Clarity on the jobs summit has to start right at the top.Credit:Alex Ellinghausen
But it is a story with a deadly twist for Anthony Albanese’s government. The newly ascendant professionals also represent the revenue side of the budget that is bleeding ordinary workers. Welcome to the dilemma of the stage-three tax cuts,which Labor waived through the parliament last year even though they were unaffordable,regressive and biased towards men.
These are the tax cuts that Labor couldn’t afford to oppose before the election,but can’t afford to implement now. The cost to the budget was originally put at $15.7 billion in 2024-25,and $18.3 billion the following financial year,according to an assessment by the Parliamentary Budget Office. The revised cost is expected to be muchhigher.
But scrapping the tax cuts outright,or delaying their introduction by a year or two,would not return the budget to surplus. Liberal treasurer Josh Frydenberg’s pre-election budget estimated a deficit of $47.1 billion in 2024-25,and $43.1 billion the following financial year. Those numbers now appear to be too optimistic. Although the bottom line is recovering faster than expected in the current financial year and the next thanks to surging commodity prices,bracket creep and the jobs boom,the latest Treasury estimates are expected to show the deficit blowing out again in the very years the tax cuts come into force.
Before the election,Albanese and Jim Chalmers had no choice but to go along with the so-called “stage three” tax cuts.Credit:Alex Ellinghausen
And herein lies the first of the many dilemmas for Prime Minister Albanese and Treasurer Jim Chalmers. The economy will be noticeably weaker by 2024 than previously hoped. The Frydenberg budget,delivered in late March,assumed that gross domestic product would expand by 4.75 per cent over the course of this calendar year,slowing to 2 per cent in 2023 and picking up to 2.5 per cent in 2024. The latest Reserve Bank estimates released last week read as follows:3.25 per cent in 2022;1.75 per cent in 2023 and 1.75 per cent in 2024. We are getting perilously close to recession on these forecasts.
A stimulus of some sort may well be needed in 2024 to prop up demand,especially when households will be into their third year of higher interest rates,and real wage cuts. So scrapping or delaying the tax cuts is,in fact,risky fiscal policy.
It is the second and third strikes against the tax cuts – their skew against middle Australia in general,and women in particular – where the economics and politics are more compelling. No self-respecting Labor government would design the tax scales to deliver 78 per cent of the benefit to the top 20 per cent of earners ($12.2 billion of the $15.7 billion in 2024-25),or split the dollars 67-33 between men and women ($10.5 billion versus $5.1 billion).