Taxation reform will be a key issue in the next election but it is already obvious that the Coalition, rather than trying to use evidence to convince us that their plan is better, are opting for a scare campaign full of slogans about Bill Shorten’s $200 billion raid on retirees and mum and dad investors.
It’s interesting that the government are trying to sell themselves as the fiscally more responsible option, crowing about delivering a surplus when all they are delivering is another promise of one ‘next year’.
Federal net debt in 2013 was the equivalent of 13.1 per cent of GDP. And now? Morrison’s last budget predicts it to be 18.4 per cent in the new fiscal year. That blowout has occurred during a time of global growth after the GFC that Labor had to contend with.
This supposedly fiscally responsible government used the last budget to try to curry favour by promising tax cuts, and by giving up the fight to properly fund the National Disability Insurance Scheme through an increase in the Medicare levy. Frydenberg’s next offering will no doubt be more of the same with dubious assumptions about the future to try to make the books add up.
Taking Scott’s word for it, Labor intend to raise an extra $200 billion in revenue from large corporations and very wealthy people, not by raising taxes, but by closing loopholes and reducing some of the overly generous tax concessions introduced by the Howard government. They won’t reduce taxes for big business and high-income earners but will give a larger income tax cut to low and middle income earners.
Coincidentally, $200 billion is the same amount as the Coalition has committed to spend on weapons of war.
By announcing their policies early, there has been time for analysis of the impact of Labor’s proposals and a comparison to the Coalition’s plan for lower taxes for big business and high-income earners.
Everyone who earns less than $125,000 a year – that is, most Australians – will get a bigger tax cut under Labor. Labor is offering a maximum tax cut of $928 a year for middle-income earners – the Coalition’s $530 plus an additional $398 promised by Labor. And for the 2.4 million low-income earners promised $200 a year by the Coalition, Labor will give them an extra $150 for a total $350.
A report commissioned by the Australian Tax Office has found that wealthy people are funnelling money into private trusts and avoiding paying tax to the tune of possibly several billion dollars every year. Trusts are widely used in Australia for investment, real estate and business purposes to hold property for individuals, families and companies, unlike other countries where they are mostly used for the administration of wills and deceased estates, donations to charities and to provide income for people unable to manage their own affairs.
Relying on PBO costings, Labor says its proposal to cancel cash refunds for excess dividend imputation credits would save the budget $11.4 billion over the forward estimates from 2018-19, and improve the budget bottom line by $59 billion over the medium term. In 2014-15, only 8% of taxpayers claimed excess franking credits and Labor has exempted pensioners. More than 80 per cent of excess franking credits claimed by SMSFs went to funds with balances above $1 million and more than half by funds with balances above $2.44 million, based on information provided by the PBO.
Treasury advice on Labor’s policy to change negative gearing concessions said “Overall, price changes are likely to be small, though the composition of ownership may shift away from domestic investors.” Scare campaigns that this will lead to a drop in house prices seem incongruous considering the drop we are already witnessing. Current investors will not be affected. More first home buyers will release some properties for rent and restricting the concessions to new dwellings will stimulate construction.
Josh Frydenberg would have us believe that the changes to capital gains tax will hurt those ubiquitous teacher and nurse investors the hardest. The 50% discount introduced by Howard means this “unearned income” is taxed at a much lower rate than income earned in the form of wages and salaries, and also at a lower rate than bank interest and other forms of income. According to analysis at The Conversation, those who would feel the change most would be higher income earners, wealthy older Australians, and partnered women, quite often on behalf of their higher income partner.
As the wealthy scream blue murder at the idea of the overly generous tax concessions introduced by Howard being wound back, they do not seem to care about the not so wealthy losing Family Tax Benefit, School Kids Bonus, Baby Bonus, clean energy supplement, promised increases to the Superannuation Guarantee, the Pensioner Education Supplement and a whole raft of other things for people for whom every dollar counts.
Will Australians fall for the Coalition plan to continue this protection of the greedy at the expense of the needy?
Let’s hope not.
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