A new policy battle has erupted between the two major parties, as Australians prepare to go to the polls within weeks.
Politicians know the cost-of-living crisis is still fresh in the mind of voters, and both Labor and the Coalition have pitched plans they say will ease some hip-pocket pain.
A laundry list of policies has already been announced: from cheaper doctors visits, to lower cost medicines and power bill rebates. On all of those counts, the Coalition has agreed to match what Labor is putting forward, avoiding a heated debate in the lead-up to the May federal election.
That changed this week when a chasm emerged between the major parties on tax plans.
Labor wants to give every taxpayer a “modest but meaningful” tax cut, which in effect will mean the average worker gets a few hundred extra dollars in their pocket every year.
That was revealed in this week’s federal budget and the opposition almost immediately rejected it, waiting until the following night to announce their own surprise: cheaper petrol for one year thanks to a halving of the fuel excise.
Both approaches will put extra dollars in voters pockets and could sway votes in what’s expected to be a tight election race.
What you’ll get under Labor
The government has legislated to cut the lowest tax rate — which applies to income between $18,201 and $45,000 — by one percentage point in the middle of next year, making it 15 per cent, and another percentage point a year after that, ultimately bringing it down to 14 per cent.
Because of the way Australia’s tax system is structured, those savings will flow through even if you earn well above the $45,000 threshold, meaning every worker will pay less tax under the changes.
For a worker earning $45,000 or more a year, the value of the cut will be $268 in the first year and $536 in the following years. The savings are smaller for people under that threshold: people earning $30,000 a year will only get $118 in year one and $236 after that.
In other words, most Australians will be saving roughly an extra $5 a week in the first year of the change and $10 a week subsequently.
If you’re thinking that doesn’t sound like very much, you’re not alone: Treasurer Jim Chalmers himself has repeatedly described the benefit as “modest”, while the Coalition has labelled them a “cruel hoax”.
But Labor has pitched the new cut as a “top-up” to their previously announced tax changes, and when taken together, the windfall for voters is more significant.
What you’ll get under the Coalition
Filling up at the bowser will become cheaper under a Dutton government, with the opposition vowing to halve the fuel excise — a tax paid by petrol suppliers that is passed on to customers at the pump — from 50 cents to 25 cents per litre for a year.
The Coalition estimates that this would result in a saving of $14 on a 55-litre tank, which is pretty typical, or just over $700 a year for those who fill up their car about once a week.
For Australians that fall into that camp, the benefit of the Coalition’s policy is greater than what they would get in the first year of Labor’s tax cuts, but how valuable the opposition’s policy is for each voter depends entirely on how much fuel they buy.
For example, regional Australians, tradies and families in the suburbs who have two cars and commute longer distances will likely reap most of the rewards. The flip side is that city dwellers who rely on public transport or cycling to get around won’t get anything at all.
“For tradies and everyone that’s travelling in from outer suburbs to work in the city or running kids around to sport on the weekend, this will be relief for them,” Opposition Leader Peter Dutton said.
“That’s exactly what we’ve designed it for.”
If this all sounds familiar, it’s because we’ve seen it before. The Morrison government halved the excise for six months on the eve of the last election after the outbreak of war in Ukraine set off a global oil price spike.
That policy lapsed as planned in late 2022, despite pressure on Labor to extend it.
When you’ll get it under Labor
The tax cuts won’t come into force until the middle of next year, prompting criticism from opposition that it doesn’t solve the problem for households struggling now.
But the benefits of Labor’s will be ongoing, with the changes locked in until the government of the day decides to repeal them (the Coalition has vowed to do exactly that if they win the election).
In theory, that means the value of Labor’s cuts over time could be significantly higher than what as been foreshadowed for the first two years.
When you’ll get it under the Coalition
The opposition leader has vowed that his policy would take effect as soon as he wins office, unlike Labor’s new tax cuts that are more than a year away.
If the Coalition wins government, and presuming they follow through on the promise, that means Australians could begin seeing the difference at the bowser within months.
At the end of the 12 month period, the excise will revert to the original 50.8 cents or potentially slightly higher due to indexation.
What either plan will mean for the economy
First, the top line numbers: Labor’s plan is forecast to cost the government coffers $17 billion over the forward estimates, while the Coalition’s is expected to lead to an estimated $6 billion in lost tax revenue over the one year.
Economist Saul Eslake said the Coalition’s policy “will have a bigger and more immediate impact than the government’s”.
“That is because it starts sooner and the amount being offered in the first year is bigger than under the government’s plan,” he said.
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But that’s just one part of the picture. With inflation once again moving steadily towards the Reserve Bank’s target band, and another interest rate decision due within days, some economists are wary of any announcement that could delay progress.
Angela Jackson, lead economist at Impact Economics and Policy, said the Coalition’s policy has the potential to prompt the Reserve Bank to delay cutting interest rates as soon as they otherwise might have.
“If it’s putting $6 billion back into the economy this financial year, then that’s not an insignificant amount in terms of what the Reserve Bank is looking at,” she said.
“That doesn’t mean that interest rates won’t still come down, but it might be enough to mean they’ll come down slower than they would have without it — and you have to see the government’s energy supplement in the same realm.”
Like Labor’s $5.3 billion plan to extend the energy bill rebates until the end of the year, cutting the fuel excise and therefore making petrol cheaper would bring down inflation in the short-term.
But the increase in demand in the economy it may generate depending on how consumers spend their extra cash has the potential to ultimately worsen inflation.
Treasury forecasts inflation will be “sustainably” inside the 2 per cent to 3 per cent target band before Labor’s tax cuts come into play, meaning they pose less of an inflationary risk.
With the budget expected to remain in deficit for the foreseeable future, the other consideration is what policies will mean for the bottom line going forward.
The Coalition’s spend is only for one year, meaning no ongoing hit to the budget, unlike Labor’s policy.
“But the reality is without fundamental structural reforms to the tax base or to spending, both sides are going to be facing a long period of deficits,” Dr Jackson said.
“I don’t think either policy fundamentally changes that.”
