Tax cuts, cost-of-living, housing and by-elections

The recent Newspoll results identified that 62 per cent of voters believe the Prime Minister did the right thing in redirecting more of the Stage 3 tax cuts relief to lower-and-middle-income earners. The upcoming Dunkley by-election on the 2^nd of March will provide the first electoral opportunity to measure community sentiment post-referendum, with polls suggesting the outcome is too close to call. Among the myriad of issues at play in Dunkley, will the PM be marked down for the Stage 3 tax cuts broken promise or rather, be rewarded for spreading the tax cut benefits more broadly?

The February True Issues Report identified the rising cost-of-living remains the dominant issue Australians want the Government to focus on, with housing and interest rates listed second. This is not surprising given the 13-interest rate rises in the last 18 months. The broader debate about the current tax system being pursued by the Greens and Teals as not being fit for purpose, will only continue to put pressure on the Government. One Teal MP recently noted the concession on capital gains tax for investment properties has made it easier to buy your second house than your first house.

Alan Kohler’s recent essay The Great Divide, Australia’s Housing Mess and How to Fix It noted that prior to the turn of the millennium, cost-of-living by-and-large kept up with the growth in both income and the economy. His essay suggests the significant upswing in demand around the time when the capital gains tax discount was halved, plus an increase in migration driving up demand, plus the federal first home buyer grants, all led to pushing up house prices in Australia from an average 3.5 times annualised average weekly earnings, to 7.4 times annualised average weekly earnings in 2023. 

So, what policies can the Government take to the next election that will make housing more affordable, other than short-term cost-of-living relief? The Government’s $10 billion Housing Australia Future Fund and the Help to Buy Bill, currently before the Parliament will help, but will it make enough of a difference to younger Australians trying to purchase their first home?

The Greens continue to push for taxation changes to negative gearing and the capital gains tax discount and have indicated they will not support the Help to Buy legislation unless the Government agrees to at least some of their demands. The Coalition have already indicated they do not support the Bill so the Government will likely have a tough time getting it through the Senate without support from the Greens.

So, the outcome of the by-election in Dunkley is important. The consequences for the Government losing this by-election are huge given the paper slim majority they have in the House of Representatives. There is also the two Queensland by-elections to be held on the 16^th of March in the state seats of Inala and Ipswich West. 

Labor needs to pick up seats in Queensland at the next federal election, so a big swing against the Miles Government in the seat of Ipswich West will make this task even more difficult and may have implications for the timing of the next federal election. The Queensland state election is on the 26^th of October, so a federal election before Christmas seems a long shot irrespective of the PM announcing that he intends to deliver two more federal budgets, in May this year and in March 2025. That said, he will set the date for whenever he thinks he can win. As the saying goes, the one constant in the universe is change and I suspect there is more on the horizon.