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Read the mind-boggling list of taxes Jim Chalmers could HIKE in the wake of explosive leak as the country's disturbing financial reality finally becomes clear: PETER VAN ONSELEN
Read the mind-boggling list of taxes Jim Chalmers could HIKE in the wake of explosive leak as the country's disturbing financial reality finally becomes clear: PETER VAN ONSELEN

Daily Mail​

time15-07-2025

  • Business
  • Daily Mail​

Read the mind-boggling list of taxes Jim Chalmers could HIKE in the wake of explosive leak as the country's disturbing financial reality finally becomes clear: PETER VAN ONSELEN

For two years Jim Chalmers sold Australia the line that the budget was on a sustainable trajectory. Despite mounting evidence to the contrary, Labor's first-term treasurer clung to a narrative that painted himself as a steady hand delivering back-to-back surpluses without needing to resort to deep structural reform. But the leak this week of a secret government briefing document makes clear that even Chalmers has had to admit what should have been obvious from the start. Australia's fiscal outlook is deteriorating, productivity is flatlining and the country's tax system remains fundamentally unfit for purpose. The spin is wearing thin and the second-term Treasurer knows it. So all that remains to be seen is ... what happens next? The Treasurer is planning to host a three day economic talkfest later this year, but in its aftermath Chalmers will be forced to finally spell out how he plans to raise taxes and cut spending. That's unless he once again puts serious reform in the too hard basket and does nothing, leaving the budget in the red as debt balloons. That can't be an option. The upcoming roundtable in August is pitched as a carefully curated gathering of economic stakeholders, not a showy talkfest. But it's also proof positive that the government can't keep going as it has been, racking up debt on the national credit card. Ever-growing expenditure needs to be reined in, and new ways of taxing are necessary to make the Australian economy fit for purpose in 2025. What Chalmers once sought to avoid - a full-throated debate about structural tax reform and spending restraint - is now the very thing he's inviting. Quietly, Labor seems to be shifting ground. It is suddenly open to everything from GST changes to wealth taxes, alongside curtailing capital gains tax (CGT) concessions. We'll soon see if the ALP has the courage to follow through on any of these, or if it can find other ways to modernise the system to encourage investment rather than discourage it. The days of congratulating themselves for one-off windfall-driven surpluses are giving way to sober warnings about intergenerational pressures and a productivity malaise. Those old enough to remember the 1985 Tax Summit might recognise what Chalmers is up to. Back then, Paul Keating used the event not to clinch deals on the day but to signal his intent: To foreshadow major structural reforms and lay the political groundwork. Chalmers is drawing from the same playbook, albeit more cautiously, remembering that his PhD was actually a study of Keating's leadership style. At the heart of the problem in need of fixing is a structural budget deficit that won't go away by itself. Treasury's long-term projections are grim. An ageing population, rising health costs, ballooning NDIS spending, defence upgrades and the expensive net-zero energy transition are all bearing down on a budget built on a 20th-century tax model. The Treasurer has finally stopped pretending otherwise, which is why everything is suddenly 'on the table'. That includes corporate tax rates, personal income tax thresholds, superannuation concessions and even the GST - although there have been enough signals already that GST changes might be a bridge too far. That's a crying shame. The same government that spent its first term umming and ahhing over the Stage Three tax cuts before breaking its promise and changing them anyway, all the while insisting the budget was back in the black and 'isn't that great', is now openly flirting with pulling some of the most politically difficult levers in the tax policy playbook. Those who watch politics closely worry that the modern Labor Party will mistake raising new taxes as proper tax reform, which it has done before. Inheritance taxes and taxing the family home remain political killers, but just maybe they too will get a look in given the perilous state of the budget, and given the growing pressures on housing affordability and rising inequality. But tax reform alone (including higher taxes) won't fix the budget, and Chalmers knows it. Spending restraint will have to play a key role in whatever happens next. That's where things become trickier. Labor is still heavily invested in programs with long-term outlays and patchy performance metrics, the NDIS being a prime example. Curbing growth in these areas is politically fraught for Labor internally, including when dealing with a Senate in which the Greens now hold the balance of power. That means the opposition has an important role to play, despite its diminished post election status. Again those old enough would remember the Coalition in opposition in the 1980s lent a hand when Keating and Bob Hawke reformed Australia's macro and microeconomic settings, setting up decades worth of prosperity. It is far from clear that the modern Coalition will back Labor's attempt to reform the tax system, even if Labor steps up to the plate. More likely it will play oppositionist politics and shoot down what Labor proposes, hoping to use ensuing political chaos to fight back electorally. The danger therefore is that the roundtable becomes a soft launching pad for ideas without political follow-through. We've seen it before. Endless reviews, summits and white papers, all fine in theory but meaningless without the courage to act. Chalmers wants to position himself as a reforming Treasurer, no doubt with one eye on the prime ministership as his destiny. But the window for meaningful structural change is already narrowing. If Labor doesn't move decisively the next electoral cycle will again become a contest of small-target tactics and bidding wars. Anthony Albanese needs to use his thumping majority the same way Hawke did in the 1980s and John Howard did after his 1996 win to campaign on introducing the GST. The economic environment of today is forcing Labor's hand. Productivity growth is stagnating, business investment is sluggish. And for years now the political centre has kept splintering as the major parties primary vote continues to erode. Chalmers is now asking business and unions to come to the table, drop their rehearsed talking points and engage in something resembling genuine dialogue. But is he serious in doing so? The first term jobs summit left business feeling mistreated - asked to smile for the cameras before being completely ignored - so it may be about to entering this debate without the trust necessary to get on board. Equally there are few tangible signs that Labor is ready to do anything other than reward its base with more one sided policy developments. That said, Chalmers deserves some credit for getting the debate started , belated though it may be. But recognition of a problem is only the beginning, and he could hardly keep denying the economic problem staring him in the face. Let's wait and see if he comes up with anything meaningful. The risk is that taxes go up and spending gets cut, but nothing innovative by way of restructuring the system is embraced to lift productivity.

