Mathias Cormann has always reminded me of a toy I had as a child – a doll with a painted face who had a string in her back which, when pulled, made her repeat one of the limited number of phrases in her repertoire.
This was never more so than when Cormann appeared on Insiders on Sunday.
Regardless of what Annabel Crabb asked, Mathias repeated his pre-prepared lines with his usual deadpan expression and eyes which never seem to join the conversation.
His go-to line was all about bracket creep. He must have mentioned it at least twenty times in his short interview. This is where he tries to convince people on low and middle incomes that he is saving them from the financial disaster of moving into the next tax bracket.
But just how much of a disaster would that be and how likely is it to happen?
During the week, the Prime Minister said that the median income is $53,000 pa. (Some estimates are even lower.) That means that 50% of the population earn less than that.
With annual wage rises of 2%, it would take someone on the median wage 26 years to exceed the current $87,000 threshold to move into the next bracket. A more optimistic 3% annual rise would take 17 years to get there.
Even if they did, it would only be the portion of their income exceeding $87,000 that would attract tax at the higher rate – an extra 4.5 cents for each dollar over the threshold – hardly a disincentive for a pay rise.
If you really wanted to remove a disincentive to work, you would be better served increasing the tax-free threshold where the jump is 19c per dollar earned over the threshold or the next bracket where the jump is 13.5c in the dollar. These are the brackets that represent the vast majority of workers and they are getting basically no tax relief.
When the government increased the threshold from $80,000 to $87,000 in 2016, they sold it as a “tax break for middle Australia”, but research by the Australia Institute showed that, in 2015, only 14% of all income-earning Australians earned more than $80,000.
And these 14% have already been very well looked after.
A brief summary of changes to thresholds this century…
The tax-free threshold has only seen one change when Julia Gillard increased it from $6,000 to $18,200 in 2012 to help compensate for the introduction of carbon pricing.
The second bracket has moved from $20,000 in 2000-01 to the current $37,000 in 2010-11 with an increase to $41,000 to come in 2022.
The next bracket are the biggest winners having moved from $50,000 in 00-01 to $87,000 now and they are bumping it up again to $90,000 in 2018-19, $120,000 in 2022 and then, in 2024, abolishing this bracket entirely, effectively moving the threshold to $200,000.
The top tax bracket has also fared well with the threshold moving apace from $60,000 in 2000 to $180,000 in 2008-09 and a proposed $200,000 in 2024.
To summarise the increases from 2000 to 2024:
Tax free $12,200
2nd bracket $21,000
3rd bracket $150,000
Top bracket $140,000
And it’s not only the bracket changes that have inordinately favoured the high-income earners – so have the rate changes.
In 2000, the rates were 17c, 30c, 42c, and 47c for each dollar above the threshold.
The bottom two rates have increased to 19c and 32.5c while the top two have decreased to 37c (and further to 32.5c in 2024) and 45c.
There are also continual calls for the top rate to be further reduced.
The Coalition have adopted the word “aspirationals” to describe those who will be rewarded by these tax cuts.
It reminds me of my father, a teacher, who once laughingly said he aspired to having a tax problem.
These tax cuts are designed to help aspirational politicians buy votes by offering trinkets to the masses and jewels to the rich.
They will exacerbate inequality and be paid for by cutting services to those who need them most and by selling off any assets left after previous Coalition fire sales and “asset recycling”.
It’s not bracket creep we have to worry about – it’s the full-speed gallop towards a society deeply divided into the ‘haves’ and the ‘have nots’.
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