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OPINION: Morrison's irresponsible tax cuts must be abolished

Scott Morrison, who implemented staged tax cuts, looks concerned.
The Morrison government's staged tax plan was a risky move. (Asanka Ratnayake via Getty Images)

In an act of economic irresponsibility, the Morrison government implemented a series of income tax cuts in 2019, with the so-called ‘Stage 3’ cuts of the overall package set to take effect from July 2024.

Legislating for tax cuts five years hence was hazardous. Highly risky.

Also by the Kouk:

The income tax cuts were implemented when the Morrison government, foolishly, was estimating the budget would be in substantial surplus by the mid 2020s which made them, in their eyes at least, ‘affordable’.


Remember Treasurer Josh Frydenberg’s ‘Back in Black’ coffee cups? And his rhetorical flourishes when he announced: “The budget is back in the black and back on track”?

Fast forward to now and the budget is in tatters.

This was the case regardless of which side won the May 2022 election, with the ticking time bomb of the Stage 3 tax cuts set to smash a big hole in the budget bottom line.

Rather than a budget surplus and a path where net government debt is on track to fall to zero in 2030 - as the Morrison government was predicting - there are massive deficits expected for each year over the next decade and government debt is set to hit $1 trillion.

Katy Gallagher (right), Prime Minister Anthony Albanese and Shadow Treasurer Jim Chalmers (left).
Anthony Albanese and his finance team have some taxing decisions to make. (Source: Getty) (Sam Mooy via Getty Images)

The Stage 3 cuts were also implemented when inflation was forecast to be 2.5 per cent and the unemployment rate around 5 per cent.

Things are remarkably different today. Inflation is on track to exceed 7 per cent and the unemployment rate is entrenched below 4 per cent.

The budget problem

A large part of the reason for the medium-term budget problems are the Stage 3 cuts.

Over the decade from their implementation in 2024, they are estimated to cost the budget a staggering $184 billion. That is what can be sliced off the projections for the budget deficits and government debt if those cuts are abolished.

What’s more absurd is the fact that they will be funded by government borrowing. It might be reasonable to give tax cuts when the budget is in surplus but when there are deficits forever, the problems are obvious.

With inflation and cost-of-living pressures in 2022 at their worst in over 30 years, the last thing the economy needs is a massive cash injection via these Stage 3 tax cuts.

Politics versus policy

During the recent election campaign, it was probably good politics for Labor leader Anthony Albanese to commit to the Morrison government’s income tax cuts. He was snookered given the Coalition was trying to paint the Labor Party as the big taxing side of politics.

But that was many months ago.

Here and now, the budget is in a very different position, with inflation rampant, the labour market overheating and the RBA embarking on a supercharged rate-hiking cycle.

It would be prudent, sensible and economically responsible to abolish those tax cuts. To not get rid of them would be a mistake and irresponsible when economic circumstances are so very different.

It’s not clear if abandoning those cuts would cost the Albanese Government electoral support.

That would be their fear in doing so.

But think of a scenario where the tax cuts are rescinded.

It would be a tightening in fiscal policy. Treasurer Jim Chalmers could point to the improved budget position, the fact it would take pressure off interest rates and the fact that government debt would be materially lower over the medium term.

A small part of the savings could also be used to fund initiatives in child care, renewable energy, skills and education, to name a few.

This is not to mention the fairness of getting rid of the cuts which were horribly skewed to high-income earners.

It would be a good ‘promise’ for the Albanese Government to break.

Explaining why the decision is taken could even turn into a vote winner. It’s good economics which, in time, is usually good politics.

It is also a reflection of these changing times. Life moves quickly and often in unexpected ways.

So too for the economy, financial markets and economic policy.

As unexpected and random events unfold, economic conditions change, prices in financial markets change and so should economic policy.

In terms of economic policy, most of the time reasonable decisions are taken. But there are plenty of cases where poor policy choices are implemented, usually for political reasons, that undermine the wellbeing of the economy and the Australian population.

In simple terms, economic policy should be designed to meet sometimes-conflicting goals of full employment, sustained low inflation and fiscal responsibility.

Getting rid of the Stage 3 tax cuts would meet these goals.

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