There, before 600 or 700 people in at the Great Hall of Parliament House and the nation itself was the unstated corollary.
The Prime Minister, John Howard, was addressing a National Press Club lunch which had been moved up the hill to Parliament house because of a double booking at the club itself. Howard was extolling the virtues of his first two terms and explaining why a he should get a third.
He concentrated, as he has done in nearly three decades of public life, on economic matters. In particular, he talked about taxation. However, to the extent that his speech contained an element of social concern it was for and about the ageing population.
The ageing population contains a lot of votes. But beware the unstated corollary.
Howard referred to the retiring baby-boomers as “”gold-collar” workers. I think we’re going to hear a lot of this phrase in the lead-up to election. Howard thought they should benefit from flexible working arrangements that suited their quasi retirement. He painted a picture of a rigid, union-driven Labor Party that would deny them the flexibility of making it their own arrangements with their own employers.
“Even if only 10 per cent of people aged between 55 and 70 choose to remain in the workforce, on either a full-time or part-time basis, it would have a significant effect on our national per-capita productivity,” he said. “For this to happen, labour markets will need to be sufficiently flexible to suit their needs . . . . the ALP’s stated aim to return to a highly prescriptive, regulated labour market would diminish the capacity of older individual Australian workers to choose when that they wished to retire, the hours they wished to work and the specific rewards they want to receive.”
The Howard Government has already done quite a deal to attract the votes of the gold-collar workers — increasing the tax-free threshold for self-funded a retirees; making health insurance premiums tax deductible; rewarding people for keeping private health insurance; and, at this lunch, assuring them that he had “”no specific plan” to change superannuation arrangements.
Howard painted his government as one which has foreseen the social and economic problems of an ageing population and preparing to do something about it. But the speech was couched in terms of (italic) giving (italic) to gold-collar workers, the self-funded retirees and baby-boomers who make up such a significant part of the voting population. Howard painted the goods and services tax as an excellent tool to drag in government revenue to pay for the health, welfare and pensions of the ageing population. Howard quite correctly said, “History will judge that the Government’s introduction of the goods and services tax will have done more to prepare our economy for the demands of an ageing population than any other single tool of public policy.”
But there are two sides to this. The other side was the unstated corollary which is not so beneficial to those ageing people.
Under the new tax system the ageing population will have to (italic) pay (end italic) more tax than they would have if Australia had a lumbered on with its PAYE-reliant old system.
When older people leave the workforce, they also leave the PAYE income-tax system (or at least are not hit by it as hard). The new lot of retirees will often be well-off, drawing on superannuation which does not attract much tax, and spending it on goods and services, particularly the latter. Enter the GST. What better way to fund the extra services required by an ageing population than to make those ageing pay for it themselves?
This is the genius of the GST and this is why the Labour Party will do little about its fundamentals irrespective of the yapping and waffle about roll back.
Continued reliance on the PAYE system was not sustainable. The simple way to avoid tax on income is not to have an income, or at least reduce it. Leave aside all the Packers and Murdochs who push income overseas so it’s not income for Australian PAYE tax purposes. Leave aside people who engage in fanciful tax-avoidance schemes to grow exotic plants or devise layers of trusts. There is another breach in the PAYE system which has been growing furiously. This is the salary-sacrifice system under which ordinary wage slaves can sock money into superannuation funds before PAYE operates. Many baby-boomers are doing it now, knowing that in a few short years it will be available to them with little tax when they hit 55. The only way for governments to draw some of this money into the coffers is to tax it when it is spent. And as these post 55-year-olds spend so much of their money on services, only a services tax will achieve that effectively. Without the GST the country would have been very hard pushed to service these wealthy over 55 year-olds with their fat superannuation, particularly as there would be fewer PAYE suckers and more people depending on them – one in six over the age of 55 in 1990 rising to one in three in 2028.
This was the best public policy argument in favour of the GST, but in these voter-sensitive times it remained unstated and even at Howard’s Press Club lunch this week it was only alluded to as a corollary.
I argued in a this column a couple of months ago that this financial year PAYE tax would be as great a portion of GDP as it was before the GST. In short, that the “”tax cuts” that came with the GST had been cancelled as inflation had pushed people into higher tax brackets. This theme was taken up by the Daily Telegraph and the Australian tax[payers Association again this week drawing the same conclusions – – namely that the PAYE taxpayer was under incessant siege by bracket creep. Politicians routinely give PAYE taxpayers back money that has been taken by bracket creep and trumpet it as tax cuts.
There are only two real income tax cuts: a cut in the top marginal rate and the indexation of tax rates – – neither of which can be eroded by the inevitable forces of inflation. But this week Howard was typically reticent about tax cuts. He was open about the fact that the philosophy of the Coalition was to return budget surpluses in the form of tax cuts. In other words he would give back the surpluses raised by bracket creep; give us back the money he has already taken — whereas Labor’s philosophy was to spend those surpluses on increased government services. However, Howard refused to address the specifics of a question posed by the Australian’s Paul Kelly – not (italic) whether (end italic) there would be tax cuts but what (italic) form (end italic) they would take – – a cut in the top marginal rate to bring it in line with the company rate and thereby avoid the incentive for avoidance; or indexation; or another round of adjusting the mid-range rates to compensate for what had already been taken by a bracket creep.
But Kelly’s question will not go away. Howard will not get away with the same generalised waffle on income-tax roll-back as Kim Beazley applies to GST roll-back.
In any event, however the political parties may play up the questions of providing for the ageing population, providing health and education, the main issue for the next election will be how the money is to be raised to fund those things. It will be an election over talking about taxation.
But do not expect indexation. And do not expect a reduction in the top marginal rate. Imagine Opposition treasury spokesman Simon Crean carrying on about a person on $1 million a year getting a tax cut of $10,000 for every 1c reduction in the top rate, while the battlers battle.
And certainly do not expect anything truly radical from Labor like a reintroduction of death duties or a wealth tax on land or shares, which would be a surer way of imposing a fairer tax rather than just slugging the PAYE mug and a much more effective way of protecting the tax pay that urging baby-boomers over the age of 55 to put on the yoke and become a gold-collar PAYE worker.