Albanese can break reform gridlock, but will he dare?

Every incoming government faces a policy void after the easy election promises are delivered. It is the moment when the critique of the previous regime’s wasted years in office shifts from a free kick against a wounded opponent to a diabolical challenge for the new incumbent. What are you going to do to fix the problems that the other side ignored?

It’s a loaded question because the rules of the game suddenly invert. No matter how pressing the challenge, the government can’t respond with any credibility if it didn’t seek a specific mandate beforehand, or at least signal that it was willing to act.

Illustration: Simon Letch

This is the Catch 22 facing Anthony Albanese and his ministers as they confront a series of overlapping crises, from the structural budget deficit and inflation to climate change and regional security. Which of these challenges will force the government to act beyond its mandate, and in defiance of an opposition scare campaign, because waiting till after the next election due in 2025 will be too late to secure meaningful change?

It is clear the government has turned its mind to this dilemma. This week Treasurer Jim Chalmers and Home Affairs Minister Clare O’Neil took the first logical steps in dealing with the long-term issues facing their respective portfolios by opening debate on politically risky problems they inherited from the Coalition.

For Chalmers, it was the generous tax concession that high-income earners receive for their superannuation, the cost of which is rising faster than any other handout in the budget. For O’Neil, it was a migration system that favours temporary migrants over permanent skilled migrants.

Both areas of public policy have strayed from the original purpose of their respective Labor and Liberal authors. Paul Keating never imagined superannuation would reinforce the class divide in retirement between low and middle-income workers at one end, the rich at the other. John Howard never intended for the skilled migration program he kick-started at the turn of the 21st century to operate as a revolving-door scheme for guest workers, leaving Canada and Great Britain to poach the talent that would otherwise be settling in Australia.

But this is where we find ourselves as a nation after a decade or more of drift. As O’Neil explained, the number of skilled migrants settling in net terms each year, after counting departures, has averaged about 30,000 since 2005. Temporary migration has almost doubled in that time. “In 2007 we had about 1 million temporary migrants in Australia, excluding visitor and transit visas,” O’Neil said. “Today that number is 1.9 million.”

Opposition Leader Peter Dutton might have accidentally signalled to Labor that migration reform is the more achievable of the two goals by choosing super for his scare campaign. Perhaps he has enough self-awareness to sense that the program he presided over as home affairs minister is, indeed, broken and he doesn’t want to get into a policy fight with O’Neil over skills shortages in regional Australia.

For Dutton, this week appeared to be almost too good to be true. He took the treasurer’s kite-flying on super as a licence for overkill, warning Labor was coming after your money. “The prime minister doesn’t have a plan to help families,” Dutton told Sky News. “The only plan they’ve got is to tax families.”

Chalmers, with Albanese’s public support, is only talking about tweaks to super concessions for the very wealthy. There is no prospect that the sums being looked at would even touch the sides of the structural deficit.

The irony here is that both Labor and the Coalition are accepting a system that looks nothing like their competing visions in the reform decades of the 1980s and 1990s. One of the nation’s foremost experts on super policy, Dr Emily Millane of Impact Economics, notes that Labor’s original mission statement for super in 1989 was for “a flexible and sustainable retirement income policy which delivers fair and adequate incomes”.

The Coalition, on the other hand, wanted to do away with the compulsory super system, which Keating introduced in 1992.

“It wasn’t until the Howard government in 1996 that there was an acceptance on that side of politics that super was here to stay,” Millane says. “The Coalition therefore sought to fashion superannuation in their name, introducing new entrants to the market, member choice and the most significant changes to taxation in 2007, including tax-free withdrawals. We are still dealing with the ghost of [Liberal treasurer] Peter Costello in that respect.”

The Costello gift of tax-free super was not offset at the time by savings elsewhere in the budget. The first phase of the mining boom had fooled the Treasury into thinking the budget would remain in permanent surplus, so no one bothered to ask: What happens if the world turns against us?

The theory of permanent surplus didn’t survive contact with the global financial crisis in 2008-9 and the budget has been in deficit ever since. Here’s the rub: successive Labor and Coalition governments restricted themselves to searching for savings on the spending side only. They cried poor when spending blew out anyway.

In doing so, they forgot important parts of the Hawke-Keating and Howard-Costello legacies. When the budget was reformed in the mid to late 1980s and again in the second half of the 1990s, Labor and the Coalition saw both sides of the balance sheet – revenue and expenditure.

So why is Albanese’s government wary of tax reform now? Tax increases, targeted to those who can afford to pay a little extra, will help close the structural deficit. And higher taxes – even on a temporary basis – would be a more equitable way to fight inflation than merely using the sledgehammer of interest rates.

Bear in mind that taxation had been used in concert with monetary policy in every credit squeeze from the Korean War wool boom under the Menzies government in the 1950s to Keating’s “recession we had to have” in the early 1990s.

The answer for Labor’s reticence lies in the political class itself. It’s been 23 years since the GST was introduced. Apart from Albanese, who was first elected to parliament in 1996, there is no one in a senior leadership or ministerial role who remembers a world where governments and oppositions were drilled to see every budget measure as involving a trade-off between revenue and expenditure. The old catchcry – “Where’s the money coming from?” – was deployed by both sides because there was an expectation that the sums should add up.

The past two decades of reform gridlock have conditioned voters to see tax as an evil, even while they make increasing demands on the spending side of the budget.

Albanese has given Chalmers another chance to test the public’s appetite for tax reform after last year’s discussion on the stage-three income tax cuts ended in retreat, with the PM sticking to his election promise to leave the former Morrison government’s fiscal time bomb untouched.

It is possible that the debate on super tax concessions will muddle along the same risk-averse course, with Labor sticking with a status quo that neither side originally intended.

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