With the government’s changes to the stage 3 tax cuts to favour lower and middle income earners, and a looming by-election in the Victorian seat of Dunkley, eyes are now on the opposition for its response to Labor’s new package.
In our first podcast of 2024, Shadow Treasurer Angus Taylor discusses the tax broken promise, where the economy is heading, falling inflation, and more.
On the government’s tax backflip he says:
I think Labor has shifted to a robbing-Peter-to-pay-Paul mindset now. They clearly believe in zero-sum economics, a zero-sum politics, where you take something from some and give it to another, and that is not acceptable.
On stage 3 itself, Taylor is quick to defend the Coalition version:
Stage 3 tax cuts were tax reform. They are about incentivising people to change their behaviours in positive ways for the economy and for all of us.
On whether the government should be giving further cost-of-living assistance now:
[It] tells us something about how the political culture has changed – which is the idea that if someone gets behind, the only answer is to give them money. Actually, the number one objective here has to be to enable people to get ahead.
TRANSCRIPT, POLITICS WITH MICHELLE GRATTAN
MICHELLE GRATTAN:
Today in our first podcast for 2024, we talk with Shadow Treasurer Angus Taylor, about tax and the economic outlook. Angus Taylor, the opposition has yet to declare its attitude on the government’s tax package. But what are the factors that you’re taking into account in making your decision?
ANGUS TAYLOR:
Yeah, good to be with you, Michelle. And good question and the right question of course. We aren’t at a position yet, where I’m going to tell you on this podcast, what our detailed response will be. And we haven’t seen legislation yet either, of course. We fully expect that the Greens will be looking for their 10 cents worth or far more than 10 cents, when they get a chance to negotiate with Labor on it. But that being said, we are the party for lower, fairer, simpler taxes. We also feel very strongly, as you said in your introduction, that Anthony Albanese and Jim Chalmers, having committed to sticking with the stage three tax cuts over 100 times have committed an egregious betrayal to the Australian people. And that it’s completely unacceptable for them to do that. So we remain strongly committed to the stage three tax cuts. To simplification of our tax system so that bracket creep doesn’t eat away at people’s incomes like a thief in the night. We also recognise that because of Labor’s complete failure to manage the economy, Australians’ standard of living has collapsed in the last 18 months to the tune of about $8,000 for every Australian which is completely unprecedented, in my lifetime, at least, that the result is that Labor is left with nowhere to go, but to look at ways of giving people money. But at the end of the day, what they’re proposing here is around $15 a week, and it doesn’t come close to the loss of real disposable income that Australians have faced in the last 18 months. So we’ll work our way through the proposal. We’ve obviously got our internal processes to work through. But the principles are clear, we are for lower, simpler, fairer taxes. We strongly believe that this is an egregious betrayal to the Australian people. And we do recognise that Labor’s failure to strengthen Australians’ standard of living - in fact the collapsing standard of living - is something that now has to be dealt with a second best solution.
MICHELLE GRATTAN:
In an article that you wrote for The Australian this week, you said that Labor’s changes to stage three were, and I quote, declaring war on aspiration. But isn’t this a narrow view of aspiration. For less well off people, aspiration might well be keeping up with the bills.
ANGUS TAYLOR:
Well aspiration is keeping up with the bills. You’re absolutely right, I’m, furious agreement with you. But it is more than that as well. It’s the ability to get ahead if you work hard. And this has been a centerpiece of our economy, for my lifetime and for substantially longer. And I think it’s central to what it is that’s made our country successful and prosperous. And one of the greatest, I would argue the greatest country in the world to live, that you can get ahead if you work hard. Now we realised back in the 70s and 80s, you couldn’t afford to have a taxation system that penalised people working hard to get ahead, making investments, taking risks, building businesses, building your career. They are the things that don’t only help you to become prosperous, they help others because that’s where job creation comes from. That’s where productivity and real wage increases come from. And in the absence of those sorts of incentives, then we have an economy that goes backwards, not forwards. And that is exactly what we’ve been seeing - an economy going backwards. So aspiration is central. And it’s central, not just for those who are aspirational, it’s central for all of us. It’s also the basis upon which tax revenue comes and we’re able to pay for hospitals and schools and roads and all of those things we want. It’s not possible to do that in a less prosperous country in the way that we’ve been doing it. So it is absolutely central to Australia. I think Labor has shifted to a robbing-Peter-to-pay-Paul mindset now. They clearly believe in a zero sum economics, a zero sum politics, where you take from some and give to another, and that it’s not acceptable, or it’s not possible, to raise the water level for all people, to raise prosperity levels for all people. And I think that’s a very significant shift in our political culture. I mean, you’ve really got to go back to the early 70s to go back to a time when this focus on prosperity and aspiration didn’t have a strong bipartisan, didn’t have strong bipartisan support. But that clearly is where Labor is going.
