What to do about the stage 3 tax cuts

Keep the taxes, then give the money back

Labor and the Liberals are united: Australia can afford the stage 3 tax cuts. They’re due to cost the Australian government about 243 billion dollars over the next ten years.

Albo, via Adam Kennedy for The ABC

It’s rare that our two major parties agree on such a budget item, but both think Australian citizens should spend that money themselves. What the parties disagree on is which Australians should benefit the most. The conservatives think that a rich Australian should be given significantly more, relative to a poor fellow Australian. Labor are less sure, but have committed to the same policy.

Thankfully, there’s an option that meets everyone’s goals: keep the taxes, then give the money back. It’s not as bizarre as it sounds. Internationally, programs that distribute a share of national output to each citizen are growing in popularity. Universal basic income programs, for example, are being trialed widely, and are a growing feature of political campaigns around the world. Elsewhere, governments  achieve this goal via sovereign wealth funds, whereby every citizen is given one share. In Alaska, for example, every Alaskan receives a yearly payment from the Alaska Permanent Fund, and receives a small disbursement. 

So the 243 billion dollars could be used to seed a fund, or it could be earmarked for direct cash handouts. 243 billion would make for a small fund, so the latter option might be more effective. But however we implement the program, the policy would work something like a national dividend. Just by being an Australian you would have a right to Australia’s national output, and every Aussie would get the same amount. 

Making the dividend equal for every Australian avoids the difficult and expensive task of means testing. It’s also progressive, because it’s funded by our progressive income tax schedule. And perhaps most importantly, it could be more politically sustainable than other programs that target the poor. By treating every citizen the same, the program encourages Australians to feel part of a collective Australian project, and would therefore be less likely to feel resentful for perceived inequality of treatment. 

The major parties have a lot to gain from this model, too. Turning the stage 3 tax cuts into a national dividend would have most of the same effects as the tax cuts, but with none of their immensely unequal impact. Instead, by giving every Australian the same payment, the program would begin to ease inequality and alleviate poverty. At a larger scale, it would eradicate it. Poverty, after all, is simply a lack of cash.

Programs like these are often derailed by the question “how will we pay for it?” When they do get off the ground, like in Alaska, it is usually because governments have instituted significant taxes - sometimes during natural resource booms. Australia missed just such an opportunity during the mining boom. But now we find a pot of money both major parties are willing to give back to private citizens. They’ve even earmarked it for this exact purpose.

So let’s take this rare moment of major party consensus as an opportunity to build something lasting. The seed money offered by the stage 3 tax cuts is a long way short of the funding needed to give Australians the basic income they deserve. But we have to start somewhere, and there is no reason we can’t start today. We have an opportunity to build a fairer, egalitarian Australia.

In the words of one great Australian: from little things, big things grow.