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If we are going to have a conversation about taxation reform it would be useful if our Treasurer told the truth.
When asked about using the GST to fund tax cuts, Scott Morrison said “When you have the average wage earner in this country about to move into the second-highest tax bracket at $80,000 next year, you’ve got a problem with the incentives in your tax system.”
The most obvious reaction to this statement is wouldn’t it be easier to just change the bracket thresholds?
But beyond that, Morrison’s statement is misleading for several reasons.
Moving into the next tax bracket means you only pay the higher rate for the portion of your income over the threshold so if you if you are just above the limit it will make very little difference to the amount of tax you pay.
Moving into the second top tax bracket means you would pay an extra 4.5c for each dollar over $80,000. Because of the generous tax free threshold, the effective tax rate for this bracket ranges between 21.9 – 30.3%. This is never taken into account when making international comparisons.
Annual income of $80,000 gives weekly earnings of $1538. According to the ABS, in August 2014, the mean weekly earnings of employees and owner managers of incorporated enterprises in all jobs was $1,189 compared to $1,156 in 2013, nowhere near the $80,000 limit and unlikely to get there any time soon.
What’s more, there is a glaring gender disparity. For males the mean weekly earnings in all jobs was $1,410 and for females it was $948.
It is not until we take the specific subset of ‘males working full-time’ that Morrison’s statement comes close to being true. Mean weekly earnings for full-time workers in all jobs was $1,448 ($1,592 for males and $1,264 for females).
But is using the average even valid?
As any high school maths student can tell you, when you have a skewed distribution, as is the case with income, the median (middle score) is a far more reliable measure of central tendency.
The median weekly earnings in all jobs in 2014 was $1,000 ($1,185 for males and $838 for females) ie 50% of employees earned less than $52,000 a year.
Part-time workers represent 32% of the workforce and understandably, their earnings are lower. Median weekly earnings for full-time workers was $1,200 compared to $467 for part-time workers.
The difference between the mean and the median demonstrates the asymmetric distribution of earnings, where a relatively small number of employees and OMIEs have comparatively very high earnings with some 400,000 earning over $3000 per week.
At August 2014, 10% of people had weekly earnings in main job below $300, while the top 10% had weekly earnings in main job over $2,143.
Income tax has become less progressive in recent times, due mainly to the succession of income tax cuts during the Howard boom years. According to The Australia Institute’s Matt Grudnoff, only 3 per cent of taxpayers are in the top tax bracket now, compared to 13 per cent 10 years ago, so any bracket creep is just redressing the profligacy of Howard’s vote buying.
Whilst progressive taxation goes some way to addressing income inequality, the rapidly rising wealth inequality in Australia is taxed very lightly.
On the latest figures available, the median net worth of Australian households – that is, their assets minus their liabilities – was $1.59 million for the top 20 per cent and $29,600 for the bottom 20 per cent in 2011-12.
The capital gain on the family home is not taxed at all, while that on other assets is taxed at half the rate of savings such as bank interest. Superannuation is taxed at a concessional rate that provides the largest benefit to higher income earners. The combination of the 50 per cent capital gains tax and negative gearing makes investment housing an attractive option for many, particularly higher income earners, while lower income earners are increasingly shut out of the market.
Unlike other developed countries, Australia has no wealth tax, inheritance tax or gift duties, although they potentially provide the most direct means of curbing rising wealth inequality
Most capital investment or entrepreneurship faces a substantially lower rate than the personal marginal rate – either through the CGT 50 per cent discount, or the company tax rate of 30 per cent or 28.5 per cent for small companies. If you sit at home and make $50,000 on trading shares you will be substantially better off than someone who works hard all year to earn the same amount.
The Coalition like to point to New Zealand whose top marginal rate is only 33% (ours is currently 45%+2% medicare levy+2% temporary surcharge) but what they fail to point out is that there is no tax free threshold in NZ – you pay tax on every dollar earned – and the top rate kicks in at $70,000 instead of $180,000.
