O n a cool Thursday evening, five days out from delivering the federal budget, Jim Chalmers addressed hundreds of people inside the Federal Treasury building in Canberra.
Part football coach pep talk, part priest delivering a homily, Chalmers was emphatic about what was at stake.
“There’s a real sense of urgency in this budget, more than [the] usual amount of reform. And that takes more than the usual amount of courage, especially now,” the treasurer told the room of bureaucrats who had spent months working on next week’s product.
“Every budget matters, but this one seems especially consequential, the degree of difficulty especially high.”
That degree of difficulty, according to one Labor insider, will stay with the government for several years.
“This could set us up to win the next two elections,” they said. “If it goes pear-shaped, it could cost us the next election.”
After years fighting criticism from its left flank that it has shied from reform, the Albanese government is laying the groundwork for Chalmers to deliver his most ambitious budget yet.
It is taking a tremendous risk. Australia’s most recent attempts at reform budgets are not success stories. Joe Hockey’s in 2014. Wayne Swan’s in 2010. Both men also tried to make sweeping changes to either government spending or tax settings, which they hadn’t sought a mandate for at an election. Neither got them over the line.
You have to reach back almost 30 years, to the introduction of the GST by John Howard and Peter Costello, for an example of major tax reform that has lasted the distance.
But several factors have coalesced for Prime Minister Anthony Albanese and Chalmers to decide this is the year to take a gamble.
The first is last year’s election result, which delivered Labor a 94-seat majority and fragmented the federal opposition. This dynamic grants Labor rare political capital, and with two years until the next election, this is the most opportune time to use it.
The second is growing political polarisation and resentment, demonstrated by rising support for One Nation and other third-party candidates. Both Albanese and Chalmers have warned Australia is at a pivotal moment when it comes to following the rest of the world down the path where populism breeds social division. They believe that giving people a stake in the economy is an essential antidote.
The war in Iran and recent inflation spike added yet another impetus. The price of oil has jumped by almost 40 per cent since March 1, prompting concerns of a global economic downturn. While this has forced the government to tweak some of its ideas and forfeit others – such as a mooted plan to increase taxes on gas companies – these dual crises have rammed home the fact that the government can’t sit on its hands. In uncertain times, the country must be resilient.
The final factor is political. Albanese and Chalmers bristle when they are accused of lacking ambition. But it’s not been enough to stop rankling from impatient MPs, a progressive Labor membership and party luminaries. The government must prove it’s there for a reason to offset internal criticism while keeping the Greens, which are now ascendant in the UK, at bay.
“I think, over the course of the last 12 months, there is an appetite for reform. And we intend to make the most of that,” Chalmers told this masthead in an interview this week.
“In this budget we’re going to choose the hard road of reform rather than the path of least resistance … We’re here to make a difference, not just to mark time.”
That road will contain plenty of potholes: accusations of broken promises, political attack and ferocious pushback in some sectors. Chalmers says Labor is bracing for scare campaigns but won’t be deterred.
“The easiest thing would be to use what is happening in the Middle East as an excuse to do very little in this budget, and we’ve been very determined not to go down that path … We see what’s happening around the world as a reason for more urgency, not less,” he said.
“What we’re trying to do here is accelerate reform, not just absorb the shock … It’s kind of two budgets in one in that regard: it’s a lot of the things that we’re working on over the summer, in addition to the additional steps necessitated by a war in the Middle East.”
In the Labor pantheon there is nothing higher than the Bob Hawke-Paul Keating tag team that drove economic reform through the 1980s and early 1990s. Even Coalition critics concede that Keating’s reforms – from personal income tax cuts to bank deregulation to floating the dollar to deep cuts in tariffs – transformed the Australian economy for the better.
So criticism from that old guard cuts deep. Much of it has been delivered via party elder Bill Kelty, the former union boss who worked side-by-side with Hawke and Keating in that era. Keating has kept his public interventions to criticising Chalmers’ initial proposal to overhaul superannuation tax, but Kelty has been frank in his impatience with this government’s appetite for proper reform. He has urged Albanese to seize the moment.
This week, Keating changed tune. “I think the Treasurer, Jim Chalmers, is likely to announce on budget night a clutch of large remedial policy changes, which for the country are long overdue,” he told this masthead.
“Changes in the tax system and in government outlays, particularly for health and services have long been ‘verboten’. A treasurer has to have a tonne of policy ambition, flair and staying power to carry big changes through the cabinet and the party … then on budget night, to the electorate.”
If Keating’s words are one sign that Chalmers is about to unveil significant changes, decisions that Labor has made in the past fortnight are another.
In ordinary times, Health Minister Mark Butler’s overhaul of the National Disability Insurance Scheme would still be dominating headlines and public commentary. In a 30-minute speech last month, Butler revealed cuts to the Labor-led program worth $35 billion in four years and $150 billion within the decade.
