Stage 3 tax cuts: The fight is on
That's the headline for my latest piece in Independent Australia . The next couple of weeks, leading up to Labor’s first budget, will determine the fate of this government, one way or another.
If the tax cuts go through unchanged, the government will be a failure as far as economic and social policy is concerned. Some have suggested that the problems could be fixed in a second term. But having handed out big tax cuts for 2024-25, it’s absurd to suggest that Labor could turn around immediately and campaign on cancelling them. And, there’s no guarantee of a second term. While the LNP is looking pretty hopeless at the moment, an economic downturn would change things. Locking in the cuts would leave Labor with little or no capacity to respond to such a downturn.
Modifying the tax cuts, to keep only the elements that benefit middle income earners would have the political costs associated with a broken promise, but would reduce the costs of the cuts by around $12 billion a year. This would give the government sufficient room to respond to economic crises and address urgent needs.
Among those wishing to keep the cuts for higher incomes, the two main arguments are
(a) a promise is a promise
(b) people earning $150000 or $200000 a year aren’t “rich”
On the first point, while it would have been better not to make the promise to implement the cuts, it’s rarely possible for a government to keep all its promises. Labor’s promise to deliver higher wages has already been downgraded to a hope that real wages *might* increase over the next three years.
As regards “rich”, it’s a meaningless term which roughly means “makes much more money than me”. The fact is that only about 3 per cent of income-earners have a taxable income of $200 000 a year. This well-off group have less need for tax relief than the rest of the population
We need to keep the pressure up, in every way possible, until Budget Day
I thought the whole point of those tax cuts was to have this exact "discussion". Insofar as the Liberals thought they might win the election they were probably quite willing to cancel the tax cuts and no doubt would have come up with some pretext - for example the predictable expensive natural disasters (looks out window in Sydney...)
I'm far more interested in a better discussion of tax more generally. Although I vaguely recall there have been inquiries and papers published on the topic that made clear recommendations and backed them with evidence. perhaps we could dig one or more out of the bin and see if there's anything useful?
For a real political wind-up, go back to Howard's CGT before him and Costello broke it with the 50% discount nonsense. Call it the "Howard Tax"...
"Taxable income of $200,000 is not rich." Subsumed in this opinion is the notion that the 'high' income earner, whose day-to-day cost of living is very similar to that of the person on $50,000. His principal house and car repayments, school fees, and discretionary expenditure might be higher, but often, the lower income earner will be living in cheaper, outer suburbs and facing a longer, more expensive commute.
But what is far more likely, is that a substantial part of the 'discretionary expenditure' would be contributed to income earning investments, which courtesy of our generous taxation system, would mean that someone on $400,000 could reduce their 'taxable income' to a modest $200,000 through negative gearing and capital gains tax discounting. Perhaps it would be fairer to look at a variety of other taxes which also favour the 'rich', as well as a partial reversal of the 'L-A-W' flat tax cuts.
It is clear that Dutton has made a hypocritical pre-emptive strike on the 'promise' in order to wedge the government. Surely that begs the question, "How many promises did Abbott and Morrison break immediately they had won their respective elections." They allowed our NBN, NDIS, Medicare and aged care sectors sink to third world status by protecting the rich from their fair share of nation building expenditure, while blowing the budget on defence, rorting, and unjustified support payments during the pandemic. Worse still, we will still paying for years to come for the one big promise that Abbott keep, to 'axe the carbon tax', and spend 10 years pretending to reduce emissions while holding back the renewable transition that even Dutton now accepts is essential for our economic and ecological future.