Tax cuts: class war against aspiration?

A classic pragmatic Labor move

Late last week Australia’s Albanese-led Labor government introduced almost out of the blue a new income tax cuts scheme, replacing the extreme tax cuts for the rich legislated to start on July 1st. Alongside of its advocacy (so far) of significant annual wage increases for the lowest paid, we have another modest Laborist redistribution policy.

The new regime infuriates the employers, the Murdoch media and, of course, the LNP opposition led by Trump wannabe Peter Dutton. Shadow Treasurer Angus Taylor labelled the shift as class warfare against high-income “aspirational” citizens.

The government intends to legislate their scheme before the next Commonwealth Government Budget coming in May. Thus, income tax policy will be well known before other tax and social welfare spending measures.

The Albanese Labor tax cuts significantly change the Stage 3 income tax cuts of the previous Morrison Liberal-National Party coalition government that were passed in 2019. The Morrison scheme heavily favoured the richest income earners. Labor waved these through at the time, sort of disagreeing with them but not wanting to be wedged on tax cuts in the next election. Thus, Albanese and his government have broken a repeated promise, made during and since the March 2022 election campaign, that they would not remove the Morrison-LNP stage 3 gift to the highest and richest income earners.

They did not come easily to this “turn”, rather bumbling their way to it amid doubt and low confidence in the demands from the 90% to get on with it. However, having made the decision they moved quickly, including reinforcement from the Treasury. They justify the sudden “broken promise” by pointing to the persistent cost of living crisis for low- and middle-income workers.

The “fairness” difference between the Labor’s Stage 3 and the old LNP’s is stark and can be seen in this provided in the Guardian by Greg Jericho:

And there is this, also reported in the Guardian.

Treasury’s information also explains the case, including this case study (1 of 2 provided):

Emma is working part time as a shop assistant. After deciding to increase her hours in 2024–25, she earns $30,000. Under current rates and thresholds, Emma would have paid $1,942 in income tax in 2024‍–‍25. However she will now receive a tax cut of $354.

In addition to this tax cut, Emma will also benefit by $172 from the increase to the Medicare levy low‑income thresholds.

The new scheme must pass through the Parliament and the court of public opinion, and that includes a by-election in the seat of Dunkley in the southern suburbs of Melbourne. Probably, Labor will need the support of the Greens and at least 2 crossbenchers. At this stage the Greens are saying Labor’s plan does not go far enough, calling for a bigger cut for low-income workers and a harder hit at the highest income level.

The capitalist class’s furious reaction

All its voices condemned the new cuts.

In a joint statement by the 4 biggest employer organizations – coordinated by the Australian Industry Group – said, among other things, that the LNP’s stage 3 did more for productivity improvement and that the government’s new plans closed off that possibility. They provide no evidence for both assertions and, rather, implicate their members to likely search for other ways to avoid or dodge tax instead of concentrating on productivity improvement.

Dutton, the leader of the LNP parliamentary opposition focused on the honesty of the Prime Minister and tried to argue that there should now be an early election to justify the new plan. He has stopped short of saying he would repeal Albanese’s stage 3 if elected, asanother LNP leader suggested before being told to back off.

The Weekend Australian, the masthead for Murdoch’s Australian operations, focused its intensifying attack on the Labor government on the “bracket creep” implications of the new regime. One academic commentator who used to agree with that has explained why he, and former LNP Treasurer Peter Costello, are wrong.

Unusually, the right-wing think tank, The Institute of Public Affairs, a loud supporter of the flat tax type regime in the original stage 3, has been silent, neither their Facebook nor web page offering comment.

From “honesty” to equity

Up to last week Albanese Labor has spent 2 years trying to make a virtue of honesty in government. Having endorsed the Morrison LNP tax cuts when they were legislated – being pragmatic – they promised in the March ’22 election campaign, and in government since, they would not change them. Their stubborn determination, until this week, was driven by an electoral calculus that said honesty was a vote winner.

However, a relatively unorganized and noisy chorus of criticism, starting with left commentators in and outside of the Labor Party way back at the time of their legislation, has connected to the reality of low- and middle-income earners losing their standard of living partly because of inflation from supply chain disruptions, Reserve Bank interest rate increases, and profiteering by major corporations.

Labor Party MPs, once defenders of the Morrison tax cuts (some holding their noses while doing so), returned from their parliamentary duties in Canberra to the real world to learn that the government was not doing enough on the real cost of living – including housing, both mortgage and rental prices - and was losing support.

The prospect of losing the next election – being a one-term government – was looming.

The campaign against Labor’s new scheme will focus on any or some mix of the following:

• Albanese is a liar who can no longer be trusted by voters; a shameless opportunist seeking short-term parliamentary gain.

• Fight inflation by cutting social welfare and associated government spending not redistribution.

• The new plan means a tiny increase in the inflation rate and therefore does not solve the problem.

• The “Bracket creep” problem, where wage increases (still lagging price increases) shift workers into a higher tax bracket, is not solved.

• The new regime attacks and disrespects the efforts of “aspirational” Australians.

An aggressive Labor government can debunk the first four of these arguments, as Albanese has done. It may struggle with the fifth.

For example, every political organization must deal with the immediate situation, especially if it changes. How one deals with the immediate shapes and enables the possibilities in the future. That applies to the socialist left as much as it does any government.

Nevertheless, the pro-capital forces that will take these arguments to the public to create momentum for Labor’s defeat, including in the Dunkley by-election, have strong form waging successful war against workers on taxation. For example, the Minerals Council and the big mining corporations have prevented Labor governments and the Greens from winning redistributive corporate tax reform against them.