These figures dwarf Joe Hockey’s planned cuts to the health and education budgets back in his 2014 document that still remains shorthand for “political suicide”.
Butler also announced that private health insurance for over 65s would be reduced. He pitched it as an example of intergenerational equality that would allow the government to pump more money into much-needed aged care beds. But there’s no getting away from the fact it will increase health insurance bills for many Australians by at least $240 a year.
This week, it was Infrastructure Minister Catherine King’s turn: she announced the death of the northern section of Turnbull government-era boondoggle, the Inland Rail link.
The proposed line between Brisbane and Melbourne was already years behind schedule and at least $20 billion over budget. Brandishing a report that suggested the cost would blow out to at least $45 billion, with no trains running until the middle of next decade, King pulled the plug.
Both decisions are already stirring debate. The NDIS changes have prompted outrage among Australians with disability, who are starting to rally against them, and the Greens are joining that fight. Posters in Albanese’s progressive inner-city electorate already declare that voters deserve better than a prime minister about to kick 160,000 disabled people off the scheme.
And in the regions, the Nationals, fighting for their very survival against One Nation, leapt on the move to axe the Inland Rail. Party leader Matt Canavan, standing on the Albury railway station platform, effectively pledged his support to continue the project while arguing the decision was a slap in the face of regional communities.
“We need to build an inland rail between Melbourne to Brisbane at some point in our future. So for my mind, this decision looks like it’s seeking to save a penny today to cost a pound in the future,” he said.
These are just the first political risks Labor has taken with this budget. Much larger will be confirmed on Tuesday night, centred on tax.
The country’s last real tax reform package was delivered by Swan in 2010. Chalmers was his staffer at the time. A new mining tax on “super profits” was supposed to fund a round of personal income tax cuts, a reduction in the company tax rate, a standard deduction for taxpayers, lower tax on interest earned on savings, infrastructure investment spending and investment concessions for small resource companies.
But today that chapter is best remembered for unleashing one of the largest, best-financed and over-the-top campaigns ever seen in Australian politics. It killed the mining tax, and all those other changes – which critics acknowledged would have delivered a measurable boost to the economy – effectively died with it.
Chalmers is expected to go down a similar tax reform path, under which some people pay more tax to help pay for lower taxes elsewhere. The capital gains tax concession, negative gearing and the taxation of trusts are all in the treasurer’s sights.
Revenue raised from those are expected to help pay for other reforms, including lower taxes on working people and concessions for the business sector. The CGT and negative gearing changes will be couched as helping young people get a toehold in the property market as part of a broader “intergenerational equity” message.
Such a tax package raises two issues. The first is that vested interests, with deep pockets, will resist any changes to CGT, negative gearing and trusts.
The second is that Albanese went to the last election promising no change to negative gearing. Voters can rightfully argue they were not warned of the other reforms before they cast a ballot in 2025.
It’s a potent mix of broken promises and higher taxes that could backfire.
Keating famously succeeded in demolishing John Hewson and his bold reform plan at the 1993 election. The 2010 budget effectively cost Kevin Rudd his (first) prime ministership. Within a year of the 2014 budget, Tony Abbott barely survived a leadership spill against an empty chair.
Liberal leader Angus Taylor has given an early sign just how hard he will target Albanese and the budget. “This government is always looking for an excuse. An excuse for why inflation is raging, why interest rates are going up,” the opposition leader said this week.
“The next set of excuses [will be] for why they’re going to whack extra taxes on Australians, having promised before the election they wouldn’t do that. We’ve got a prime minister who’s incompetent, but he’s also a liar and a fraud. And, no doubt, all the way through this budget process, he and the treasurer will continue to look for excuses for everything.”
Labor is betting that the electorate will forgive them on the grounds that intergenerational inequality is being addressed. Most of the caucus is feeling positive they can land that argument, said one MP, who represents a suburban seat.
“In every budget there’s winners and losers. I’m one of the Boomers in the caucus, and I think that what we’re doing is good. Boomers need to give a little,” they said.
Asked whether they were worried about backlash over broken promises, the MP said: “It’s a concern, but don’t forget we have been discussing these issues now effectively for 10 years.
“I’ve watched my kids go to auction after auction and been outbid. I think we’re at a point now where the community does recognise we have to get young people into housing.”
Keating also predicts that voters will understand. “I think Australia is blessed with a very conscientious electorate which will both understand and support a treasurer and a government minded to propose earnest changes,” he said.
But for all the bravado, senior government figures are aware there’s a lot to lose.
“We’re going to campaign on these things for the next two years like it’s an election,” said the Labor insider who warned this would be a watershed moment. “It’s that important.”
