Labor to lose progressive identity with small-target policies

Amid the constant drumbeat of news ranging from bad to catastrophic, Labor’s decision to implement the Turnbull-Morrison stage three tax cuts attracted only momentary attention.

Although it was presented as a routine piece of small-target politics, this decision effectively precludes any possibility of a progressive government in Australia for many years to come.

The decision was one of a series in which Labor sought to protect itself against the criticism that it would adopt a “tax and spend” policy in government. Labor had already dumped proposals to remove the payment of franking credits to retirees with low taxable income and to fix negative gearing.

But these items pale into insignificance with the stage three tax cuts, targeted at high-income earners. The cuts will cost $20 billion a year initially and that cost will keep on rising as high incomes continue to grow.

Labor strategies for the 2022 Election

After its failure to win government at the 2019 Election, Labor needs to rethink its strategies for a chance to succeed in 2022.

The problem with rejecting “tax and spend” is that taxing and spending is what governments do. Without tax revenue and with the capacity for deficit financing already pushing its limits, a Labor government won’t be able to do anything to improve public services or reduce poverty.

To see how limited the options are for a Labor government, it’s worth looking at the party’s own statement of "What We Stand For", a collection of 20 or so policy commitments. The only one that involves significant budget spending is the "cheaper child care plan", announced in the 2020 Budget reply and estimated to cost $6.2 billion over four years or about $1.6 billion a year.

Also announced in the 2020 reply was a plan for public investment in electricity transmission, called "rewiring the nation". The value of the investment was estimated at $20 billion, all of which would be ‘off-budget', presumably in a public enterprise similar to the National Broadband Network (NBN).

At the time, this seemed like a promising start, suggesting that Labor might roll out a range of progressive policies as the election approached. But nearly a year later, that hope looks forlorn.

A handful of new expenditure policies have been announced, mostly worthy but small scale.

What's next for Labor on climate?

The Labor Party must choose between an ambitious renewable energy policy platform, or, protecting jobs while seeing fossil fuel to its inevitable demise.

The Budget reply from Opposition Leader Anthony Albanese presented a single proposal, a national housing fund of $10 billion. A similar proposal, the national reconstruction fund of $15 billion has been presented by Shadow Treasurer Jim Chalmers as the centrepiece of Labor’s economic strategy.

To put these numbers in context, a number of funds of this kind are already managed by the Future Fund, including the medical research future fund of 21.4 billion and the disability care fund of 15.3 billion. The Future Fund itself has a current balance of $179 billion.

Labor’s proposals would be the fourth and fifth largest of these funds and would constitute around 10 per cent of the total. Even the Berejklian Government in NSW is more ambitious.

Economists have disputed the value of special-purpose funds of this kind, generally arguing that it is better to keep public expenditure on budget and funded from general revenue.

Good or bad, these proposals are far too limited to constitute an agenda for a progressive government, or indeed for a government with any ambition whatever. Few of them would have made the front page if they had been included in a routine budget under the current Coalition Government.

Labor's backflip on negative gearing policy a benefit to the wealthy

Labor’s reversal of policy regarding negative gearing has aligned itself with the ranks of the most powerful property rights lobby group in Australia.

Presumably, we will see a little more for health and education when the election is called. But it’s already clear that most of the ambitious proposals from 2019, which are no longer part of Labor policy, won’t be revived.

And despite some naïve suggestions, Labor can’t and won’t change course on the tax cuts after the election.

If Labor wins in 2022, it will be because of the incompetence of the Morrison Government in responding to the pandemic and because of any positive appeal.

But what case can Labor present in 2025?

It certainly won’t be on the basis of significant social progress. The most likely outcome is a one-term government, with nothing to show for its existence.

John Quiggin is Professor of Economics at the University of Queensland. His new book, The Economic Consequences of the Pandemic, will be published by Yale University Press in late 2021.