Inside Story

Albo’s choice

Steady-as-she-goes government is unequal to Australia’s challenges

Tim Colebatch 24 April 2023 2593 words

No surprises: prime minister Anthony Albanese at Parliament House today. Lukas Coch/AAP Image

John Howard won the 1996 election after promising to make Australians “relaxed and comfortable.” Anthony Albanese didn’t make the same promise at the 2022 election, but judging by the way he came to office and now governs, it seems to be his motto.

Howard’s promise was a dog whistle to Australians that he would end the continual economic change of the Hawke–Keating years and the turmoil caused by the 1990–91 recession and other policy errors. Under pressure from big business, he broke his promise and introduced the GST, but in the generation since then, the only substantial reform we’ve seen has been the short-lived carbon tax.

Almost a year into its term, the Albanese government has fine-tuned many small things but embarked on no really big changes, and none are foreshadowed. It’s unleashed no surprises other than committing future governments to spend up to $14,000 for every Australian on nuclear-powered submarines. Nothing the PM and his team have learned in office seems to have changed their priorities or their sense of what Australia needs.

At each policy announcement, Albanese reminds us that Labor put this policy to voters at the election. Fulfilling campaign promises has become his mantra, his commitment: it proves that his word can be trusted. He is governing as he campaigned: as a small target, promising changes only if they are popular. And politically, as the opinion polls show, it’s working.

After almost a year of Labor in power, perhaps the main surprise is that so little has changed. It feels a bit like Orwell’s Animal Farm. Refugees remain locked up in Nauru, but now it’s a Labor government that is paying a US security firm hundreds of millions of dollars to provide “garrison and welfare” services. Whistleblowers David McBride (Afghanistan) and Richard Boyle (tax office intimidation) are still being prosecuted for exposing unwelcome truths, but now by a Labor attorney-general, Mark Dreyfus.

The real wages of Australian workers are falling even faster than before, yet the Labor government plans to deliver tax cuts to the rich. Australians on lower incomes remain priced out of home ownership, endless economic debates bring no action, and sky-high energy prices haven’t lifted the budget out of a structural deficit the International Monetary Fund now estimates at 3.25 per cent of our GDP — more than $80 billion a year.

This is one of the few Western countries with no economy-wide carbon price and no vehicle-emission standards, and no plans for the former and endless reviews for the latter. Sure, the Voice to Parliament could prove an important step forward, maybe, if it works well and governments listen to it. But the pace of reform generally under Albo’s rule has been a gentle trot.

Welcome to Australia 2023, where life is relaxed and comfortable.

Have Anthony Albanese and his ministers found no urgent issues in their first year that can’t be solved by Labor’s 2022 campaign promises? Given the problems we face, is it enough for them to stick to their pre-election script and aim to keep out of trouble?

Or is the reality, rather, that Labor’s campaign policies, designed to be popular, do too little to fix some of the biggest problems confronting us? It will be challenging for just 215 selected companies to deliver Labor’s target of reducing emissions to 43 per cent below 2005 levels by 2030 — assuming integrity reforms ensure those reductions are genuine. Australia’s per capita emissions will probably remain the highest in the Western world.

Labor’s policies are clearly inadequate to fix the problems of the economy, or of the budget: more on that in a moment. Across the board, its problem is that as the traditional party of social justice it has raised expectations it has no plans to meet. By camping in the middle ground, it leaves its traditional radical base looking for an alternative. Increasingly, they are finding one.

As psephologist Ben Raue of The Tally Room has pointed out, Labor won the election with 52.1 per cent of the two-party-preferred vote — but only 32.6 per cent of voters gave the party their first preference. Three in every eight voters in the broader Labor camp preferred Labor to the Liberals but chose to vote first for other parties (mostly, the Greens) or independents.

It’s been a long-term trend, and it’s getting stronger here and around the world. Ten years ago, the Socialists ruled France: today they are a minor party. Germany’s Social Democrats are gradually being overtaken by the Greens.

When Labor came to power in 2007, the House of Reps had just two crossbenchers, Bob Katter and Tony Windsor. Today it has sixteen, with another eighteen in the Senate. Overwhelmingly, they are to the left of Labor. Sure, they won’t support the Coalition. But if Labor keeps losing voters and seats to the left, will this be its last majority government?