NZ has a 15% GST, another fact Morrison like to point to, but they have no general capital gains tax (although it can apply to some specific investments), no local or state taxes apart from property rates levied by local councils and authorities, no payroll tax, and a 1.45% levy for New Zealand’s accident compensation injury insurance scheme. They have chosen a higher GST rate to fund government services.
Modelling from the Parliamentary Budget Office has shown that increasing the GST to 12.5% or broadening its base would raise the same amount as a carbon price of $28/tonne but cost households about three times as much hence requiring much greater compensation for low income households.
The solutions seem so obvious but conservative ideology will blind this government to what must be done and once again, those least able to afford it will bear the brunt of the Liberals ‘lower taxes’ mantra.
Once upon a time there was a Treasurer who was very, very concerned about delivering a surplus. But that was in another galaxy far, far away.
In Australia we have Joe Hockey. Who has “spending” under control now, but there’s still more to be done. The deficit is much larger than it was under the last Swan Budget, but he has the solution. We need to give tax cuts to those on the top rate because if we don’t, they may stop working.
I know, I know, some of you are going to wonder how reducing revenue will help the Budget get back into the black, but the Liberals have the answer to that one: Quick, bomb Syria.
In case you persist and say, how are you going to pay for the tax cuts, the Liberals can calmly point out that they stopped the boats.
When you ask what’s that got to do with the fact that reducing revenue will actually put the Budget further into the red, you’ll be reminded that it was Labor that insisted on wasting money on things like women’s refuges when a simple ad campaign is all that’s needed to stop domestic violence.
If you give up and say that, well, a Budget Deficit is probably a good thing because it’ll stimulate the economy, you’ll be told that it’s thinking like that which caused Australia to be in such a mess and that things have to be paid for, and that’s something that the Left don’t understand.
And the tax cuts will be paid for with the reduction in spending that the Liberals have achieved. So said Assistant Treasurer Josh Frydenburg, so don’t you worry at all.
A surplus is just around the corner. Like the tax cuts.
Which can only happen after the election. Although Joe wasn’t very specific about which election. It’s certainly not the Canning By-election. It may be the one next year. Or the one after that. Or when they actually get round to having one in North Korea. But definitely after an election and not in the next Budget.
But you can be sure that it’ll happen because the Liberals are a party that cuts tax. Take the GST. They’ve just cut the figure at which you have to pay it on overseas goods from $1000 to zero. If that’s not a tax cut, what is?
And they’re talking about making it 15% rather than 10%. But that’s not a new tax. It’s just an increase of an old one. And it’s not really an increase because we’re about to bomb Syria and, as we said before the previous election, personal income tax needs to come down and the boats need to be stopped so that we can have jobs and growth.
Income tax, you see, is a disincentive to work. And it’s only by reducing income tax that we’ll encourage people to work extra hours.
Because we want people to work extra hours. Not to go home to their families. We don’t want to share the jobs around and have two people working twenty-five hours. No, we’d rather remove the tax disincentive so that one person can work fifty hours and the other one doesn’t have a job.
Of course, not all jobs work that way.
With some jobs, you couldn’t find a way of giving a person’s overtime to somebody else. And, of course, with jobs like this all overtime is voluntary. Nobody ever gets forced to work extra hours. With all jobs, your boss comes to you and asks what hours you want to work, and because of the high income tax rates, lots of people just say that not only do they want no overtime, but it’s not really worth coming in after Thursday lunchtime so just dock my pay and I’ll see you Monday.
And with other jobs, well, they’re just high paying ones where you work as much as needed to get the work done. You know, like being in charge of the NBN which thanks to the Liberals is going to come in on time and under budget. Well, sooner than Labor’s and whatever the eventual cost Labor’s would have cost more and not used those state-of-the-art copper wires. Anyway, high rates of tax – that’s the reason I haven’t ever taken on a job paying in excess of a million a year – I’d be losing half of it to the government.
Yep, this is why companies have such trouble finding CEOs, nobody wants to earn that sort of money because they’ll have to pay so much tax.
