WELL, the Liberal Party have certainly looked after their own in this Budget. With scarcely a year left of their wafer-thin 2016 mandate, they will lock in seven years of tax cuts culminating in close to a long-held neo-con dream of a flat tax rate that favours the wealthy.
On the way they have thrown back a few morsels to the masses which had been taken away by bracket creep over the past half decade. These will conveniently take effect before the next election raising hopes of gaining a few middle-income votes.
But the long-term result stinks. Ninety-four per cent of the population – embracing the poor, middle and well-off – would be on the same marginal tax rate. As close to flat tax as you can get.
Labor will have little choice but to accept the income-tax package. It would then have to undo “L-A-W, law” if it won the next election, with all the political opprobrium that Labor copped last time it did that under Paul Keating.
The ultimate result of this Budget would have people on $41,000 paying the same marginal tax rate 32.5 per cent as people on $200,000. The unfairness is manifest.
Treasurer Scott Morrison’s tax plan is unimaginative, late 20th century stuff. If he were really concerned about bracket creep (under which people get pushed into higher income tax brackets), he should have indexed the brackets, rather than abolish one of them. Further, he has no idea now how inflation and wages growth will pan out in the next seven years so all his adjustments of the income levels at which each bracket applies is speculative guesswork which will require later adjusting anyway.
Indexed tax rates would have taken away the guesswork. But they would also take away the opportunity for Treasurers to play Santa Clause just before elections in handing out “tax cuts” which are really no more than handing back what inflation had taken away.
Reducing Australia’s income tax system to just three brackets, 19, 32.5 and 45 per cent, is brutally clumsy and unsophisticated in this computer age.
There should be no brackets. Rather the rate of tax should go up in tiny increments for every $1 earned – starting at 1 cent for the first dollar over $20,000, then rising by 0.1 cent every $400, till it levelled off at 45 cents for every dollar after $200,000.
The $20,000 and $200,000 should be indexed.
Then no-one’s overtime or bonus would thrust them dramatically into a higher tax bracket, which Morrison said was his aim on Budget night.
As things stand, however, even if Morrison’s plan is carried out, a few years after its completion we will be in the same boat requiring another Santa Claus Treasurer to hand back the tax that inflation has taken away – again in the hope that the voters will be conned.
More dumb, unsophisticated late 20th century tax practice.
However, the real sleight of hand in this Budget is not the “generous”, vote- harvesting return of some of the money that inflation has taken away but in the rejigging of the brackets to favour people who are doing very well – those earning between $90,000 and $200,000.
There is another cynical ploy here. A fair number of people in that bracket are progressives with a social and environmental conscience who might vote Labor or Green. That conscience might be sorely tested by the size of the tax cuts on offer by the Liberal Party.
The tragedy is that neither side of politics has had the courage to embrace comprehensive tax reform, even if they understand the need for it.
Lower and middle-income earners could have had real tax cuts (not imaginary ones with the handing back of bracket creep) with reform of: capital gains tax; negative gearing; superannuation; the GST; industry subsidies; road-user charges and so on.
Many people who pay the top income-tax rate of 45 cents can quickly convert a portion of that income into capital gains and have it taxed at 25 per cent. The 50 per cent capital-tax concession should be removed and replaced with an allowance for inflation.
At present there is no GST on many things of which wealthy people use a disproportionate amount: education (particularly school fees); health (exotic treatments); fresh food; rates (on their multiple negatively geared property) and so on.
The GST should be broadened and raised and the money given to Newstart and the aged pension.
It would, of course, require more than courage. It would require a Government to do something that Prime Minister Malcolm Turnbull promised: not to treat the electorate as fools. It would require honesty that would engender trust and a willingness to explain things fully.
Instead, we have the tax changes laid out in the 2018 Budget which would require the well-off to contribute less to society’s well-being with the inevitable long-term consequences of poorer public health, poorer public education and poorer public welfare. They will also increase inequality which in turn (the research shows) will ultimately reduce Australia’s economic performance – the very yardstick by which Morrison wants to be judged.
CRISPIN HULL
This article first appeared in The Canberra Times and other Fairfax Media on 12 May 2018.