Labor retreats on the principle of progressive tax

Last month Anthony Albanese announced that not only was Labor backing away from any contentious reform of negative gearing and capital gains tax, it was also prepared to back income tax cuts for the wealthy. The result would be that Australia will drift towards a flat and regressive tax regime with Labor's implicit consent. As Greg Jericho writes for 'The Guardian', Labor is supporting the entrenchment of a tax regime which will see those on below median and below average wages effectively paying the same rates of tax as income earners with between $120,000 and $200,000 per annum.

Rob Harris – writing for the Sydney Morning Herald – explains that these tax 'reforms' will cost the Budget "an estimated $137 billion" over their first six years. Specifically, the 37 per cent tax rate will be abolished and a 30 per cent rate will apply to all income between $45,000 and $200,000. This will occur at a time where ordinary Australian workers will need to service the massive debt incurred because of Covid wage subsidies and other subsidies for business. Those subsidies were (and at the time of writing still are) necessary, but the debt should not be serviced in a regressive fashion affecting those least able to pay. And because those on lower incomes spend a greater proportion of their incomes, policies which impact negatively upon them will be 'bad for the economy' as well.

Yes, a very small minority of wage labourers and others earn over $100,000 a year. Maybe ten per cent. Because of their relative privilege, parts of this 'labour aristocracy' may be inclined to support economically liberal distributive taxation policies which minimise redistribution. The vast majority of wage labourers and vulnerable Australians will not benefit from this policy. In fact, the scope to improve social security and the social wage will be also reduced. Labor will be restricted in its capacity to deliver reform of social security, Medicare, the NDIS, public and social housing, and aged care. For instance, in the field of social security, easing the means testing of recipients with partners could also remove a perverse incentive for disabled Australians to shun relationships because 'they cannot afford not to be alone'. Reform of the Jobseeker Allowance (previously 'Newstart') is also long overdue and widely accepted.

With aged care, Labor is committed to staff ratios, but to provide this without regressive user-pays mechanisms the funding needs to come from somewhere else. Reform will be funded either progressively or regressively, or otherwise (even after the Aged Care Royal Commission) it will not happen at all. After the Royal Commission findings, which identified the gross structural neglect of aged Australians receiving care, this would be a damning indictment of the major political parties in Australia who failed to mobilise public opinion around reform even after the shortcomings of the system were laid bare for all to see. It is not too late to embrace a progressively structured 'National Aged Care Insurance Levy' to fund reform of aged care in this country.

True, Labor is also intending to reform labour market regulation, but that in itself will not make up for the distributive consequences of this policy. It will be a case of 'one step forward, two steps back' for Labor, where nothing can make up for capitulation on the principles of progressive taxation and redistribution in the most basic sense. Nonetheless, if reform of labour market regulation is strong enough it could still make a difference. Specifically, minimum wage rates need to increase significantlyas well as award rates for struggling workers – many of whom work in feminised professions such as aged care. Teachers – many of whom already work unacceptable levels of unpaid overtime – could also do with improved wages and conditions, both essential in order to attract and maintain the most capable practitioners in the system.

Talk of 'aspiration' clouds the fact that Labor's new tax policy will favour the top ten per cent at the expense of everyone else. There was a time when radicals would have seen talk of 'aspiration' as a kind of 'false consciousness'. But today Labor is so afraid of the 'class warfare' label that it shuns policies that impact even modestly on the top 10 per cent although they would work in favour of everyone else. 'Flat taxation' itself is in fact a kind of 'class warfare' against the vast majority of working people.

The fact is that in the last election Labor had strong but reasonable tax policies, but failed to sell and explain those measures at crucial junctures. Chris Bowen said those who didn't like Labor's tax policies shouldn't vote Labor. And when many voters failed to grasp Labor's policies, that is exactly what those voters did. Furthermore, in the final days of the election campaign – with Bob Hawke's death – Bill Shorten came across as flat, unconvincing and unemotional. Despite his commendable work on the NDIS, and the credit for embracing progressive tax policies in the first place – this fact remains.

Conclusions to the effect 'it is impossible to sell tax reform' neglect the fact that Labor failed tactically in mobilising public opinion. Some Labor figures are reacting defensively to criticisms from the Greens to the effect that Labor is supporting a drift towards flat taxation. But while the Greens can afford to be more radical because they depend on a narrower electoral base, that does not change the fact that Labor is capitulating on the most basic social democratic principles. It does not change the fact that Labor is failing to sell policies that are objectively in the interests of the majority of Australians.

Again: when a bipartisan consensus on radically regressive tax restructure is conceded, even when Labor does win with such a platform it is probably a case of 'one step forward, two steps back'. Progressives have to actually deliver progress if they are to be seen as credible. The best hope now is a progressively structured National Aged Care Insurance Levy, and strong labour market reform. Here's hoping Labor 'finds its way' between now and the election.