Times are turbulent and changing: pandemics, wars, energy crises, climate disasters, inflation, a new government. In this very challenging context, the Albanese government has handed down its first budget.
The budget is in many ways foundational. It covers what Labor took to the election, but also paints an ugly picture. If things don’t change the status quo will be disastrous. Things get a lot worse, if we decide to do nothing.
The Government has left open the door for change. Yes, Stage 3 tax cuts are here to stay. However, it is becoming increasingly obvious that in a time of high inflation that these tax cuts are inappropriate. While higher and middle income individuals will receive permanent tax cuts, the majority of Australians will be squeezed by higher energy prices, food prices, rising mortgage rates, and rising unemployment. Treasurer Chalmers has inherited the growing spending pressures of an ageing population, defence, falling productivity, and shrinking tax bases.
Meanwhile energy companies are also raking in billions, not from any extra effort or ingenuity, but because OUR natural resources have gone up in value. We permit them to extract our resources, sell them overseas for a motza, and then demand the same or even higher prices from us to buy it back from them. Most of these windfall profits go to overseas shareholders.
In a bizarre and counter-intuitive way, the government has been forthcoming about these issues, but decided to do nothing… yet. It has laid out the problems for all to see, and warned without radical intervention we will suffer greatly. Many manufacturing businesses (which are significant regional employers) face potential closure and bankruptcy. The government invites the media and public to criticise its inaction. Possibly because the political calculus is it is better to have the media criticise them for inaction and then take action, than to pre-emptively take action and be criticised for the actions they’ve taken.
The ensuing panic over rising energy prices provides an invitation for the government to be “pressured” into adopting radical actions. Australia could easily follow the lead of the UK and even Indonesia in taxing the windfall profits of energy companies, and distributing these to the public to address rising energy costs. Other options include regulatory interventions such as price controls that force energy companies to supply gas to Australia at pre-windfall prices. Gas export triggers and reservations are other possibilities.
Clearly, our current tax system is not fit for purpose. Companies that take our natural resources profit from extorting us. Income tax cuts that are both regressive and inflationary. Meanwhile the rising cost of the NDIS, an infrastructure backlog, and back-to-back natural disasters put enormous pressure on the budget. We need a tax shift for our future, one that can reward makers while charging takers. By opening itself to criticism, the government has the opportunity to react with temporary measures, such as windfall tax on energy companies, while building a more ambitious, generational tax reform agenda.