MICHELLE GRATTAN:
You said before that these tax cuts don’t amount to much real help for people, that the amount is fairly low. So are you saying that the government should be giving more cost of living assistance now? And if you are saying this, what form should that take?
ANGUS TAYLOR:
Well you see, the question you just asked, which is a perfectly reasonable question, I think though, tells us something about how the political culture has changed, which is the idea that if someone gets behind, the only answer is to give the money. Actually, the number one objective here has to be to enable people to get ahead. We have seen a collapse in the standard of living in the last 18 months, which is unprecedented. Let me put this in perspective. The average Australian is $8,000 worse off in terms of real disposable income than they were 18 months ago. Now, that’s the combined impact of prices rising substantially faster than wages, of mortgage rates rising at an extremely rapid rate, 12 times under Labor. And on top of that, we’ve seen very substantial increases in personal income taxes being paid from a combination of bracket creep, and the withdrawal of LMITO. And those things combined have had an enormous impact. Something like 10 times what Labor is proposing here. The only way to solve this problem, Michelle, there is only one way to solve this problem. And that is to strengthen the economy to get back to basic economic management. And to get that standard of living back up for all Australians. There’s no, there’s no handout approach that’s going to bridge the scale of the gap that we’ve seen, or the collapse that we’ve seen in standards of living in the last 18 months. You’ve simply got to get the economy working again, for all Australians, to bridge that gap and get Australians back to where they were.
MICHELLE GRATTAN:
To be fair, though, you would have to say that other factors that have been at play here would be the overseas situation, and also the big aid the former government gave during the pandemic, you would concede that those are at least factors.
ANGUS TAYLOR:
Well, let’s compare Australia with the overseas situation. We haven’t seen anything like that collapse in real disposable incomes in other countries. We are at the extreme end of this. We’ve got an economy now where GDP per capita is going backwards. We’ve seen these very substantial increases in personal income taxes, which we haven’t seen, to the same extent in other countries. We’ve had more persistent inflation, which means that the overall accumulated price rises have been larger than many other countries. And inflation has been more persistent. And it’s, you know, the Reserve Bank governor has said herself, has said that we’ve now in recent months had a situation where the inflation we’re seeing is homegrown. So I do think we are absolutely at the wrong end of this, Michelle, and it shows up very strongly in our Labor productivity performance. Australia’s Labor productivity has been disastrous in the last 18 months.
MICHELLE GRATTAN:
Well, for longer than that, though.
ANGUS TAYLOR:
Well, no, but let me be clear about this. So it’s easy to conflate the two different things. One is the longer term malaise of total factor productivity across - to get technical for second - which is overall productivity in the economy, which has been right across the globe lackluster compared to past decades in recent decades. But the second thing which is very different is a complete collapse in Labor productivity we’ve seen in the last 18 months, and it’s been diabolical. It is a big part of the reason for why we’ve seen labour shortages in workplaces, because if your labour productivity collapses, you need more people to do the same amount of work. So this has been a very, very important factor. We haven’t seen it to the same extent in other countries like the United States. And it’s an important reason why our economy has ground to a halt in per capita terms, and why Australians are seeing this enormous collapse in their disposable income. So what’s the answer here? The answer here is basic, traditional economic management. It’s getting your industrial relations systems right, making sure that employers and employees can sit down and have sensible discussions about how to make their workplaces more productive and raise wages, real wages, at the same time. It’s about making sure that we’re focused on genuine competition, not crony capitalism like we saw with the Qantas affair last year. It’s about making sure that government manages its spending, not spending an extra $209 billion, which is over $20,000 per household, since Labor came to power. It is about making sure that we have a tax system that incent people to invest to take risks, to innovate. All of those things that create prosperity for all of us. It is about making sure you’ve got an immigration system that’s aligned with your housing supply, which we clearly haven’t seen in recent times with a record level of immigration and yet a very clear shortage of housing supply. So all of these things are those economic fundamentals, particularly supply side fundamentals, which were central to having a strong, low inflation economy in the past and will be central to having a strong low inflation economy in the future as well.