As for people earning money through investments, well, because of the high tax rates most of them have decided to simply bury it in the backyards because they don’t want to earn a single dollar that might cost them 47 cents in tax.
Although one wonders why Joe’s wife has a place in Canberra when she’s so well off that surely the tax rate must be a disincentive to her charging him rent.
Whatever, personal tax rates are a disincentive to work.
Cutting penalty rates on the other hand is not a disincentive to people working at all.
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“TONY Abbott and Joe Hockey are convinced the government will be punished electorally if it does not produce a tough budget, and they believe there is a “public appetite” for decisive action to get the economy back on track.”
Sounds good? Well let’s get real here. Nothing pisses me off more than getting lied to and you, Mr Hockey, are really pissing me off. Listening to you rail at Labor this week, exhorting them to tell the truth as you told lie after lie, nearly made me choke. There is a “public appetite” for the truth so time for a reality check.
Firstly, to label MYEFO as Labor’s last budget fools no-one. It was produced over three months into your term. You were elected because you said you could fix the problems. The blame game is over sunshine, it’s on your shoulders now and you have wasted one sixth of your term in office crying.
The PEFO report is an independent report by the Secretaries to the Treasury and the Department of Finance that provides updated information on the economic and fiscal outlook. These are the same people who advised you for your MYEFO report so to accuse Labor of lying about the figures is rot.
PEFO showed the cumulative projected budget deficit for the years 2013 to 2017 as $38 billion. MYEFO, prepared under your watch, shows a deficit of $106.6 billion. To quote your own document
“The $68.1 billion deterioration in the budget position since the 2013 PEFO reflects two key factors:
You go on to say:
“Firstly, a softening in the economic outlook has resulted in significantly lower nominal GDP, which has largely driven the reduction in tax receipts by more than $37 billion over the forward estimates.”
In the face of falling taxation revenue how does the Coalition react? They forego $2.9 billion revenue in tax and superannuation measures announced by the previous government.
Getting rid of the moves to tighten the requirements around tax benefits associated with salary packaging a car under Fringe Benefits Tax rules cost us $1.8 billion. All that was required was for FBT claims of business use to be legitimate, verified by a log book filled in for 3 months once every five years – hardly an onerous task.
Joe and Tony said it would cost jobs in the car manufacturing industry. Well subsequent actions by the Coalition show that concern to be a sham as they went about dismantling the industry from their first day, so I can only conclude that they support fraudulent claims of vehicle business use as a legitimate form of tax avoidance.
Moves to tax earnings of more than $100,000 on superannuation pensions and annuities at 15 per cent instead of being tax-free have also been repealed. This move cost us $1 billion to allow the 16,000 wealthiest superannuation recipients to pay no tax at all on an annual retirement income of over $100,000. These would include the people that John Howard permitted to put $1 million into superannuation tax free in 2007 as a vote buyer.
The cost of tax concessions for superannuation continues to grow by about $5 billion per year and will soon top $50 billion.
The revised projections for revenue from the mining tax showed it raising $3.3 billion over the forward estimates. You may call that nothing but think what those charities you have cut funding from could have done with that. Perhaps the childcare and aged care workers could have got that pay rise after all. You cannot say, on the one hand, that it raises no revenue and then on the other, say it is a burden on business that is costing jobs and investment. All this at a time when record mining industry profits have outstripped growth in taxes and royalties.
The Coalition have also pledged to reduce company tax by 1.5% which will cost us $5 billion. One reason given for this is to offset Tony’s paid parental leave scheme levy. Tony and Joe assure us that PPL is fully funded by a 1.5% levy on businesses with a turnover of over $5 million – they neglect to mention that the country loses $5 billion which will now be diverted to pay wealthy women to breed. Let’s just imagine that we had someone sensible in charge, scrapped Tony’s PPL scheme, scrapped the reduction of company tax, and kept the 1.5% levy on the top 5000 businesses. We would have an extra $10 billion a year to spend on, oh I don’t know, renewable energy perhaps?
