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June 11, 2025
Wednesday 11 June 2025
Michael Stutchbury
The Australian Financial Review
Before saddling Australians with a bigger tax burden, Labor should first put government through a genuine cost-cutting exercise of the sort that businesses go through regularly and which should be good public sector practice.
Jim Chalmers’ complaint that opposition to his crackdown on superannuation tax breaks for the better off “doesn’t augur well for bigger, broader tax reform” has, ironically, got people talking about that very exercise.
The Coalition’s new finance spokesman James Paterson says that if Chalmers was “talking about genuine tax reform, holistic tax reform across the board that, for example, reduced the collection of taxes in efficient areas and collected that revenue in less distortionary ways, we’d be up for that conversation”.
The treasurer should take up the offer because this is what’s needed to reverse the productivity collapse, to pay for the demands on the public purse, and to tackle a projected decade of deficits that assumes continued bracket creep tax increases by stealth.
Chalmers depicts the opposition to his doubling of the tax rate on superannuation balances above $3 million as people saying that they favour tax reform in the abstract while “very rarely, if ever” supporting it in the specific.
The treasurer suggests the opposition is overwhelmingly coming from “two media outlets”. Yet those same outlets – The Australian Financial Review and The Australian – got close to a tax reform consensus from business, the unions and the welfare lobby at the rival mastheads’ National Reform Summit 10 years ago.
That even included Australia’s uncompetitive company tax system, which Labor once recognised as a drag on the economy and which the Productivity Commission is now re-examining as part of its productivity brief commissioned by Chalmers.
As editor-in-chief of the Financial Review I publicly asked then opposition leader Anthony Albanese during the 2022 election campaign if he would commit to a broad-based tax reform process in his first term in office.
Albanese declined, apparently on the argument that this would just expose Labor to a pre-election Coalition political scare campaign. He declined again ahead of this year’s election, and now he’s talking about reform as a “tomorrow” thing.
“A broader base, lower rates, and a lower burden on income to promote aspiration and encourage business investment that would give Australians more capital to work with.”
That’s left a tax system that Ken Henry says is even worse than in 2010, when his tax review was commissioned by Chalmers’ mentor, then Labor treasurer Wayne Swan.
That was supposed to be a “root and branch” exercise, proposed by former Treasury official David Morgan at Kevin Rudd’s Australia 2020 Summit. But it excluded the central trunk after Swan told Henry he could not consider switching from incentive-sapping taxes on income to less-distorting taxes on consumption.
Instead, Swan cherry-picked the Henry review’s ill-fated resources super profits tax to finance Labor’s big spending monuments such as Gonski school funding and the NDIS.
Seventeen years later, that’s left Labor without any clear tax principles: even something like “broader, lower, fairer”. Instead, it’s become piecemeal, opportunistic and unprincipled.
Albanese and Chalmers even broke their 2022 election promise not to fiddle with the Coalition’s legislated stage three personal income tax cuts. That re-inserted the 37 per cent tax scale, and so took incentive out of the tax system by building in more bracket creep taxation by stealth.
So it’s not surprising that ad hoc tax increases generate political scepticism.
It has the look and feel of higher taxes to pay for bigger government and a larger government-funded care economy that is popular as a free lunch proposition, and which suits Labor’s public sector union constituency.
This suspicion is confirmed by calls for a “mature conversation” about increasing the overall tax burden to pay for what economist Chris Richardson describes as the “fastest and largest increase in the size of the federal government since Whitlam’s expansion half a century ago”.
Ironically, such calls are encouraged by the geostrategic demands to shore up Australia’s security by increasing defence spending from about 2 per cent of GDP to 3 per cent of GDP or more – a benchmark attained or exceeded during most of the Cold War. That could require $30 billion or so a year.
But before saddling Australians with a bigger tax burden, Labor should first put government through a genuine cost-cutting exercise of the sort that businesses go through regularly and which should be good public sector practice.
At the least, Chalmers needs to take the decade of deficits seriously by committing to credible fiscal rules for re-anchoring public expectations about what the budget can sustainably deliver.
The left-progressive class has yet to be held to account for the Gonski school spending that has come with worse student results, and the NDIS that was supposed to be about catastrophic disability but which now reportedly has signed up 10 per cent of five-to-seven-year-old Australian children, and is on track to cost more than Medicare.
New Whitlamesque spending monuments such as “universal” childcare should be parked at least until after the sort of genuine tax reform that has been well canvassed over the past 15 years or more – a broader base, lower rates, and a lower burden on income to promote aspiration and encourage business investment that would give Australians more capital to work with.
The OECD nominates “improving the efficiency of the tax system” as one of Australia’s main fiscal priorities.
By boosting economic growth, more national income would be available to shore up living standards now, to secure the realm and to invest in the future.
On the ABC’s Insiders program, Coalition finance spokesman Paterson at least recognised the Liberals’ “strategic mistake” of going to the election offering higher income tax than Labor.
The opposition could go further by committing to index the personal tax scales to expose how Labor is banking on taxing Australians more to finance its low-productivity big government agenda.