Updated ,first published
This budget is a Labor dream come true.
It will redistribute income from investors to workers.
It will redistribute real estate opportunity from the prosperous old to the aspirational young.
And, because it’s a Labor dream, it’ll be attacked by the Coalition as a nightmare.
Which is exactly what the Albanese government is hoping for.
By fighting to protect investors and older people, the Coalition will defend a dying demographic.
And alienate the fast-growing younger. Already, voters under the age of 45 – Millennials and Gen Zs – constitute the majority of the electorate.
And, by the next election, there will be 700,000 more Millennial voters on the electoral rolls than there were at the last. Among these, only one in five consider themselves Coalition voters, according to Kos Samaras of RedBridge, “and that’s on a good day”.
“We are giving hope to younger generations,” Treasurer Jim Chalmers told reporters. “That’s what this budget is all about.”
Labor’s hope is that the Coalition, by trying to take the hope away, will deal the political deathblow to itself.
If the Coalition is true to its recent punch-drunk form, it will oblige.
Is the government breaking its word? Its pledge before the last election that it would not touch capital gains tax and negative gearing? Absolutely. But the chance to break the Coalition is so tempting that Anthony Albanese is prepared to break his word to do it.
For Albanese, who once said his purpose was to “fight Tories”, this will be the sweetest victory of all.
The budget might not do enough to douse the flames of the populist fire fanned by One Nation because it doesn’t lead Australia out of its low-growth, low-productivity road of economic mediocrity. The simmering popular disgruntlement that has fuelled One Nation will probably continue to rise towards boiling point.
If so, the demise of the responsible right might merely open the way to the irresponsible far-right.
But Albanese will be content to take his enemies one at a time.
It was Brutus who spoke the famous line that “there is a tide in the affairs of men, which taken at the flood, leads on to fortune”.
For Albanese, the tide is at flood. With a dominant parliamentary majority, an opposition in disarray and two years until the next election, the conditions for bold action are ideal.
“We must take the current when it serves, or lose our ventures,” Brutus urged Cassius in Julius Caesar.
And the reform need is real. Albanese hasn’t confected a warped tax system that privileges investors over workers, and well-off retirees over first home buyers. These are persistent problems, long identified by economists, that governments have feared to address.
Jim Chalmers says that the budget will “dial up tax relief for people who work for a living”. They’ll get an automatic $1000 tax deduction every year from now, plus a $250 working Australian tax offset every year from next year.
As opposed to people who depend on income from investments – “not making any judgments”, Chalmers reassures as he announces a new minimum tax on distributions from trusts, which the wealthy commonly use as tax shelters.
This budget requires the trust to pay a minimum 30 per cent, “more closely aligning the tax rates from trusts with the rates paid by workers who earn a living from wages”, as the budget papers explain.
As for housing, this is where Albanese’s Labor dream is aiming to revive the Australian Dream. Over the past quarter-century, average incomes doubled. But home prices quadrupled. This broke the dream of home ownership for ordinary workers and stoked the wealth of canny investors who bought real estate for the tax benefits.
This budget seeks to make real estate less attractive to investors, and therefore more available to first-home buyers.
But while the prime minister and his treasurer are acting boldly to rebalance the system, they are not doing it recklessly. They’re trying to not punish existing investors. There are grandfathering provisions to protect existing negative gearing arrangements, for instance. Existing capital gains will be taxed under the old regime.
Any investor looking for new negative gearing opportunities can still find them; they’ll just be limited to newly built homes, not existing ones.
The Treasury modelling guesses that the net effect of all the changes will be to temper price growth by 2 per cent, or about $19,000 for the median home, over several years. So they expect home prices not to fall, but merely to moderate in the rate of growth. This is hardly a communist revolution.
Chalmers expects that these changes will help about 75,000 Australians buy their first home over the course of a decade. This is marginal, equivalent to increasing the rate of home ownership from 66 per cent to 67. The budget contains other measures to boost home-building, including the $2 billion for local water and road connections, an initiative inspired by the independent Helen Haines.
But the tax changes themselves will make only a very modest contribution to increasing the supply of homes. As Chalmers says, they’re more about increasing the supply of hope.
Yet the big picture of Australian economic performance is not terribly hopeful.
Chalmers announced a range of productivity measures, yet none, singly or together, is sufficiently serious enough to boost productivity. The treasurer says that they will, but his budget papers don’t support the rhetoric. The papers say the outlook for productivity growth is unchanged at a plodding 1.2 per cent.
In other words, Australia is stuck at its current economic growth limit of 1.5 to 2 per cent a year. Anything faster induces the friction known as inflation, demanding Reserve Bank corrective action.
The budget redistributes hope, but, at this sclerotic rate of national growth, it doesn’t create much. A high-growth, high-hope economy? That remains a dream.
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