Why do you think that the coalition always couch their legislative program with wedges for Labor? Is it their way of having fun or can they just not resist the opportunity to play politics, even with something so fundamentally important as tax policy?
This week the coalition want to pass their package of personal income tax cuts which they are presenting as a three stage plan but they insist that it’s all or nothing, even though stage three is not scheduled to take effect until 2024-2025, six years down the track and potentially two election cycles away. What they are doing is seeking to bind future governments to tax cuts which may or may not be affordable when they finally come in but which are in line with coalition ideology :
The three-stage tax plan
- Step 1: Low and Middle Income Tax Offset
Taxpayers earning between $20,200 and $125,000 receive a temporary tax offset for 2018-19 to 2021-22, in addition to the Low Income Tax Offset (LITO). Up to $530 as a lump sum at tax time.
- Step 2: Changes to tax thresholds and LITO
In 2018-19 the top threshold of the 32.5% tax bracket moves from $87,000 to $90,000, and then to $90,000 to $120,000, in 2022-23. The low and middle-income tax offset also ends. The top threshold of the 19% tax bracket increases from $37,000 to $41,000, and the LITO increases from $445 to $645.
- Step 3: Cutting a tax bracket
In 2024-25 the top threshold for the 32.5% tax bracket increases to $200,000, eradicating the 37% bracket. Taxpayers earning more than $200,000 still pay 45%.
Labor are likely to go along with step one and possibly step two but they are resisting step three which they consider should only be legislated at the time it takes effect, not six years in advance.
The coalition know full well that they cannot bind a future government but they want to wedge Labor with the all or nothing ploy. Labor, on the other hand, don’t want to be seen as the party poopers and if the coalition continue to dig in and insist that the package be voted on as one bill the only option Labor have is to cave in and pass the package but make it known that they, when in office, reserve the right to reverse stage three if economic conditions are not conducive to tax cuts in 2024.
The government told journalists during the pre-budget lock-up that the plan would cost $140 billion over the “medium term” – which is 10 years – but the bill does not contain that information. The only costings it contains are for the first four years of the plan. Treasurer Morrison when asked why detailed year-by-year costings of his seven-year plan had not been included in the legislation, said the government couldn’t do so because the numbers wouldn’t be reliable.
“It is not the practice of any government to provide itemised year-by-year costs over the medium term because they’re not reliable,” he said.
So, the coalition bill on personal income tax cuts with all the rubbery figures will probably go through but they are not done with slashing revenue as they still want to cut corporate taxes to the top end of town.
The full corporate tax cuts being proposed by the Coalition are scheduled to come into effect in 2026-27 when all companies, regardless of turnover, are due to receive the lower 25 per cent rate. Leading economist Saul Eslake has suggested an updated 10-year costing of the Coalition’s corporate tax cuts would cost the budget in excess of $80 billion by 2029. A measure, which when combined with the personal income tax cuts, will impact government revenues into the future no matter who is in power.
What nobody is discussing in this frenzy of tax cuts is how these reduced revenues will impact on government services into the future. The coalition tell us that they are committed to small government and that means that cash-strapped governments into the future will be forced to privatise and outsource government services as they clearly will not have the revenue flows to continue to fund and grow education, healthcare, welfare, pensions and infrastructure.
So, it’s just as well that Labor’s debt and deficit disaster that the coalition warned us of is now behind us isn’t it? Only problem is that government debt, which stood at $175 billion YTD September 2013 when Labor lost government, now stands at $340 billion YTD April 2018.
You can check the figures yourself.
Reducing taxes is always popular, particularly when we are approaching an election and rarely are the consequences including reductions in government services and the need for belt-tightening discussed until after the election. But, let’s not be in any doubt, we will be told post-election that we just don’t have the money to fund essential services in this country.