Finally, a tax fight that actually means something

Angus Taylor and Anthony Albanese outlined duelling visions for the tax system this week. (ABC News: Matt Roberts) Link copiedShareShare articleWatching the public fall out of love with them and seek out new political homes, the Labor and Liberal parties have had the same idea at the same time as they scramble to rekindle the flame: maybe we try some tax reform? There was nothing very new about the policies either party dished up this week. Labor's trio of negative gearing, capital gains and trusts were dredged up from their 2019 election manifesto. And Liberals have fantasised about ending bracket creep for yonks. What surprised was the suddenness. Anthony Albanese might actually have been sincere before the election when he swore until he was blue in the face that he wouldn't touch negative gearing. The famously cautious PM showed no desire to pick that fight. And when Peter Dutton mused mid-campaign that he might very well get around to indexing tax brackets some day, the most generous interpretation is that he was "riffing". An actual, costed policy had been considered by his frontbench team and rejected. The reason for the caution on both sides was that tax reform usually fails. Everybody agrees on what the problems are, at least broadly. But nobody can agree on the solution, and our politics emphasises 'losers' over 'winners'. Fear campaigns usually work. Out the window with all that: both of the major parties are now having a crack at clearing out their too-hard baskets, the Liberals because they have nothing to lose and Labor because they have everything to lose. The rival visions share a fundamental insight — that the tax system is penalising ordinary people — but with radically different ideas of who is ordinary. And just as politics appears to be changing utterly, an ancient and very familiar left-right tax war has erupted. If there are two broadly-agreed problems with the tax system, they are that we don't have enough of it and we get it from the wrong places. The first is more contentious — Liberals tend to say we have enough and that spending should come down, whereas Labor's view (and, it seems, Treasury's) is that it's a little of both. Either way, the fact that taxing and spending are out of whack is not in dispute. But there is near-consensus on the second point — that our tax system is too reliant on collecting money from middle-class, working-age people. More than half of federal tax revenue comes from individual income taxes, the highest share since 2000. For once, the budget won't be a dull one. Jim Chalmers's tax reforms will create a stir and some question whether they will close the generation gap, but the treasurer is projecting a relaxed figure. The problem has a generational dimension. Whereas 50 years ago, there were seven working-age Australians for every retiree, today there are four. The social contract, under which people pay taxes when young and are cared for when old, is under strain. It also has a wealth dimension. In various ways, those who earn income from assets — "making money from money" — can pay less tax than wage earners. As Greg Kaplan of the e61 Institute has said, it makes an employee "about the worst thing you can be". And it has an inflation dimension. Because Australia's tax brackets are set in dollars, and do not change when the value of dollars change, people 'creep' into higher and higher brackets over time, occasionally getting bits and pieces back as tax cuts. Labor and Liberal politicians have acknowledged all three dimensions at one time or another. But now, while both are framing their changes as generational because they are chasing the votes of the young, Labor has chosen wealth and the Liberals inflation. Jim Chalmers' fifth budget included substantial tax reform proposals. (ABC News: Callum Flinn) The budget tax reforms to negative gearing, the capital gains tax discount and discretionary trusts have been shaped into an argument in favour of wage earners and against passive earners. This is compounded by the new $250 tax offset for wages and salaries only, the first time investment returns have been excluded from a tax cut, and a model Jim Chalmers has called "architecture" to build future tax cuts on. Just like it did in 2019, Labor is making an argument about wealth in Australia when it proposes negative gearing and capital gains tax changes. This is a subtle but important shift from the way Labor has talked about tax in the past. Its complaint about the stage three tax cuts designed by the Turnbull and Morrison governments, which it later redesigned, is that they favoured high-income earners. It was referring to people earning $200,000 per year or more, who would get the largest share of the benefit from the plan to scrap the 37 per cent tax bracket and push the threshold for the top bracket to $200,000 from $180,000. Labor's redesign was targeted at lower earners, keeping the 37 per cent, settling for a top threshold of

Finally, a tax fight that actually means something

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