Grattan on Friday: Tax debate tricky for Dutton, despite issue of Albanese breaking his word

The Labor government’s replacement of the Stage 3 tax cuts with its own new package has turned the March 2 Dunkley byelection into a referendum on tax.

And that could become more difficult for the opposition than for Labor, despite Peter Dutton being handed the ammunition of Anthony Albanese breaking his much-repeated promise to deliver the Morrison government’s (already legislated) version.

The vast majority of taxpayers in Dunkley – 87% – will be better off under the government’s tax cuts than they would have been under the Coalition’s Stage 3. This is a strong campaign line for Labor.

That’s the first problem for Dutton. But then, there is the question of the opposition’s response.

The government will move quickly to legislate its package, which is due to start July 1. Does the Coalition vote against that legislation? It wouldn’t be a good look.

And what does it say it would do in the longer term? On Wednesday Deputy Liberal leader Sussan Ley suggested the Coalition would roll back the Labor policy. She later claimed she was verballed – she wasn’t – and retreated from her position. (Ley, who is always anxious to be out in the media, is a loose cannon for the Liberals, often making statements and claims that are counter-productive.)

The opposition presumably will have to reassure voters in Dunkley that it would keep the new tax cuts, which will soon be in people’s pockets.

But what does it say about those taxpayers who will be disadvantaged by the changes, compared to Stage 3? It would be hugely expensive to promise to look after them as well.

The opposition’s most viable position would be to say it would not undo the government’s package, while leaving for later whatever further tax policy it would take to the 2025 election.

Dutton said on Thursday he wanted to look at the detail of the government’s package before announcing the Coalition’s position, while maintaining “the Liberal Party is the party of lower taxes”.

He said Albanese wanted to “try and wedge the Coalition” in Dunkley with its tax package. If Dutton’s not careful, that’s what could happen.

Given the byelection and the fact the parliamentary year starts the week after next, the opposition doesn’t have a lot of time to settle its position. Dutton is pushing hard on the Albanese-is-a-liar line, but how much mileage there is in this for the byelection is uncertain.

Amid all the political noise, what voters take in is limited and selective. Labor is reckoning on the prospect of the tax relief having more cut-through than the row about the PM’s honesty. Some Dunkley voters could think less of Albanese for breaking his word while endorsing his new position because it leaves them better off.

Nevertheless Albanese knows a blow to his integrity is damaging. Selling his tax package at the National Press Club on Thursday, he was cautious with language. The term “broken promise” is ugly. Rather, he’d prefer to say the government has changed its position – given altered economic circumstances and for the greater good.

The opposition argues that people will mark down the tax relief because it is months away, when they need more cost-of-living help now. The government is aware it has to stay on the issue. Albanese on Thursday announced an Australian Competition and Consumer Commission inquiry into supermarket prices. Among other things the inquiry will examine “the difference between the price paid at the farm gate and the prices people pay at the check-out”.

The government asked Treasury around Christmas for advice on cost-of-living relief. With the tax model in hand, it acted quickly this week: the policy went to the expenditure review committee on Monday, then on Tuesday to cabinet, followed by the full ministry, and to caucus on Wednesday.

According to Albanese, decisions were unanimous all through this process. Most caucus members will be positive, given the number of beneficiaries in their seats. At Wednesday’s meeting, there was some questioning about how to sell the message and avoid “them and us” warfare. But those MPs with concerns about the reaction of wealthier workers in their electorates are likely to stay quiet.

The government is using to the hilt the authority of the Treasury to back its case for its recalibrated package, releasing a Treasury paper outlining the department’s advice. The paper argues the new model has broad benefits.

“A redesign of the Stage 3 tax cuts presents other opportunities, including enhancing the participation benefits of the tax cuts, especially for women, and distributing the future impact of bracket creep more evenly. This can be achieved with the same budgetary cost as the Stage 3 tax cuts, ” the paper says.

“The redesign of the Stage 3 tax cuts outlined in this document is estimated to provide cost-of-living relief to 13.6 million taxpayers. This option is broadly revenue neutral, will not add to inflationary pressures and will support labour supply.”

Treasury maintains, for a combination of reasons, that there won’t be an inflationary impact despite acknowledging the redesign “shifts some of the tax cuts to those on lower incomes, who tend to spend more of their additional income than high-income households”, to whom the original model was skewed.

Some economists argue the government’s changes could be inflationary, although likely only marginally.

Despite the broken promise issue, some in Labor believe the tax policy has given the government back the political initiative, after it was on the back foot late last year following the referendum defeat and amid poor polls.

For his part, Dutton is hyping the rhetoric. “I think [Albanese] should call an election and put the changed position to the Australian people and let them be a judge of his character,” he declared on Thursday.

We have that election, in microcosm and in the heart of middle Australia, on March 2. The stakes are high for Albanese, but Dutton is raising them for himself.