The carbon price raised $6.6 billion in its first year which was passed on to households, trade-exposed industry, and research and development grants. Repealing it could punch a hole as big as $7.6 billion a year in the budget. Compare that to the Coalition’s Direct Action fiasco which will not raise revenue and cost the budget $3.2 billion over the next four years. Instead of collecting about $30 billion and taking action on climate change we will be paying over $3 billion to polluters – makes sense, NOT.
Moving on from the revenue side to spending, MYEFO tells us that the majority of the $17 billion deterioration in this year’s budget is due to Coalition spending decisions.
As soon as Joe Hockey got the keys to the safe he borrowed $8.8 billion and gave it to the Reserve Bank of Australia in what has been described as a gamble on the foreign exchange market. The RBA certainly didn’t ask for Hockey’s $8.8 billion capital injection and didn’t think it was necessary. It wanted to rebuild its capital over several years by retaining its profits and not paying the government dividends. Hockey’s $8.8 billion injection this year means dividends will be paid to the government over the next few years.
So the truth of this exercise is Hockey wanted Labor’s deficit to look bigger and he is happy to blow several hundred million dollars interest a year in an attempt to make his performance as Treasurer look good.
After years of abuse about the cost of Labor’s asylum seeker policy, Hockey added an extra $1.2 billion for offshore processing. Presumably this will be spent on extra guards and orange life rafts and bribes to other countries to see to our problem.
An extra $1 billion was allocated to fund eight infrastructure projects that were to be funded from the former Government’s Regional Infrastructure Fund which was paid for by the mining tax. Instead of the MRRT providing the funds, they will now come direct from the taxpayer as the Roads Prime Minister fulfils his dream. And now we have Matthias Corman telling us that the possible $4 billion raised from the sale of Medibank Private will also be spent on roads. Enough with the roads already – we don’t want to become another Beijing. How about another airport for Sydney or high speed rail or urban public transport?
Hockey goes on to say that “Without any policy changes, the budget is projected to be in deficit in each and every year to 2023‑24.” A little further down the page we read that “The Government is committed to returning the budget to sustainable surpluses that build to at least 1 per cent of GDP by 2023‑24.” Ummmm, what’s the difference? Does that mean that you intend to make no policy changes, or that your policy changes will make no difference?
Much has been made of the promised Commission of Audit. MYEFO stated that:
“The Commission of Audit will be guided in its work by the principles that government should:
Considering what you are prepared to spend money on – fleets of joint strike fighters, submarines, unmanned drones and one-use orange life rafts, $10 billion to keep asylum seekers locked up, gold plated paid parental leave, grants to polluters, billions a year on fossil fuel subsidies, endless reviews, audits, white and green papers, and Royal Commissions, bigger new planes so Tony can accommodate the film crews in VIP luxury, a $70,000 pay rise for Campbell Newman, $16 million for Cadbury – I think it is YOU who should be fearful of what the Commission has to say.
Rather than telling all of US to tighten our belts and prepare for big cuts, how about you think about your priorities. You are throwing away money by your tax cuts and your spending priorities are crazy. I will be interested to see if the Commission of Audit agrees with me, or will those bits be excluded from the censored version? It’s amazing how this government, champions of free speech, refuse to release documents and information and when they do, they redact so much it reads like a tv guide.
At the risk of sounding sexist, perhaps having a few more women in Cabinet might help. They are often better at seeing the big picture and making the most of the income you’ve got.
Stop the theatrics Joe. We are on to you. The dispatch box is your stage, but your script of blaming Labor and giving misleading information is becoming very tired. Every time you and Tony spoke this week, in your softening us up for the budget, you said Labor left us with a debt of $667 billion and cried shame shame at the Opposition. Well shame on you for your purposeful distortion. To counteract your manipulation, and to make sure the public understands the truth I will once again quote from your own document.
“Net debt is forecast to be $191.5 billion in 2013-14 and reach $280 billion in 2016-17.”
Let’s get real here!
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