cent at the expense of everyone else. There was a time when radicals would have seen talk of ‘aspiration’ as a kind of ‘false consciousness.’ But today Labor is so afraid of the ‘class warfare’ label that it shuns policies that impact even modestly on the top 10 per cent and in favour of everyone else. Yet ‘flat taxation’ itself is in fact a kind of ‘class warfare’ against the vast majority of working people.

The fact is that in the last election Labor had strong but reasonable tax policies; but failed to sell and explain those measures at crucial conjunctures. Chris Bowen said those who didn’t like Labor’s tax policies shouldn’t vote Labor. And when many voters failed to grasp Labor’s policies that is exactly what they did. Furthermore, in the final days of the election campaign – with Bob Hawke’s death – Bill Shorten came across as flat, unconvincing and unemotional. Despite his commendable work on the NDIS; and the credit for embracing progressive tax policies in the first place – this fact remains.

Conclusions to the effect ‘it is impossible to sell tax reform’ neglect the fact that Labor failed tactically in mobilising public opinion. Some Labor figures are reacting defensively to criticisms from the Greens to the effect that Labor is supporting a drift towards flat taxation. But while the Greens can afford to be more radical because they depend on a narrower electoral base, that does not change the fact that Labor is capitulating on the most basic social democratic principles. It does not change the fact that we are failing to sell policies that are objectively in the interests of the majority of Australians.

Again: where a bipartisan consensus on radically-regressive tax restructure is conceded, even where Labor does win with such a Platform it is probably a case of ‘one step forward, two steps back.’ Progressives have to actually deliver progress if they are to be seen as credible. At the moment the best hope now is a National Aged Care Insurance Levy, and strong labour market reform. Here’s hoping Labor ‘finds its way’ between now and the election.

This article was originally published on ALP Socialist Left Forum.

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10 comments

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  1. Pete Petrass

    If Labor are going to support this flat tax rate then they MUST, as an absolute minimum, increase the tax free threshold to compensate lower income workers.

  2. pierre wilkinson

    maybe they intend to do a Coalition and amend their approval if they get in, citing fiscal responsibility and now is not the time protocols

  3. Alpo

    It’s just a tactical retreat, often necessary if you want to win the war….

    Continuing full steam ahead, no matter what, just to lose yet again benefits absolutely nobody on the progressive side, it just benefits ScuMo and his Coalition gang.

    It will be extremely easy for Albo to argue that, once they are in government: “The books are a total disaster, the Coalition have left Australia in a nightmare of debt and deficit, we have to balance the books and the only way to do that is to make the 1%, Big Companies and Multinationals pay their fair share of taxes…. a flat tax rate is something that the country cannot afford”.

    On the other hand, both the poor and middle class can keep their tax cuts as we know that they spend their money in the usual economy, and therefore they will help in the recovery.

    Done!

  4. Jo.

    Pete Petrass, increasing the “tax free” threshold aids/assists/benefits/advantages ALL taxpayers – from the poor to the rich. No tax on the first $40 000, for example, means no tax (on the first $40 000.) for those who earn $20 000, those who earn $40 000 and those who earn $400 000.00.

    That’s not the best course of action.

  5. Andrew J. Smith

    Agree pierre wilkinson, do what the LNP have done, e.g. Abbott? Simply call a ‘budget emergency’ citing cost overruns by the LNP govt. on e.g. defence procurement, corrupt subsidies etc., put themselves on a quasi war footing, and while they are at it advertise the LNPs incompetence and hypocrisy when in government.

    However, the issue for Labor is the need for very good PR comms people with nous, creativity and simplicity in their messaging (across all media) which can rebut the LNP’s counters; while the LNP can simply rely upon media to its bidding…..

  6. Jo.

    Alpo – Albo can do much better than (overtly) break a promise and in so doing mimic what the LNP does. Instead, get on the front foot and promise a root and branch review of Federal, State, and Local government revenues, charges etc. Include, for example, royalties, as well as taxes et al. Make it a positive election promise.

    Make it a Royal Commission to be Chaired by X, Y and Z with a number of Commissioners to chair various sub-commissions etc. Importantly, don’t develop Terms of Reference until (and if) he wins the election. Kill it as an issue before an election. Think it through. Make it a positive that brings on board all levels of government as well as employer and worker groups.

    There’s any number of public figures who would be involved that are not overtly connected to any political party. Etc.

  7. wam

    Jo increasing the tax free threshold means ALL get a tax cut. The median income is low if the tax free threshold was $50k half the workers would pay no tax and the pollies would pay tax on $150k and the $400k boys would pay tax on $350k surely that is better than tax cuts for the rich and effall for the worker???
    Yes andrew, labor needs PR must use KISS and just repeat the rorts and cash splashes to the morning luch and evening commercial tv shows who will take hold of controversy(for me to smack the loonies over the unlimited cash for the lnp has a grass roots place to get some sheep back from the loonies)

  8. Mr Bronte ALLAN

    Good article & a great fear of just what Labor is proposing. WTF??

  9. Mr Bronte ALLAN

    Good article about what Labor is proposing re “tax reform” (?), WTF??

  10. John Tansey

    Great Article Tristan Keep writing

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