MICHELLE GRATTAN:
Just to take up your point about tax, we’re seeing now in the wake of the changes to stage three, many calls for tax reform, and they’re coming from all sorts of quarters. Bill Kelty, for example, former union leader today urged changes, we’ve seen some in the Teals, saying there should be a reform process. Do you agree that the tax system is not fit for purpose? Should it be overhauled? And what is the best way of going about this because it’s a very challenging task.
ANGUS TAYLOR:
Well, we were going about it. Stage three tax cuts were tax reform, they are about incenting people to change their behaviors in positive ways for the economy and for all of us. And this is the point. One problem with the tax reform debate, and I put tax reform in inverted commas, is there’s some very different definitions of tax reform. Some see it as just higher taxes. That’s not tax reform, Michelle, that’s just higher taxes. But for some, that is tax reform, and they could call it that, but actually in reality, it’s higher taxes. As an economist, I was always taught that tax reform was about encouraging and incenting positive behavioural change, which created a more prosperous economy, encouraging economic activity which has benefits for all of us. That is exactly what the stage three tax cuts were designed to do, as part of a three stage process, by the way, they are the stage three tax cuts, which provide a, you know, those three stage in combination provide very significant reforms to our personal income tax system, on which we have relied too much. There’s no question about that. That’s why these reforms were so important. But here is a piece of tax reform, genuine tax reform, which would create a situation where for the vast majority of Australians, they could have complete and utter confidence that if they work harder, they invest, they take risk, all of those things I’ve been talking about, then they get to keep 70 cents in the dollar at least, when they earn those extra dollars, Labor has decided having been part of legislating these reforms, to take them away. Having made commitments between the Treasurer and the Prime Minister over 100 times that they would keep them. So the cries for tax reform, I understand. I have great sympathy with the cries for genuine tax reform. But here we have a very important piece of tax reform that Labor has trashed. And the implications of this for our political culture, I think are diabolical. They are diabolical, Michelle. What stops a Labor politician now committing in the lead up to the next election that they won’t change capital gains on the family home, they won’t change negative gearing, they won’t change franking credits. And yet, as soon as they win an election, they say no, you know, circumstances have changed, we’ll change it. Tax reform is in a dire situation now. But more broadly, I think this is devastating for our political culture.
MICHELLE GRATTAN:
Well, stage three went to changes within the income tax system. But experts, for example, the Secretary of the Treasury, have argued that you really need a change in the mix of tax from weight on direct income tax to more weight on indirect taxes. How do you get that sort of change? And do you agree that that sort of change is necessary?
ANGUS TAYLOR:
That’s exactly what stage three tax cuts were doing. This is the point. The stage three tax cuts, not only did they say that you get to keep 70 cents in the dollar, at least, if you work harder for the vast majority of Australians/ They did a second thing which was very important, which by holding that tax bracket from 45,000 up to 200,000 at 70 cents in the dollar, they said right across that broad tax bracket, there will not be bracket creep, and we will not be relying in future years more on the personal income tax system. In fact, we will be relying less on the personal income tax system. Now, it’s true that some believe we need higher taxes in this country. That’s not a tax reform debate. That’s a tax level debate. And they may argue that you’ve got to go and raise the GST or something else. Fine. That’s up to them. But we believe in lower, simpler, fairer taxes. And importantly, we do believe in less reliance on personal income taxes, and that is exactly what the three stages of tax cuts that we legislated and that Labor has now betrayed the Australian people with a backflip, that those three stages were important in changing the tax mix and ensuring that bracket creep doesn’t change the tax mix on Australians the wrong way without them even knowing.
MICHELLE GRATTAN:
Do you think that Australia is less well placed these days to make economic reform changes than say, we were in the 1980s? And if so, why is that?