The RBA's decision to hold rates isn't a calamity, but its shift in language is confounding – and worrying
The RBA's decision to hold rates isn't a calamity, but its shift in language is confounding – and worrying

The Guardian

time09-07-2025

  • Business
  • The Guardian

The RBA's decision to hold rates isn't a calamity, but its shift in language is confounding – and worrying

Following a spate of soft data, financial markets had priced in a near certainty that the Reserve Bank would cut interest rates this week – so it came as a shock to many when they chose to leave the official cash rate unchanged at 3.85%. As the treasurer noted, the decision was 'not the result millions of Australians were hoping for.' Mortgage holders can take heart, however, from the RBA governor's words at the post-decision press conference, where she implied that a rate cut following the August meeting was pretty well in the bag. 'The board decided to wait a few weeks' she told reporters, adding that the decision was around the timing rather than direction of rates. Despite these assertions – and following the release of the May monthly inflation data – markets are not entirely convinced, pricing in an 85% chance of a rate cut next month. To many, 85% may not seem that different from 100%. But in reality, it tells us a lot about how today's announcement has unnerved markets. With all due respect to some of my economist colleagues, a decision to cut rates at a later date will not make a discernible difference to our economic fortunes – although obviously every week of higher rates is felt keenly by mortgaged households, especially younger ones with the highest levels of debt. What is possibly a more significant outcome from Tuesday's decision is the erosion in trust of the RBA due to the large swings in tone between meetings, despite efforts to rebuild trust in the past six months or so. I wrote in this masthead just seven weeks ago that the RBA had adopted a surprisingly dovish tone for the first time in a long time, following the May monetary policy meeting. Indeed, the RBA acknowledged then that an out-sized 50 basis point cut had even been considered at that meeting (albeit briefly) following Trump's 'Liberation Day' tariff announcements. This stance represented a significant shift in attitude from the previous board meeting and indeed much of the previous year. And yet now, here they are swerving backwards. To me, this is quite confounding – and worrying. One of the reasons that a rate cut was widely expected this week was because the monthly inflation indicator for May had been softer than expected, both in headline and underlying terms. Underlying inflation, which is the measure that the RBA is focussed on, dropped to just 2.4%, the lowest annual pace in more than three years. While these numbers are a little volatile and not a full picture, they provide enough evidence to show that inflation is not deviating from the RBA's expectations, which would be the only justification to postpone another rate cut. Yet the RBA statement said that inflation data for May was 'at the margin, slightly stronger than expected' and that they will only feel confident once the June quarter data is out in black and white before their eyes. This makes one wonder how good the models are if there's that level of uncertainty with two-thirds of the story already in the bag. The RBA also suggests that 'private domestic demand appears to have been recovering gradually.' While I agree with the governor's assertion that 'reasonable people can differ in their interpretation of the data,' I think that, in this instance, the RBA has got it wrong. Consumer demand and confidence are unequivocally weak, despite tax cuts, lower inflation and two rate cuts, and wild gyrations in US tariff policy will continue to undermine business confidence and investment. We were told by the governor that there was 'really good debate in the [RBA] boardroom,' but it's hard to agree that recent data deserve such debate. In fact, given the level of downside risks created by uncertainty – especially as we face the next wave of crazy on tariffs from President Trump – the weighting to cut should have been easy if economic data was all that was under consideration. Yes, the labour market remains robust, with unemployment at 4.1%. And low productivity is producing unit labour cost growth at rates we'd prefer to see lower. But we are not seeing this translate into higher prices. The bank's own liaison tells them businesses can't do this under current soft conditions, but officials seem worried that another 25 basis point cut this month, as opposed to next, will threaten that, even as they forecast further rises in unemployment. The decision to hold rates passed by six votes to three. One has to assume that the three RBA board members voted to hold, so the six independent members were split 50-50. Despite reform of the RBA monetary policy decision-making board, officials still appear to have considerable sway over the final outcome. As I've noted, I don't think it's a calamity for the economy as a whole that we wait another month for an interest rate cut (although I would be deeply concerned if the cut flagged by the governor for the August meeting did not appear.) What does concern me about this latest decision is the significant swerving in language. One minute we are told inflation is in the bag; seven weeks later, we are worried that it's not, despite the data strongly indicating otherwise and despite the potential impact of very high levels of uncertainty playing out, both internationally and at home, which is anathema to growth. Confidence has given way to uncertainty and timidity. The RBA will need to exercise caution in its communications in the lead-up to, and following, the next monetary policy meeting if it does not want to further undermine confidence in its decision-making ability. Nicki Hutley is a consulting economist

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