Labor will retain the Morrison government’s stage three tax cuts, which predominately benefit high income earners, and dump proposed changes to negative gearing that were taken to the 2016 and 2019 elections.
The decision was taken by the shadow cabinet on Monday morning, and put to a virtual meeting of the caucus shortly after.
Monday morning’s decision follows weeks of one-on-one consultations between Anthony Albanese and the shadow treasurer, Jim Chalmers, and members of the shadow cabinet.
Originally, senior players worked towards Labor adopting a position of maintaining the Coalition’s tax cut for workers earning below $180,000 while imposing a higher, deficit levy-style tax rate for people earning above that.
But as the consultations played out, the sum of views in the shadow cabinet was that maintaining a higher tax rate for people earning over $180,000 would raise too little revenue for the political backlash it could generate, given stage three is now legislated.
The Morrison government had been limbering up for a significant political argument with Labor about the abolition of stage three.
Chalmers told reporters on Monday the decision would create “certainty and stability” around tax arrangements and “the focus should be on the economic cost of the government failure on vaccines and quarantine and now jobkeeper”.
“The focus should be on what Australia looks like in the future, not in re-prosecuting their last election campaign,” the shadow treasurer said. “The Australian people want us to look forward, not backwards, and that’s what we are doing.”
While nobody opposed the decision, questions were asked in both the shadow cabinet and in the caucus. There was concern about how Labor would pay for election promises without substantial revenue measures.
In Monday’s virtual caucus meeting, two MPs, Patrick Gorman and Susan Templeman, raised issues about housing and debt.
During the last federal election, Labor styled its negative gearing changes as a housing affordability measure. Templeman said Labor needed to flesh out policies that would increase the chances of young Australians being able to afford a home in the major cities, given housing affordability was a significant political issue.
Gorman told colleagues now the tax position was settled, the Coalition would seek to make debt reduction an issue at the next election, and Labor needed to be prepared for that.
Labor first proposed cutting negative gearing concessions in February 2016. The proposals were rejected by the Turnbull government and became one of the major points of difference between the major parties at the 2016 election.
Labor stuck with the policy for the 2019 election. Changes to franking credits – which were weaponised as a death tax – and the proposed negative gearing overhaul were significant revenue measures that underpinned Labor’s projected increases in social spending in areas like health and education.
Danielle Wood, the chief executive of the economic think tank the Grattan Institute, responded to the news about the negative gearing retreat on social media, saying: “If you can’t sell a popular policy on negative gearing (majority support at the time of the last election), when house prices are rising rapidly and the budget is in massive structural deficit, then what hope does Australia have for any difficult reform?”
When the stage three tax cuts passed the parliament, Labor expressed concern the parliament had locked in tax relief that was unaffordable in budgetary terms. At that time, Labor opposed the third stage because about a third of the $95bn cost would flow to workers earning more than $180,000.
During the parliamentary debate, the opposition tried to force the government to split the legislation, urging the crossbench to support its bid to bring forward the second stage of the tax cuts and defer the third stage that would flatten the tax rate to 30% for all workers earning between $45,000 and $200,000.
Attempting to explain Labor’s new position, Chalmers said the shadow cabinet had followed his recommendation. “We took our time to listen and consult with colleagues”.
“These are not easy decisions,” Chalmers said. “They’re big decisions.”
“But this is the right decision that we’re making today, weighing up a whole range of considerations.”
The Greens leader Adam Bandt blasted Labor’s position as “the sell-out of the century”.
“Labor has just joined the Liberals to kill Australia’s progressive tax system,” Bandt said. “Tax cuts for billionaires mean cuts to services for everyone else.”