ANGUS TAYLOR:
Well, I think we’re less well placed to do it than we were two weeks ago, when you have a Prime Minister and Treasurer, who have legislated a major reform, who have committed to support a major reform over 100 times, have gone to two elections supporting that major reform, and then they backflip, you have lost an enormous amount of political capital between your political leaders and the Australian people. And this is, for me, having come from outside of politics and come into politics in the last 10 years, I think the most dispiriting thing for me of that 10 years has seen the eroding trust between politicians, and the Australian people. And I think this is more generally true of leaders, not just in politics, but across business and other parts of Australian society. And I think it is incumbent on all of us to do everything we can to try to build that, rebuild that trust. But what Albanese and Chalmers have done in the last two weeks, I think is the most damaging instance of eroding that trust I’ve seen in my time in politics. And I have to say, the problem with that, going back to your original question, is that it does make it far harder, far harder for our leaders, I think across all, as I say all parts of the Australian community, to do the hard things that are necessary in order to ensure that we have a prosperous, wonderful country for our children, as we have, as we have inherited ourselves.
MICHELLE GRATTAN:
Of course, a lot of leaders break promises, as we remember over the years. Indeed, I think Bob Hawke quickly broke a promise about tax cuts when he came to power, although he had given himself a bit of a let out. This is not a new phenomenon.
ANGUS TAYLOR:
But I would say to you, and you’re a great historian of Australian political history, have we seen an instance where a Prime Minister and Treasurer committed to something over 100 times, supported the legislation going through the parliament, so these reforms were legislated and went to two elections supporting it, the latter of which there’s a reasonable debate as to whether we might have had a substantially different result if they’d taken a different position in and frankly, I don’t remember a betrayal of the Australian people a breach of trust on that scale. I think this is extremely substantial, at a time, Michelle, and I think this is also important, at a time when reestablishing trust between politicians and the Australian people is important. And in fact, Albanese himself in the lead up to the last election, that that was what he was going to do. Well, frankly, I think that’s a big part of the reason why this backflip is so substantial and so egregious.
MICHELLE GRATTAN:
Now, let’s turn to the economy generally. This week, we’ve had some encouraging figures on the inflation front, inflation’s falling. Are you optimistic or pessimistic about Australia’s economic outlook for this year?
ANGUS TAYLOR:
I am always optimistic about Australia’s longer term economic potential and our position as a country in the world. I am far less optimistic about the position over the short term, because I think we have seen this collapse in Australians’ standard of living - their real disposable incomes - which is showing absolutely no sign of reversing. As I said, three drivers of this, prices rising substantially faster than wages, that has opened up a big gap in real wages over the last 18 months, we’ve seen 12 interest rate increases under Labor. And we’ve also seen as I said, a 27% increase in personal income tax payments over the last 18 months. Now, those things combined lead to about an 8.6% reduction in real disposable incomes, there is no prospect and no plan that he’s going to go even close to reversing that collapse in Australians’ standards of living. And of course absolutely central to the success of our country has been the understanding of the Australian people that if they work hard, they can get ahead and that the tide is rising for all Australians who get out there and have a go. If you’ve seen those sorts of collapses in standards of living, and there’s no real prospects of reversing it, then I think Australians do become pessimistic. And my great concern is that the morale of the Australian people has been substantially impacted by the economic hits that they’ve faced. And you know the wrong reaction to that is to say, well, we’ll rob Peter to pay Paul. The right reaction is to say, no, we’ve got to get back to basic economic management and getting it right on all of those things I listed earlier, I won’t go back through them, are the key to getting us back on track, to reversing that collapse in real disposable incomes and getting back to the position we’ve traditionally been in where our standards of living are continually rising.
MICHELLE GRATTAN:
When we talked with Jim Chalmers on this podcast just before Christmas, he predicted that Australians would be better off than they are now, in a year’s time. You presumably disagree with that assessment?
ANGUS TAYLOR:
Well, I think the real question for Australians, are they they’re gonna get back to the position they were in when Labor came into government.
MICHELLE GRATTAN:
But what about compared to now?
