We’re going to need a bigger boat. Jim Chalmers’ tax reform fishing not serious 

Chancellor Chalmers inflates tax reform bubbles ahead of May budget Michael Pascoe He warns that he is fighting in the last war. The next one is nuclear.

If a week is a long time in politics, two months before the May budget is an eternity, plenty of time to blow up balloons to see what will be dropped or how far a timid Prime Minister is willing to risk.

Much of the attention on Jim Chalmers’ tax dodgers has been about how much of the capital gains tax deduction can be safely reduced and whether the government will tap the negative gears – even though we still have beating hearts.

CGT reform choir with beautiful voice

The Senate committee hearing does a good job of making the case for reducing the CGT deduction; encourages a chorus of the great and the good to endorse the idea and ignores the Liberals’ immediate scare campaign on the “housing tax”.

Unfortunately, this is a sideshow, a fiddle playing around the edges of a larger problem that everyone knows, and a much larger problem that has yet to surface. I will address this issue.

The CGT and maybe-NG show is being sold to punters primarily on our core political, social and monetary issue: the cost of housing. Every little bit helps, but halving the CGT allowance, or more likely cutting it to less than that, will not solve the housing crisis and that is not what really concerns the Treasury.

It’s not about housing, it’s about budget

For those with responsibility for what happens to government deficits and debt, cutting the ridiculously generous CGT does not mean raising more money, cutting a huge “tax spend” and making housing more affordable.

To extend a metaphor, Chalmers’ arm-length CGT fishing trip is depicted as being after tasty reef fish, when the boat is actually after a shark that would scare people if they only knew.

Yes, the government wants to raise more money.

Serious people know that if we are to maintain our current level of good things, let alone realize the potential of this country, we must tax more and more wisely. For the ALP (Albanian Labor Party), forever scarred by Bill Shorten’s election loss in 2019, this is a situation where they will want to continue kicking the highway, roads and bush tracks.

So is any alternative government, if any.

Bigger fish are needed

It is known that there is a demographic shark around the financial boat. Yes, we really need broad tax reform that will offend almost everyone; reform ranging from taxing wealth to at least expanding the GST or even increasing the rate.

But here’s where we move on to Roy Scheider:

“We’ll need a bigger boat.”

There is a very strong possibility that the problem we face is much bigger than the problem we know we have.

Collecting more income taxes than expected, thanks to strong job growth and low unemployment, is what kept our current account deficit relatively small. One of the usual criticisms of our tax system is that we rely on the personal income tax for a high percentage of government revenue.

Various predictions of the challenge ahead are based on unemployment remaining relatively low and employment strong. Trillions of dollars are being bet that this will not be the case.

AI and unemployment

As always with major technological changes, no one knows how this will ultimately play out for society. The first signs are that artificial intelligence will be very profitable for those who use it, and very costly for those who do not use it.

If unemployment doubles, not only will the ATO collect less tax, but the government will also have to pay more towards social services. Consumption, the largest part of the economy, has been hit. Current budget projections are heading into a dark hole where the economy needs more government spending, not less.

There are already a few companies making headlines by saying that AI has allowed them to reduce their (possibly poorly managed) headcount. Actually, this isn’t that scary; companies go through such cycles. Although the statistics are a compilation of anecdotes, so far they are anecdotal.

worst case scenario

What’s scary for me is South China Morning Post report The number of jobs available for Hong Kong university graduates has fallen by 55 percent, he said.

“Job openings totaled just 30,798 in 2025, 55 percent fewer than the 68,728 recorded the previous year, according to data from the Joint Institution Job Information System, an online job information system operated by the city’s eight public universities,” the Post reported.

“An experienced human resources consultant attributed the sharp decline in entry-level jobs that require significant investment and mentoring to the rise of artificial intelligence and the uncertain economic outlook.”

Entry-level white-collar jobs are generally the simpler jobs, the ones you’d expect AI to pick up first, and in other cases, they require investment, as the anonymous advisor noted.

The SCMP report is an anecdote in itself, a story about an extraordinary city, but businesses in Hong Kong’s hotbed tend to be early adopters. It is not difficult to see this experience being repeated.

With the promised increase in productivity, so do the fortunes invested in artificial intelligence.

a cover-up for the wholesale expulsion of labor.

That’s what Kevin Warsh, Trump’s next Federal Reserve chairman, is betting on; that the increase in the productivity of artificial intelligence will make it possible to have lower interest rates. Or at least that’s the step that enabled the old money hawk to get the job.

Warsh’s view is that the increase in AI productivity will mean that higher take-home pay will not trigger inflation.

Alternatively, the increase in job losses caused by AI will still suppress wage demands. The SCMP story is an example of this. Starting salaries in Hong Kong increased by only 0.5 percent compared to the previous year.

Despite healthy GDP growth, the U.S. employment story in recent months has been frozen except for the health and care sectors.

White collar blue collar

If the claims of artificial intelligence come to fruition, the white-collar workforce will face the situation where blue-collar workers are relieved by the combination of automation and globalization. The mass displacement phenomenon that infamously exposed the rust belts in the US and UK will happen again, but not in the factory.

Governments were not prepared for the social catastrophe of the previous wave, there was no support to meet the change, large regions were devastated, a wave of resentment came and went and never let up.

Governments are not prepared for the new wave under threat and its cost.

And that will cost money. We can be sure of this.

This cost comes on top of demographic challenges such as a worsening addiction rate, the urgent need for much more government-funded housing, and half a trillion in spending on AUKUS. Skirting the edges of tax reform won’t pay off.

The May budget is Jim Chalmers’ chance to be brutally honest with Australians and deliver the equivalent of Paul Keating’s banana republic warning.

We need a bigger, smarter boat.

Housing affordability. The crisis that the major parties are afraid to fix