Britain's cautionary tale for Australia on top-end tax breaks

I wrongly assumed this question related to the Australian situation where a new Labor government remains committed to Morrison's Stage 3 income tax cuts for the well-off commencing in 2024-25. Cuts which Labor tried to amend before waving through after the then government made them an all-or-nothing deal.

Opposing them meant blocking more immediate relief for low and middle income households.

The question as to why Labor should persist though, given how dramatically economic circumstances have changed, is a good one.

The short answer is, because it promised to do so. But this raises an immediate conflict between fidelity to political promises - ordinarily a good thing - and pursuing the right policy for the country - the very essence of a government's responsibility.

Labor has hardly put a foot wrong since coming to office. Its busy, while not frenetic, approach has impressed onlookers including even some on the other side.

Many in Canberra remember with a quiet shiver the not always useful effervescence of the Rudd-Gillard news cycle.

The government elected in May is determinedly different as its current results-focused stewardship of the National Anti-Corruption Commission bill suggests.

Driven by the expanded cross bench, Albanese was nonetheless careful to include Peter Dutton in NACC discussions, successfully moving the Coalition from its intransigent opposition to public hearings, non-criminal investigations, retrospectivity, and other things, to being essentially on board. A historic shift.

Building on the dedicated work of Helen Haines and other thoughtful MPs, the broad parliamentary consensus also hints at a new maturity in Canberra after the divisive non-leadership of the Morrison years.

Consider Albanese's options given the public disquiet over corruption. The triumphant PM could have publicly cornered Dutton for equivocating.

You might recall Rudd Labor doing something similar to Malcolm Turnbull back in 2009, needling away at Coalition scepticism over emissions trading. Look where that led.

Albanese though prioritised the independence of the proposed anti-corruption body - a status which would be enhanced by strong cross-party buy-in. It was a choice between the short-term allure of competitive politics or the durability of a longer-term policy outcome. He chose the latter.

Back on tax, we can be less sanguine. The gifting of generous income tax cuts to people who do not need them at a cost to the budget of $243 billion in its first nine years, computes exclusively in politics.

For Labor, it has the virtue of honouring a pre-election promise, and that's pretty much where it ends.

When Stage 3 was originally conceived, the budget outlook listed a string of surpluses heading off into the future and both inflation and interest rates were low and stable.

Now those surpluses have become deficits, gross commonwealth debt is a trillion dollars or so, and inflation is nudging towards 8 per cent driving interest rates up and putting huge pressure on households.

Labor knows this of course but is desperate to avoid reviving memories of the L.A.W tax cuts pledge in the 1990s and the more recent Julia Gillard promise of "no carbon tax under a government I lead".

But the moral circle is not so easily squared because, on this, the national interest and Labor's own political interests have diverged.

Sometimes, national leadership requires the expenditure of political capital. It involves dealing with the realities encountered and recognising the uncontroversial statement that no sane government would legislate such cuts from scratch under the current economic circumstances. That's the real simplicity.

Risky though it is, the PM and his treasurer Jim Chalmers need to start a new conversation around fiscal responsibility and medium-term budget repair. And a new conversation around the dismal inequality implications of the legislated cuts that would deliver annual windfalls of $11,000 or so to those on incomes above $200K.

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Anyway, it turned out that the request to explain why the tax cuts were going ahead (as mentioned above) actually referred to the UK where the fluky new PM Liz Truss (their fourth in six years) had sent markets into a tailspin and property prices tanking with vast unfunded tax cuts for the wealthy.

Truss "promised" the cuts, to be paid for by borrowing something like 65 billion pounds, to win over Tory rank-and-file members in the post-Boris leadership race.

There are differences of course but there are some telling parallels in the Australian and British top-end tax breaks. The most obvious difference apart from scale, is time. Labor still has time whereas Truss's leadership is probably already finished.

Truss promised the cuts weeks ago and has announced them almost immediately. The already hammered British economy (the only G7 economy to be smaller than it was pre-pandemic) went into cardiac arrest with markets sending the pound crashing, the bond market becoming so unstable that the Bank of England had to step in, and the IMF warning directly against "untargeted fiscal packages at this juncture".

A shock like that was madness. It's only explanations, blunt ideology. Rank dogma. Pure politics.

Chalmers is sticking to the government script but there were some signs he has clocked the UK lesson.

"You do need to make sure that you've got fiscal and monetary policy working together," he told 7.30 cautiously.

"The fact that that's not currently the case in the United Kingdom, I think is a cautionary tale about the possible costs and consequences of not striking the right balance there."

True dat.