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RUBY:

From Schwartz Media, I’m Ruby Jones and this is 7am

They are the tax cuts Scott Morrison promised, but Anthony Albanese finds himself in charge of delivering. If Australia cancels stage three tax cuts, experts say we’d be in a position to properly fund services like the NDIS, raise unemployment benefits above the poverty line and plenty more… If Australia keeps the cuts, some of the wealthiest Australian tax payers will benefit and our tax system will become less progressive.

Today, columnist for The Saturday Paper, Paul Bongiorno on whether Labor could be ready to slowly ditch the Stage Three tax cuts.

It’s Friday October 7.

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RUBY:

Paul, this week Labor found itself once more under pressure to drop its commitment to these tax cuts that have already been legislated. The Stage three tax cuts. First of all, could you just put in perspective how significant these cuts are and why it is that Labor committed to them in the first place?

Archival Tape – Scott Morrison:

“Tonight I announce a seven year personal tax plan to make personal income tax lower, fairer, and simpler…”

PAUL:

Well, Ruby, these tax cuts were unveiled by then Treasurer Scott Morrison in his 2018 budget as part of an enormous agenda that would reduce taxes over a decade. He set out a plan to cut taxes in three stages, but the third stage was by far the most radical and costly.

Archival Tape – Scott Morrison:

“This means more working Australians paying lower taxes on every extra dollar they earn. There must be reward for effort.”

PAUL:

The stage was initially opposed by the Labor Party, who called the cuts deeply unfair. In fact, Penny Wong described stage three of the plan as irresponsible.

Archival Tape – Penny Wong:

“We think it is irresponsible to sign up to $95 billion worth of expenditure from the budget now, five years before they start, with absolutely no means to pay for them…”

PAUL:

And Labor tried to amend the legislation, dropping stage three, but it didn't get the numbers in the Senate. The Coalition got the support of Jacqui Lambie and the Centre Alliance's Rex Patrick on the Senate crossbench when it became inevitable the plan would pass with or without Labor's support. Eventually Labor voted for the whole package as well because it wanted to avoid being accused of denying relief to low and middle income earners, then afraid of giving Morrison another weapon on tax policy to wield against it. In the run up to the 2022 election, Anthony Albanese committed himself to keeping stage three if he won. Well now Ruby, when it comes to how significant these tax cuts are, they're absolutely enormous. The stage three tax cuts cost $243 billion over a decade, which is such a huge amount that it contributes in a significant way to the structural deficit in the budget. What's more, it disproportionately benefits wealthier people. It significantly flattens the tax scale so that people earning $45,000 end up paying the same 30% tax rate as those earning up to $200,000.

RUBY:

And people obviously in a very different world to 2018, when these cuts were legislated, we're now in the middle of an inflation crisis, a cost of living crisis. So does it make sense anymore to stay committed to these cuts?

PAUL:

Well, you're quite right. We do live in very different times now. And people across the political spectrum have been making the point you're making.

Archival Tape – Russell Broadbent:

“And those like me on high incomes, I said, don't need a tax cut. It's true. We don't need a tax cut.”

PAUL:

Two months ago, veteran Liberal backbencher Russell Broadbent joined the chorus calling for the cuts to be scrapped. He said people on his parliamentary income didn't need the extra $9,000 a year the tax cuts would give someone like him. And he said circumstances had changed dramatically since Scott Morrison unveiled the cuts in his 2018 budget.

Archival Tape – Russell Broadbent:

“Facts do change. Times change. Things need to change. Now, if you don't like my view to cut out the whole of the third transfer of the policy, that's fine. But can we tweak it?”

PAUL:

And when it comes to these cuts, Ruby, it's important to look at the fairness here. The budget is in need of urgent repair. It already has $1,000,000,000,000 of debt on the books, but many areas are deeply underfunded, and that's been the case for at least a decade.

Archival Tape – Katy Gallagher:

“We have not changed our position on stage three, but we are finalising a budget and I think the Treasurer and I have been upfront with some of the challenges and some of the changes we've been seeing in the economy that are front of mind for us…”

PAUL:

The Finance Minister Katy Gallagher says the cost to the Government servicing the debt is now $18 billion a year and that's more than the government spends funding universities.