ANGUS TAYLOR:
Well, I don’t think that’s the question that Australians are asking themselves. They’re behind. Of course, they want to get ahead over the next year. There’s no question about that, Michelle, I’m not suggesting that your question is not a relevant one. But my point would be, there is a big gap to bridge. Australians are not used to the idea of going this far backwards this quickly. And they are largely trying to protect their standards of living, and they’re wanting to know whether that standard of living is going to get back to where it was a very short time ago. And I think the answer is there’s no real prospect of that happening. There’s certainly no plan from Labor that is going to reverse what we’ve seen in the last 18 months. And I think that is simply a function of the fact that Labor has no faith in the traditional tools of economic management, and no willingness to pursue them. I mean, their industrial relations agenda is going in exactly the wrong direction. Their competition policy agenda has gone in the wrong direction, the spending profile adding $209 billion of spending is going in the wrong direction. Immigration is outpacing the growth in our housing supply. I’m over here in Perth this week, and their housing supply pipeline is essentially stopped. I mean, it’s hitting the wall, and yet there’s continual growth in population. So these levers are the ones that government needs to focus on. And meanwhile, Albanese has decided the answer is completely different. It’s traditional, very left wing Labor mindset, which is to move money around. Well, that’s not going to solve the underlying problem.
MICHELLE GRATTAN:
Just want to finish off on another topic, you were energy minister in the Morrison government. And we know that the Coalition will have nuclear as part of the energy policy that it takes to the election. Given the trouble that the government is having in some areas of the country even selling plans for wind turbines, won’t selling the idea of nuclear reactors be an enormous ask?
ANGUS TAYLOR:
Well you asked about my time as Energy Minister, I will just do a very short plug on this. You know, we’ve we’re seeing emissions failing to go down, we’ve seen prices going up. And in my time as Energy Minister, we saw a substantial reduction in emissions and a substantial reduction in prices. And it would be, I think, Labor’s failure to achieve those simple outcomes do make it much, much harder for the social licence necessary to do the hard things to continue to provide what I think is necessary, which is lower prices and lower emissions at the same time. In terms of a broader social licence, look, Michelle, the real challenge for Labor’s policy is the scale of what they’re proposing in terms of transmission lines and land to be used for utility scale wind and solar is so enormous compared to what would be required by equivalent gas and nuclear pathway, which is broadly what we’ve suggested is the one we’re working on. The scale of what’s required under Labor is just is many, many, many times greater in terms of the social licence required, and you can seek to get that social licence in rural areas as you crisscross the country with transmission lines and massive utility grade solar and wind, but it’s slow and difficult. And I’ve seen this myself. My electorate has had more of these sorts of projects than most electorates in Australia. And you know, some projects precede some projects don’t proceed. They’ve got to go through state planning processes, they’ve got to go through all the environmental hurdles, etc etc etc. They’ve got to engage with local community. It’s extremely difficult. And so we were much more targeted in our approach to it. We said you’ve got, of course you’ve got to have change in our electricity grid over the coming years. But you’ve got to do everything you can to make those changes realistic and at the same time have a pathway to lower emissions and lower power prices. I don’t think Chris Bowen is even close to having that kind of pathway.
MICHELLE GRATTAN:
I think your electorate might have had those wind turbines that Joe Hockey was so offended by.
ANGUS TAYLOR:
I can’t remember exactly which one.
MICHELLE GRATTAN:
Near Lake George.
ANGUS TAYLOR:
But you know, we’ve had lots of wind projects, some preceded some didn’t, Michelle, we’ve got transmission projects proceeding now. And no doubt if Chris Bowen has his way, there’ll be many more. But I do know how difficult these projects are. And I think Labor has completely underestimated how difficult it is to get the balance, right. I mean, we’ve got Bob Brown down in Tasmania campaigning against one of these major projects, so they are not easy. And so you have to find pathways that are realistic, and I think Chris Bowen lives in a fantasy land about what he thinks is achievable. I am very committed to making sure we have both lower electricity prices and lower emissions, but I’m also pragmatic about what’s achievable and what’s not. And I don’t think Labor has a pragmatic pathway that will be achieved.
MICHELLE GRATTAN:
Angus Taylor, thank you very much for talking with us today in our first podcast for this year.