Contrast the responses treasurer Jim Chalmers gave to two key reports he released last week. The first, by the government’s expert Economic Inclusion Advisory Committee, reported that Jobseeker and related benefits for people of working age are “seriously inadequate,” leaving many recipients in such financial stress that some “[have] to choose between paying for their medicine or electricity bills.”

Chalmers released the report at 5.10pm on Tuesday evening, too late for it to get appropriate media coverage, and issued a statement making it clear that Labor would not implement its proposals. “We can’t fund every good idea,” he said, emphasising that support for those most in need had to be “responsible and affordable… and weighed up against other priorities and fiscal challenges.”

Two days later, Chalmers released another report, this time on the Reserve Bank, by three monetary policy experts, essentially into how interest rates should be set. He announced that all fifty-one recommendations would be accepted, including its core proposal that interest rates be set by a committee of experts, as in the United States, to embrace a wider spread of informed opinion.

The contrast was striking. Labor today feels at home with highbrow issues of economic policy, and is willing to act swiftly and decisively on them. But it doesn’t want to know about the problems of those most in need, and does not intend to do anything about them.

Yes, the budget is in a desperate situation, and this is no time for unfunded new spending (such as $380 billion to buy a dozen or so submarines). That’s why many of us have been arguing that Australia needs to get the budget back in the black by closing the tax loopholes that mean we raise far less revenue than most other Western countries.

A recent report by Grattan Institute economists Danielle Wood, Kate Griffiths and Iris Chan conceded that there are no easy options but proposed getting there mostly by closing loopholes — and making normal budget rules apply to politically driven spending on infrastructure and defence. We don’t need to raise taxes: we can get there by scrapping tax concessions.

For example:

• Reduce tax breaks for superannuation, especially for retirees and high-income earners.

• Redesign the stage 3 tax cuts to eliminate the overcompensation of high-income earners.

• Scrap the Coalition’s decision to tax small business profits at a lower rate than those of bigger firms.

True, Grattan also recommends some tax rises on mainstream Australia, notably lifting the GST to 15 per cent, widening its base, and compensating only the bottom 40 per cent of income earners for their losses. But closing loopholes is easier politically than raising the GST or tightening the assets test for pensions.

A Resolve Strategic poll last weekend in Nine’s Sunday papers found that only 17 per cent of Australians say they want to close the deficit by raising taxes, whereas 40 per cent say they want to close it by cutting spending (and another 26 per cent want to just keep running up debt). But the poll failed to ask what spending the cutters wanted to cut, whereas it asked everyone what they thought of specific tax increases. And, hey, most of them attracted more support than opposition.

For example:

• Increase taxes on the profits of resources companies: 58 per cent support, 12 per cent oppose, 30 per cent undecided.

• Reduce tax concessions for negative gearing: 44 per cent support, 21 per cent oppose, 35 per cent undecided.

• Cancel or reduce stage 3 income tax cuts: 34 per cent support, 23 per cent oppose, 43 per cent undecided.

• Reduce tax concessions for superannuation: 37 per cent support, 28 per cent oppose, 35 per cent undecided.

• And, on raising the $50 a day rate paid to unemployed people reliant on Jobseeker benefits: 43 per cent support, 31 per cent oppose, 26 per cent undecided.

That contrasts sharply with voters’ usual knee-jerk opposition to any tax rises. The more Australians have been talking about it, the more people have come to see them as necessary. On negative gearing, for example, the number opposed to reform is now about the same as the number of people who own rental properties. Unfortunately, one of those is Anthony Albanese.

Chalmers has been given a looser rein to let us know that the budget is in bad shape, and has led the way in encouraging debate on tax increases. But Albo himself has seemed to stand above all that. He is not warning Australians of hard times ahead. He is not asking us to make any sacrifices. And above all, he is not drumming home a message that things must change. His message is: business as usual.

But times are tough. The IMF recently downgraded its forecasts of Australia’s economic growth to 1.6 per cent this year and 1.7 per cent in 2024. With our population swelling at a record 400,000 a year, that implies two years of zero or negative growth in per capita GDP. It hasn’t led to rising unemployment yet, but if the IMF forecast is correct, it will.

What wasn’t reported here was that the IMF’s medium-term projections see Australia’s growth per capita sliding towards the bottom of the pack: over the next five years, only Canada will rank lower among the dozen largest advanced economies. On the IMF’s projections, Australia would also lose its proud position as one of the world’s twenty largest economies. (That’s on the IMF’s preferred measure, which adjusts for differing cost levels to measure the real volume of production.)