Archival Tape – Katy Gallagher:

“Significant structural and persistent pressure on the budget in those areas like the NDIS, hospitals, aged care, defence, and increasingly as interest rates increase, the servicing of our debt…”

PAUL:

So it means spending is severely restricted for even essential programmes. It hits, for example, those on the national disability waiting lists, those who can't afford to see a doctor as Medicare teeters and of course, the unemployed still expected to live below the poverty line. Ruby, they're the kind of areas that could continue to be underfunded if we pursue these large cuts.

Archival Tape – Katy Gallagher:

“You know, let's not pretend that the economic circumstances aren't changing and haven't changed since May…"

PAUL:

What she's highlighting here is that in an inflation crisis, the government has to be very careful. Gifting tax cuts to the wealthy can actually make some of these forces in the economy worse, fuelling inflation, and that would force the Reserve Bank to ratchet interest rates up even higher.

RUBY:

Hmm. So Paul, the big question has to be, is the Labor Party actually going to reassess its commitment to these tax cuts as economic conditions change? What kinds of conversations are happening behind the scenes?

PAUL:

Well, there are certainly discussions, Ruby. The budget is rapidly approaching on October 25, which means senior Labor figures are poring over taxation and spending options. And I can tell you that on Tuesday, this week in the bunker that is Federal Parliament House's Cabinet Room, the Albanese Government's key economic brains trust spent much of the day weighing up Australia's response to what Treasurer Jim Chalmers calls the gathering storm clouds in the global economy.

Archival Tape – Jim Chalmers:

“The storm clouds are gathering again in the global economy and that's not irrelevant to us as we put together our budget here at home.”

PAUL:

The group that met this week is called the Expenditure Review Committee, the ERC, and it's chaired by the Prime Minister himself. Its nickname is the Razor Gang and its mission statement is to slash spending considered profligate or merely unaffordable in the current circumstances. And the nine permanent members of the gang, well, they're the most senior politicians in the government. And to be clear, Labor is still publicly backing stage three tax cuts. Assistant Minister for Treasury Andrew Leigh told Sky News it was important for the integrity of the democracy that Labor stuck to what it promised at the election. But Chalmers says as the ERC finalises the budget, it's obviously factoring in the broad context.

Archival Tape – Jim Chalmers:

“So the three most important pieces of context for the budget with three weeks to go. Deteriorating global outlook, rising inflation and interest rates and falling real wages, and those persistent structural pressures on the budget…”

PAUL:

So Ruby, it's no wonder Opposition Leader Peter Dutton senses that Labor is beginning to crab walk away from stage three. And there are plenty of people in the Labor caucus, not to mention the Greens and the crossbench in the Senate who believe the stage three tax cuts would fail the kind of benchmarks and considerations Chalmers is now publicly setting out.

RUBY:

We'll be back in a moment.

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RUBY:

Paul. we were talking about the Labor Party's position on stage three tax cuts and from what you're saying, it sounds like Labor is paying particular attention to what's happening internationally to global economic conditions. Can you tell me a bit more about what's being discussed? What are Labor's decision makers actually looking at right now?

PAUL:

Well, discussions earlier this week inside Labor were dominated, to quote the Treasurer, by the cautionary tale coming out of the United Kingdom.

Archival Tape – News Reporter:

“Hello. Very good morning to you. Just weeks after taking office this morning, the new chancellor will unveil a major plan to boost economic growth…”

PAUL:

The new conservative prime minister there, Liz Truss, in a mini-Budget last week attempted to deliver £43 billion worth of tax cuts, significantly benefiting the wealthiest Britons. Some of that Ruby might sound a little bit familiar. Well, within days Truss paid an enormous political and economic price.

Archival Tape – News Reporter:

“A plummeting pound. Soaring costs of long term borrowing. A material risk to UK financial stability…”

PAUL:

Financial markets, rather than cheering this latest manifestation of trickle down economics, hit the panic button at the sheer recklessness of the latest neoliberal ideologues in charge of the Conservative government.

Archival Tape – News Reporter:

“On Sunday, Kwasi Kwarteng said that more cuts were coming. On Monday, the pound hit a record low.”

PAUL:

The British pound crashed to its lowest value against the US dollar in history…

Archival Tape – News Reporter:

“Now the British pound has fallen to its lowest level ever against the US dollar in early Asia trade. Sterling fell to $1.03.”

PAUL:

Mortgage rates soared, pension funds wobbled…

Archival Tape – News Reporter:

“By Tuesday, mortgage lenders began pulling deals-”.

