Albanese and Chalmers could take the Howard-Costello approach to tax reform. The conditions may never be better

The Guardian

2 days ago

Even before he announced plans for a roundtable to shape Labor's second term growth and productivity agenda, Anthony Albanese was managing expectations about what was to come.
Speaking at the National Press Club, a month after a stunning election victory, the prime minister began publicly signalling his government would not be getting out over its skis.
Explaining that some 'unexpected' decisions Labor had made in its first term were necessary responses to events at home and around the world, Albanese renewed his commitment to careful and considered government decision making. This included managing reform priorities ahead.
'The commitments the Australian people voted for in May are the foundation of our mandate, they are not the limits of our responsibilities or our vision,' he said.
The PM could have distributed photocopies of that speech to the Canberra press gallery this week, when he was back in the expectations management game as the list of demands from stakeholders and vested interests grew longer and longer.
In the past week alone, there was no shortage of ideas being offered up.
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Unions called for a minimum 25% tax rate on high earners and family trusts, and changes to wind back generous negative gearing and capital gains tax concessions for property investors. The ACTU also wants a 25% levy on LNG exports and caps to limit diesel fuel rebate payments to big corporations.
The Productivity Commission has already proposed slashing the company tax rate to 20% for firms with less than $1bn in annual turnover, representing about 99% of businesses. A 5% net cashflow tax would also be imposed on about 500 of the country's biggest businesses, including miners and supermarkets.
Separately, the teal independent Kate Chaney suggested lifting the GST rate from 10% to 15%. She proposed food, education and health be added to the GST, with a new $3,300 rebate to adult Australians, to help low income earners cope.
Business groups want a three-month tax review completed later this year, while campaigners including the former Treasury boss Ken Henry say long overdue reforms to the country's environmental laws should be used as a stepping stone to boosting productivity and growth.
Faced with this rapidly expanding wishlist, Albanese on Thursday sought to adjust expectations.
He said that ideas being proposed by stakeholders, participants and pretenders alike were still a long way from becoming proposals Labor was prepared to spend political capital on.
'Governments make government policy,' he said. 'The only tax policy that we're implementing is the one that we took to the election.'
The treasurer, Jim Chalmers, agreed that final decisions would be made by ministers at the cabinet table.
He went on to praise Albanese's considered, methodical approach to government, something which has led the overhaul of cabinet processes after Scott Morrison's constitutional power grab in the secret ministries saga.
Chalmers said this week he didn't want to kill off ideas before the talks even begin. He gently reminded stakeholders that only proposals that were in the national interest, rather than sectional priorities, would get real consideration. They must also be at least budget-neutral and offer specific and practical outcomes.
On the budget effect, he said some had embraced the challenge of not adding to spending better than others. He expressed gentle frustration with those advocating big-ticket ideas for their own industry.
There is both opportunity and risk for Labor in the lopsided expectations game.
Chalmers hopes a few immediate ideas could come out of the talks. He is chasing consensus on sclerotic regulation, sluggish building approvals, infrastructure upgrades and the energy system. And he could look to overdue developments such as road user charging for short term priorities.
After Albanese opens the summit, presentations from the Reserve Bank of Australia governor, Michele Bullock; the Treasury secretary, Jenny Wilkinson; and the Productivity Commission boss, Danielle Wood, will help frame the talks.
Equally, longer term work should emerge. Here is where tax reform should play a role, even if badly needed adjustments to the GST are off the table.
With a thumping majority in parliament, Albanese and Chalmers could channel the competitive tension that often exists between treasurers and prime ministers to frame policies for the next election. The conditions will probably never be better.
Like Paul Keating's 1985 tax summit – which brought about major changes still present in Australia's income tax system – big ideas need to be refined and debated, giving experts and the public the chance to assess them. The then prime minister Bob Hawke used the summit to dump Keating's preferred option of a broad-based consumption tax, but the 13-year Labor government remains the gold standard for reform.
A decade later, after the 1997 budget, John Howard and Peter Costello agreed to keep open the option of taking a GST proposal. Having famously declared he would 'never ever' revisit the GST in opposition, the move surprised even some of Howard's closest advisers. The plan was discussed in a 13-hour cabinet meeting, which included the first ever PowerPoint presentation in the cabinet room.
The pair eventually went public with the plan and spent months making the case, pushing it through parliament and eking out a narrow reelection victory in October 1998.
Such an approach could suit the methodical and cautious Albanese, and the more ambitious Chalmers – who rarely speaks to the media without mentioning the big ticket spending built into the federal budget, including health, aged care, defence, the soaring NDIS and interest on national debt. Albanese plans to add universal childcare to the list, if the government can afford it.
Back in June at the Press Club, Albanese called consultation and debate essential because, he said, change imposed unilaterally by governments rarely endures.
Instead, Labor would use the term ahead to seek reforms that clearly serve the national interest and 'generate their own momentum'.
'Key to lasting change is reform that Australians own and understand,' the prime minister told assembled journalists.
Meeting those expectations might just make or break this Labor government's claim to a legacy of lasting reform.
Tom McIlroy is Guardian Australia's chief political correspondent