Taxperts at war
We are losing the big picture in the tax cut debate
The debate over the merit of the government’s and the Opposition’s rival tax cut packages has reached the “warring experts” stage, precisely the moment when most of the public tunes out altogether. Today’s expert tit-for-tat pits new Deloitte analysis against earlier analysis by The Australia Institute, arguing the relative fairness of one package versus the other. If the masses are over it by now, that presents opportunities for the government, like the mooted deal with the crossbench to pass the company tax cuts in exchange for a so-called “Google tax”. And if tax cuts do slide through, more as the result of general weariness than anything else, the opportunity to debate a real alternative will have gone begging: the Greens this morning opposed the tax cut packages offered by both sides, calling instead for greater public investment in essential services. It’s a gutsy proposition.
Deloitte’s analysis, outlined in this morning’s AFR, shows [$] that under the government’s plan the wealthiest 20 per cent of income earners will see their share of the tax burden rise from just under 79 per cent to 81 per cent over the next seven years; under Labor’s plan, this would rise to almost 83 per cent. The share of the burden felt by the middle 40 per cent of income earners will fall, from 21 per cent now to just under 19 per cent under the Coalition, and to 17 per cent under Labor. The bottom 40 per cent of income earners pay no tax once welfare transfers are taken into account. These are striking figures that counter analysis from The Australia Institute – equally true – that in dollar terms, most of the benefit of the government’s tax cuts goes to higher income earners.
Everyone supports a progressive tax system, it seems; what we are now debating is just how progressive our taxation system should be. We have become used to hearing about Gini coefficients amid the debate over income inequality. What we need to resolve the tax cut debate is a table showing how our tax regime rates now, on an accepted measure of the progressivity of the tax system (such as the Reynolds-Smolensky Index), compared with other countries. The Index rates a tax system between minus one (totally regressive), zero (a flat tax) and one (totally progressive). According to the Grattan Institute, the progressivity of Australia’s tax system over the last decade peaked at 0.069 in 2015, after Labor raised the tax-free threshold, and has since declined to 0.066, and will fall gradually if nothing is done due to bracket creep. The Grattan Institute’s Danielle Wood says the first phase of the government’s tax package will increase progressivity initially, via the low and middle income tax offset, but reduce it later, and it ends up lower than doing nothing. The Deloitte analysis clouds the picture by dragging in all kinds of people who don’t pay tax, Wood says. It’s very complicated.
In the meantime, this morning the Greens leader, Richard Di Natale, went on RN Breakfast to discuss the party’s decision to oppose both parties’ tax packages. It’s a brave politician who will stand in the way of a tax cut for voters. However, the Greens are often at their best when they are at odds with major parties, and it’s an opportunity to see whether the polls are right and the electorate would rather see better services restored rather than ten dollars a week. In his opening 90-second salvo this morning, Di Natale spelled out an alternative vision:
“Do we want to fund our schools and our hospitals? Do we want to make sure we’ve got a world-class broadband network? Do we want to invest in public transport? Do we want to tackle the dual challenges of climate change and rising energy prices by building renewable energy infrastructure? Or do we want to throw a few pre-election bribes and not set the country up for the future? That’s the sort of choice that we face, and what we’ve got is both the old parties in an income tax auction, an arms race if you like, throwing a few bribes before an election and just not thinking about what sort of future we want for our country. If we’re talking about looking after vulnerable people, we should be increasing Newstart. It’s unconscionable that we are committing people who can’t find work, indeed students, to a life of poverty …”
It was a pretty clear encapsulation of what the Greens are about, and the ensuing exchange with presenter Hamish Macdonald was a cracker. By blocking a tax cut, weren’t the Greens going to hit those millions of lower- and middle-income earners – by no means the top 1 per cent – most in need of relief? And what would the Greens propose to do about bracket creep? Di Natale had a kind-of answer on the former, and no answer on the latter. But at least a big, bold proposition is being debated: that after many years of tax cuts, now is not the time for more; that instead of a dismal future of private wealth and public squalor, it is time to reinvest in and restore public wealth. As Di Natale put it: “the choice we face is we go down the American route – where it’s user pays, everyone in it for themselves – or we actually build the foundations of a decent society.”
since this morning
AGL has rejected rival Alinta’s offer to buy the ageing Liddell coal-fired power station in New South Wales, prompting former prime minister Tony Abbott to call [$] for the government to compulsorily acquire it. In TheSydney Morning Herald Peter Hannam writes that the offer was “never serious and everybody knew it”.
The financial services royal commission, reconvening for two weeks to investigate business lending practices, this morning dismissed claims that the Commonwealth Bank had an ulterior motive to systematically default loans following its purchase of Bankwest in 2008. Westpac is expected to come under fire from Monday, the AFRreports [$].
Queensland Liberal MP Michelle Landry, who described the deselection of frontbencher Jane Prentice as “appalling”, has been summoned to appear before the LNP’s candidate review committee in a move described by supporters as “politically stupid payback”.
in case you missed it
Liberal MP Sussan Ley has today introduced her private member’s bill to ban live sheep exports to the Middle East during the northern hemisphere summer months in 2019, and entirely close the sector down in five years. The ABC reports that the proposal is gaining ground, with Labor set to formally endorse it this week.
The AFRreports [$] frontbencher Anthony Albanese is “confident” that Labor will win looming by-election contests in Longman and Braddon, while The Australian reports [$] that One Nation is threatening to preference Labor after the LNP rebuffed its offer of a preference swap in Longman.
A new push for Indigenous constitutional recognition beginning in Cairns today [$] will ratchet up pressure on Malcolm Turnbull to reconsider his dismissal of the Referendum Council’s proposed Voice to Parliament.
US Treasury Secretary Steven Mnuchin has told Fox News Sunday that a potential US–China trade war is “on hold” [$] as the Trump administration suspends a threat to impose tariffs on $US150 billion of Chinese goods.
Paddy Manning is contributing editor (politics) at The Monthly and has worked for the ABC, Fairfax, Crikey and The Australian. He is also the author of three books, including a recently updated unauthorised biography of Malcolm Turnbull, Born To Rule?
The debate over the merit of the government’s and the Opposition’s rival tax cut packages has reached the “warring experts” stage, precisely the moment when most of the public tunes out altogether. Today’s expert tit-for-tat pits new Deloitte analysis against earlier analysis by The Australia Institute, arguing the relative fairness of one package versus the other. If the masses are over it by now, that presents opportunities for the government, like the mooted deal with the crossbench to pass the company tax cuts in exchange for a so-called “Google tax”. And if tax cuts do slide through, more as the result of general weariness than anything else, the opportunity to debate a real alternative will have gone begging: the Greens this morning opposed the tax...