Archival Tape – News Reporter 2:

“Across the country mortgage deals on offer yesterday have been withdrawn today. And when the offers are back on the table, you'll be paying more; for some, close to double the previous fixed rate”.

PAUL:

…and the Bank of England was forced to make an unprecedented intervention of billions of pounds to avoid a catastrophic financial collapse.

Archival Tape – News Reporter:

“The Bank of England announced today it will buy unlimited quantities of government bonds at a, quote, urgent pace. Action carried out on, quote whatever scale is necessary to ease investor concerns.”

PAUL:

Some in the financial sector say the country narrowly missed a market meltdown not seen since the global financial crisis. Which is remarkable when you realise it was a product of the Government's own policy. And this week Prime Minister Truss and her Chancellor were forced to ditch the high end tax cuts.

Archival Tape – News Reporter 2:

“The Government has today performed a huge U-turn and abandoned its plan to scrap the $0.45 top rate of income tax. The announcement from Chancellor Kwasi Kwarteng came just a day after the Prime Minister Liz Truss backed the policy…”

PAUL:

Well, our Treasurer and Finance Minister are adamant there are economic and political lessons in the British chaos for Labor. And chief amongst them is that in a cost of living crisis, there's little appetite for underfunding services just to benefit the wealthiest taxpayers.

RUBY:

Okay. So Paul, if Labor has been paying close attention to that example this week, do we know what lessons they are drawing from it? Are you picking up any hints that Labor could be about to make significant changes to tax policy?

PAUL:

Well, inside the government, Ruby, there is now a view that Albanese is no longer as paranoid about breaking the promise on tax cuts as he was. The Prime Minister is a central participant in the planning of the looming budget and I'm told he needs no convincing of the deterioration in the economic context since the election. The question now is more when the government shifts and what it does, oh, there's an emerging consensus in Labor ranks that stage three won't be scrapped entirely, but made fairer and less expensive by capping the threshold for the 30% rate at $180,000, or keeping the 37% rate on incomes above $120,000. Insiders say there'll be no bombshell announcements expected at the end of the month, though Chalmers will have to include Treasury budget estimates for the next four years. But Ruby Experience tells us these are more kindly defined as guesstimates. And even if Albanese and Chalmers are heading towards some significant tweaking, they don't have to show their hand just yet. Estimates, after all, are revised every six months and stage three doesn't come in for another two years.

RUBY:

And Paul, Anthony Albanese is often described as a cautious and strategic political leader. So if he was to alter or to completely get rid of the stage three tax cuts, that would be the first major departure that he's made from the platform that he took to the election. So how big a moment could this be in terms of his prime ministership? And is it likely to be something that would define the course of this term?

PAUL:

Yeah, well, Ruby, I think that would depend on how credible the Prime Minister's explanation to the Australian people is for any ditching of the promise. But there was a poll released this week by the Australia Institute that found a majority of Australians, 61%, think that adapting economic policy to suit the changing circumstances, even if it means breaking an election promise, is more important. And almost twice as many Australians 41% to 22% support Labor repealing stage three. So that poll is encouraging, and maybe the Liberal MP Russell Broadbent was right when he told me this week this broken promise would be more of a blip than a disaster for Albanese.

RUBY:

Paul, thank you so much for your time.

PAUL:

Thank you, Ruby. Bye.

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RUBY:

Also in the news today…

The Federal Government has revealed the first changes to privacy and data retention laws that it wants to make in the wake of the Optus hack.

The changes, proposed yesterday, will let phone companies share driver’s licences and Medicare and passport numbers with banks in the event of a security breach… so that banks can create more safeguards for people affected by a hack.

And..

Global oil production will be dramatically cut, putting pressure on oil prices.

OPEC plus, the world body that represents major oil producing nations – including Iran, Saudi Arabia and Venezuela – announced it would reduce production by 2 million barrels of oil a day, equal to 2 percent of global oil supply.

Western leaders, including US President Joe Biden, criticised the decision for putting greater pressure on energy prices in the midst of worsening economic conditions.

7am is a daily show from The Monthly and The Saturday Paper.

It’s produced by Kara Jensen-Mackinnon, Alex Tighe, Zoltan Fecso, and Cheyne Anderson.

Our technical producer is Atticus Bastow.

Brian Campeau mixes the show, our editor is Scott Mitchell.

Erik Jensen is our editor-in-chief.

Our theme music is by Ned Beckley and Josh Hogan of Envelope Audio.

I’m Ruby Jones, see you next week.

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