The big Labor shift in fiscal policy

The Stage Three tax cuts have been adjusted to promote equity and social welfare by the Labor government.

The recent adjustments to the Stage Three tax cuts by the Labor Government represent a significant shift in fiscal policy, one that diverges markedly from the course set by the previous Coalition government in 2019. Originally, these tax cuts were criticised for disproportionately benefiting high-income earners while providing minimal support to lower and middle-income individuals and this approach was seen as antithetical to the Labor Party’s core principles, yet the party supported it with considerable reluctance in opposition, and then after they formed government after May 2022 – up until last week. The question of why it took the Labor government such a long time to amend this policy is complex, involving strategic considerations and the timing of the announcement.

The Labor Government’s eventual decision to adjust the tax cuts so that almost 85 per cent of wage earners would benefit more equitably marks a critical departure from the policy’s initial design. The original plan, which would have seen individuals on a $200,000 income receive a $9,000 tax cut, was halved to $4,500 under the revised scheme. This change aligns more closely with the Labor Party’s ideological commitment to equity and social welfare, challenging the perception of inaction or reluctance to amend policies inherited from previous administrations.

The strategic timing of the announcement, made during a relatively quiet period in January, suggests a calculated move to ensure maximum visibility and impact, avoiding the risk of the message being lost amidst other news. This period was marked by minor controversies led by the Coalition, such as the debate over Australia Day merchandise at Woolworths, which ultimately did not overshadow the tax cut announcement. The Labor Government’s strategy appears to have been to wait for an opportune moment to introduce these changes, thereby maximising the political and social impact.