The Murdoch media machine is capable of destabilizing and bringing down governments and is ruthless in such endeavours. We see signs of that in the  Weekend Australian (27/1/24).

Other fronts in the living standards struggle.

The public “debate” coincides with the progress of the Annual Wage Review by the Fair Work Commission which focuses on the national minimum wage and associated wage levels in Australia’s industrial award system. Will this review take wages above the real cost of living? The deadline for submissions from unions, employers, governments and others is March 28th and the final decision is due in early to mid-June.

The same employer organizations pushing back against Labor’s new regime will now intensify their traditional demands for low or zero wage increases for the low-paid and those on award minimum rates. How the union movement will handle that is unknown at this time.

The Reserve Bank monthly meetings that set interest rates still want unemployment higher to weaken wage claims.

The annual May Budget is still a big deal. It must intensify fairer taxes and spending to build momentum for more equality and, introduce measures that hasten replacing fossil fuels with renewables. Every Australian community sits amid or nervously on the edge of some form of disaster from exponential climate heating. What Labor has been doing so far is inadequate and, in certain respects, plain wrong.

The real left in response

This new situation is also a big deal for the Australian left to the left of the ALP and the Greens. Labor’s new scheme is a victory of sorts for us because we have been arguing for something like it for several years now, despite not having a coordinating left organization or programme of demands to drive it.

Many of us will agree with the Greens that the shift does not go far enough in both the immediate and medium term in tackling unfairness, inequality and the quality of living. That is clear in the numbers shown above.

In pursuing these aspects of the standard of living, the socialist left should be seen leading the defence of the government’s new income tax regime, and the struggle against the employer and other forces that wish to defeat it and bring down the government. There is much more in the current tax scheme regarding profits and wealth that we can push to change. Thus, we earn our stripes to be taken more seriously by more workers and their leaders in social welfare organizations, unions and environment campaigns. (see below, Let’s not be content.)

Debunking “aspiration”

The real left could lead an intensified effort to debunk the ideology of “aspiration” developed by neoliberal think tanks, the LNP, and embraced by much of the parliamentary Labor Party (less so its grassroots membership).

Aspiration is promoted to justify seeking and accumulating more “wealth”, including through higher incomes that are not subject to income and other taxes. There is no sense that there should be an upper limit on wages and salaries. It’s defined as a virtue to be embraced by all. It conflates career progression with the aspiration to get more wealth. It marginalizes the “vocation” motive to progress to work using more complex knowledge and skills to be used for socially useful purposes.

The defenders of “aspiration” argue that more money in the pockets of the high earners will more likely be saved, thus not inflationary and in other ways positive for the economy.

However, the “virtuous saving” is worth a closer look, keeping in mind we are talking about the behaviour of less than 5% of wage and salary earners, those on the highest incomes, way above the median wage. What is done with those very high-income savings?  

First, some “saving” happens. That includes hoarding and overall, that’s not good for the productive capacity of any society. Even the Reserve Bank worries about it.

Mostly, however, the “saving” is manipulated through other aspects of the tax system and property law into assets that produce even more income, without any productive effort by the 5%. That includes the notorious protection of “capital gains” for the very wealthy so they can get wealthier.

Thus, the rich get richer without productive work effort, and they do not have to use those savings for any productive, socially useful outcome. In capitalism that’s defined as a good thing while everyone else (except children, the infirm, and the retired) works to produce and deliver the goods and services that we all need. Such “saving” helps to undermine social life for the majority and allows the dramatic erosion of the natural world.

The rise of “aspirational saving” coincides with a fall in the productive investment necessary to slow and reverse global heating, to remove fossil fuel energy from the economy, and a rise in inequality.

In truth, being “aspirational” is self-centred, selfish and individualistic. It does not enable the nourishing and development of individuality, each person’s potential capacity in work and life generally.

Being critical, and pushing for equality, are defined as “envy”. A bad thing.

Also, aspiration is a mirage because as much as low- and middle-income workers (the big majority of the workforce) might be persuaded, it can only be real for a small number, 5 to 10% of the workforce.  

Of course, that working-class 90% includes those who at the height of the pandemic continued working cooperatively, heroically, for example as health workers, and producing and distributing the food and water that was essential for the week-to-week isolated existence of the rest of us in isolation. The system ensures that “aspiration” will bear fruit for only a tiny minority of them.

Let’s not be content.

Laborism will want us to be satisfied with their new turn and not to press hard with demands for a comprehensive equality programme that includes the reversal of climate change for a restored quality of living. We can cheer, but the circumstances of our time demand a more comprehensive programme that includes more tax reform and is better than what the government is doing.

Big business will marshal its forces for a programme that is in their interest and not the 90% and which, therefore, protects the “rights” of the rich to play with their wealth for little or no social good.

Other forms of taxation are even more unjust, and offer rich spoils to the biggest investors and co-owners of medium and big businesses. Alan Kohler suggests the rich are still “laughing at us”.

And there are other dimensions of the social wage – various forms of wealth taxes, fossil/carbon reduction funding, and the destructive protection of profit-making in human services – that remain essential for the left programme.

That programme’s tax elements can focus on inequities in wealth taxes, profits, capital gains, and negative gearing. Frank Stilwell and David Richardson explain why and how in the recent issue of the Journal of Australian Political Economy.

That should be accompanied by, and be a part of, a big political economy education effort that goes deeper into the unions and environmental organizations (and others) than has been achieved for many years.