With real wages set to fall by 8 to 10 per cent over this period, it seems a very strange time to be delivering tax cuts costing more than $25 billion a year and directed overwhelmingly to high-income earners — those who by definition are doing well and least need help.

We can all understand Labor’s desire to be seen as keeping its word. But this was a bad reform that ordinary households’ loss of buying power has made worse. I suggest a compromise that keeps some key elements of the package but redistributes the gains more fairly. Rather than abolishing the 37 per cent marginal tax rate, reduce it to 35 per cent with the same thresholds as now — but add a new 40 per cent rate for income from $180,000 to $200,000, and a timetable to raise that threshold to $250,000. Over time, that would save the budget a lot of money, without taking everything from those who would gain from the plan Labor promised them.

As the Grattan Institute report points out, the budget is in even more trouble than it seems to be, because it assumes continued underspending in areas where that is clearly unsustainable. In areas like aged care and regional hospitals, jobs can’t be filled because governments have failed to ensure enough funding to pay the going rates. Country and even suburban GPs are closing down because the long Medicare freeze on rebates has made general practice unviable as a career.

These are just some of the many areas where Labor has raised expectations of change that it can’t deliver with existing revenues. Australia already has full employment; mineral prices are already close to record highs. This budget can’t be fixed, and the underspending lifted to adequate levels, without revenue increases on a wide range of fronts. Labor is flagging a few nibbles at tax reform in the 9 May budget. That won’t do it.

In the end, these are moral issues: we should raise the rate of Jobseeker because it is wrong to make people relying on it (40 per cent of whom have mental health issues) live in such abject poverty. One told last week of taking the lightbulb with her from room to room because she couldn’t afford a second one. But the moral issues don’t seem to resonate with the cynical hardheads running Labor.

They ignore them on political grounds. The Coalition won’t do anything about them, so there’s no need for Labor to do anything either. Most voters, they say, don’t care how low the dole goes — at $50 a day, it’s now about a third of the median wage — and those who do are soft-hearted lefties who end up having to vote Labor anyway.

But wait. Yes, back in 2007, when Rudd was elected, voters on the left had no other choice. Labor had 43.8 per cent of the votes, while the combined vote of the Greens and independents of all shades was 10 per cent. The Greens won 20 per cent of the three-party vote in just one seat, when a young lawyer named Adam Bandt pipped the Liberals for second place in Melbourne. They couldn’t win seats: their role was to help Labor win seats.

Fifteen years later, that reality has gone. At the 2022 election Labor won just 32.6 per cent of votes for the House of Reps, while the Greens and independents won 17.5 per cent. Their vote has been swollen by former Labor supporters who have moved left because of issues like these. They don’t want unemployed people to be condemned to live in dire poverty. They don’t want refugees to be locked up on Pacific islands. They don’t want whistleblowers to be prosecuted, or Australia to keep dragging its feet on action to slow global warming. Labor is no longer their party.

Peter Dutton is risking giving Liberal voters more reason to abandon his party and vote independent. Albanese risks giving Labor voters more reason to abandon his party to vote for the Greens. Last year they took Griffith from Labor, overtook it to claim the marginal Liberal seats of Brisbane and Ryan, and came just 300 votes short of taking Macnamara (formerly Melbourne Ports), a seat Labor has held since 1906.

Honeymoons rarely last until the next election. If Labor alienates more of its base by inaction or half-hearted measures on issues that matter to them, it risks losing more seats. Macnamara would fall to the Greens in a swing of 0.3 per cent, while its neighbour Higgins (2.4) and Richmond (1.3) in laid-back northern New South Wales are very marginal. Another seven Labor seats had a margin of less than 10 per cent over the Greens — and while that’s big, the Greens won most of their seats with higher swings than that.

Remember 2010. The media focus was on Tony Abbott and Julia Gillard, but the vast bulk of the voters who deserted Labor went to the Greens. Their vote jumped from 7.8 to 11.8 per cent, and they picked up Melbourne — and four extra seats, and the balance of power, in the Senate. Labor has never regained the seats it lost.

Another swing like that would take a lot more seats with it. It could mean this is Labor’s last majority government. •