On a day when Australia was preoccupied with COVID-19 outbreaks in its two largest cities, Labor leader Anthony Albanese was in Queensland quietly announcing two major policy reversals: the ALP would support the Coalition’s stage three tax cuts for high-income earners and would abandon plans to clamp down on negative gearing and capital gains tax.
The decisions were unanimous in shadow cabinet and were endorsed by caucus on Monday, and are part of Labor’s strategy to avoid a repeat of its shock 2019 election loss: give the Coalition fewer lines of attack on economic issues while homing in on its messaging on Prime Minister Scott Morrison’s quarantine and vaccine rollout failures.
Once upon a time, opposition Treasury spokesman Jim Chalmers called the government’s stage three tax cuts — everyone earning between $45,000 and $200,000 pays a flat rate of 30% from 2024 — unfair and ineffective. Once upon a time, former leader Bill Shorten fought two elections, promising to crack down on capital gains tax deductions and restrict negative gearing on the basis that the policies disproportionately favoured wealthy property investors and exacerbated housing inequality.
Yesterday Albanese said the changes were about providing “stability and certainty” to working families, a phrase that Labor frontbenchers have returned to frequently since then. Despite house prices reaching nearly 20-year highs, Labor is walking away from its negative gearing policy, promising to tackle other sources of inequality including supply and social housing.
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The reaction was predictable. A gleeful Finance Minister Simon Birmingham said the decision couldn’t be believed: “What we’ve seen today from the Labor Party is perhaps the most agonising, the most half-hearted concession in Australian politics ever.”
Greens Senator Mehreen Faruqi called it a betrayal: “This is a cowardly and pathetic backflip. House prices and rents are skyrocketing, and Labor is throwing fuel on the fire.”
Ghosts of 2019
Yesterday Albanese said the new approach was about looking ahead to the election: “As Labor leader, I am absolutely determined to look to the future, not relitigate the past.”
But the decision is a sign of a party haunted by the 2019 election loss. The party took a grab bag of often confusing savings and tax policies to the electorate which provided ammunition for highly effective Coalition scare campaigns that seemed to resonate.
But former Grattan Institute CEO John Daley says the U-turn was the result of a party too obsessed with winning the 24-hour news cycle: “You’re surrounded by advisers who think that’s the only thing that matters, and don’t have anyone who thinks long term, or who doesn’t have the memory of a goldfish.”
Labor’s internal review of the loss — led by former minister Craig Emerson and former South Australian premier Jay Weatherill — didn’t single out negative gearing alone for losing. It found they were used to fund large spending measures, the sheer volume of which were used by the Coalition to create a narrative of Labor fiscal profligacy.
The Grattan Institute’s analysis found booths which swung hardest to Labor were those most adversely affected by changes to negative gearing and capital gains tax, a finding reflected in the party review. In other words, Labor won rich people, but went backwards among lower-income, and in particular less-educated, voters.
“If you read Labor’s own review, it found they did not lose because of the tax stuff,” Daley said.
But Emerson said the decision was “fully consistent” with one of the review’s key recommendations: take a handful of key signature policies to the next election and minimise lines of attack for the Coalition.
But it’s meant the party’s abandoned a widely popular policy, backed by experts and even some business groups at a time of historic housing inequality.
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