Why Labor now owns middle class welfare
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Much of the criticism of middle class welfare has been directed at the Howard government, which in 2000 overhauled the family payments system to establish Family Tax Benefits A and B as part of the tax system overhaul. Family Tax Benefits are not middle class welfare per se, of course. The bulk of FTB payments go to lower-income households. But it becomes middle class welfare — a term John Howard loathed — when you don’t restrict access to FTB to people on low incomes. What’s a low income? Well, full-time adult average earnings at the end of 2010 were just under $69,000 pa. So let’s agree households on over $100,000 a year don’t qualify as low income, however much they may tell journalists they “don’t feel rich” and “struggle to make ends meet”. In the first year of Howard’s new FTB payments system, payments were forecast to cost just under $10 billion.
Family Tax Benefit payments (actual except for 2011-12) and 2000-01 payments indexed, $b In this week’s budget, 11 years on, they’re forecast to cost $18 billion in 2011-12. FTB payments have risen much faster than inflation (I used an index of 3.5%). And some of the biggest growth was in 2008-09, the first Rudd government budget when, despite curbs on eligibility for both the baby bonus (a tiddler of a program at around $1 billion a year) and FTB, spending leapt $2.8 billion. That’s because FTB is a favoured vehicle for governments to bribe middle-income voters in the run-up to elections. If FTB payments had merely grown at normal indexation rates, we’d have had over $26 billion extra in the budget over the last decade. In short, FTBs are now Labor’s as much as they are Howard’s, which makes the “war on the middle class” rhetoric from News Limited and its journalists even more risible. Howard might have carefully nurtured a sense of entitlement amongst Australians, but Labor has, rather than tackling it, adopted it. One of the strongest defenders of middle class welfare — or family payments, as he calls it — this week has been Wayne Swan himself, despite the witless illustrations to be found in the pages of The Daily Telegraph. In this, Swan stands outside Labor tradition. The strange ideological flip that has the Coalition supporting unmeans-tested handouts while Labor — purportedly — cuts them back first emerged in the 1980s, when the Hawke government introduced means-testing for pensions, and the Howard-led opposition screamed in outrage, even while it ran televisions ads in the 1987 election campaign accusing Labor of handing out welfare to the undeserving. In fact, in the Hawke-Keating years, Labor was the party of rigour when it came to welfare. But attitudes toward welfare have always been based not on the policy rationale for it, or on who needed it, but on who was receiving it. People who actually needed welfare have always come under ferocious scrutiny, while those who didn’t have got away decidedly easier. Forgive the nostalgia, but Australia has, clearly, changed, and not for the better. In the Australia I grew up in in the 1970s, the middle class was proud of its self-reliance, proud that it received no handouts, from government or anyone else. Welfare was seen in some quarters as left-wing income redistribution, bordering on socialism. This partly fueled the remarkable wrath directed at the unemployed under the Fraser government, with incessant media coverage of lazy surfers spending all day sitting on a beach, funded by unemployment benefits. The language was different, too. People talked about “welfare” and “the dole”. Now, of course, we talk carefully about “transfer payments” and “family payments”. I mean, goodness gracious, no one earning $140,000 would like to be told they’re on “welfare”. A personal note: I suspect I absorbed those seemingly quaint sentiments, despite being raised in a low-income household. I retain to this day an aversion to unearned income. Don’t get me wrong, I love money — some of my best friends are money — but I don’t want it if I haven’t earned it. That’s probably why I don’t gamble, in addition to the fact that I regard games of chance as a tax on the innumerate. Or maybe it’s because, apart from a brief period early in my parenting years, I and my partner never qualified for any handouts. Perhaps my ongoing fury at middle class welfare is just a lifelong exercise in downward envy. But whatever the case, clearly, my puritanical streak is at odds with the sense of entitlement and of handout entrepreneurialism abroad in the community, in which any and all handouts should be harvested. Because, it’s not merely that governments hand over nearly $20 billion. If you’re eligible — if your household income is below $150,000 — you don’t receive the payments unless you apply to the Family Assistance Office. High income earners — families earning over $100,000 a year, let’s say — have to choose to get FTB. That is, high-income earners make a conscious decision to take handouts from government, despite their relative wealth compared to most of the population. Of course, it’s entirely legal for them to do so, and the prevailing sentiment is quite the reverse of pride in self-reliance — a failure to hunt down every single handout for which you’re eligible is almost a personal failing, doing the wrong thing by your family, almost unAustralian. As I noted yesterday, however, it’s our children and their kids who will pay the price for this indulgence. They will pay via higher taxes to support us in our dotage, in a fiscal framework in which structural deficit and inbuilt generosity remain prominent features at the point where the impacts of an ageing population are going to start to become apparent. That’s the irony of the argument that middle class welfare rewards people for raising children. Middle class welfare isn’t merely an issue of equity, or of quaint olden days values of self-reliance, but more particularly a growing fiscal problem that we’ll pass on to the very kids we’re using as fig leaves to justify indulging ourselves. And in the Australia I grew up in, people who took welfare when they didn’t need it were called “bludgers”. It’s not clear why, despite the entitlement mentality on display in the media this week, that same term shouldn’t be applied to households earning substantially over $100,000 a year who choose to receive Family Tax Benefit payments. Aspirational, maybe. Working families, yes. But bludgers, as well. But of course, that would never do. |
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111 Comments
Very well put Bernard! I laughted out loud. Especially at: [People talked about “welfare” and “the dole”. Now, of course, we talk carefully about “transfer payments” and “family payments”. I mean, goodness gracious, no one earning $140,000 would like to be told they’re on “welfare”.]
Hey I use to know quite a few “lazy surfers spending all day sitting on a beach, funded by unemployment benefits”! That lifestyle lasted less than a year for them: they got bored and looked for ways of earning more money because they eventually realised that most of the things they wanted were not going to come to them on the dole!
Back in the good old days, your mother would have received the Child Allowance payment, the non-means tested precursor to Family Allowance, Family Payments and Family Tax Benefits.
The history of its renaming speaks volumes. It is now effectively tax relief for people with children.
It used to be an allowance for (mostly) non-working mothers who otherwise had to rely on their husbands for housekeeping money.
The middle class is bludging and whining alright.
I haven’t applied for my Seniors card because I don’t need discounts. My pride gets in the way. In fact, I prefer to pay full price and leave a tip for good service. Why don’t businesses just give the discounts to the unemployed and the age pensioners?
Likewise, I haven’t applied for a non-means tested Carer Allowance because I don’t need the money and I don’t want the hassle of the application process and the assessments.
Where did our self-reliance disappear to?
People living in McMansions who have been pretending to be rich are now publicly proclaiming how poor they are. It’s their own fault for trying to keep up appearances.
Judging by the outrage at the ALP because the are cutting off any family over $150k (about 15% of households) they would of been absolutely crucified if they had tried to cut it back further. The Herald Sun had more than 80% of people claiming they would be worse off under this budget and Abbott is running his “tougher on families than on border protection line” and off course it getting a good run on talk back and News Ltd papers, so just imagine if what they were sayng was actually true!
Haha! “some of my best friends are money” — it’s GOLD!
I agree. Well said Bernard. I know the feeling of being ineligible for any assistance. In the mid-1990s I found myself single with a HECS debt,the usual outgoings lower middle income and child support obligations that turned a reasonable wage into a susbsitance wage and ineligible for everything because I had it so easy (I used to call it the kill zone). Later, when my child moved in with me, I decided I wouldn’t submit to Centrelink’s scrutiny of every detail of my life to get a handout which really wouldn’t make much difference to my life. I’d prefer to do it myself. I just wanted the Government to get out of my way and let me get on with it - still do. That might be asking a bit much from our legislators who are, by definition, control freaks.
Whitlam didn’t pay for your Uni degree?
Dawkins introduced HECS between semester one and semester two of the second year.
I am a bit confused by the article, although I agreed with it. Are we talking about INDIVIDUAL’s earning over $100,000 per annum, or actual household income?
At the start the article states “What’s a low income? Well, full-time adult average earnings at the end of 2010 were just under $69,000 pa. So let’s agree households on over $100,000 a year don’t qualify as low income, however much they may tell journalists they “don’t feel rich” and “struggle to make ends meet”.”
So, if the average earnings were $69,000, wouldn’t that make most households on over $100,000 a year (assuming two adults working full time).
But I agree the whole thing sucks. As a Married man with no children (and none on the way - ever, that we are planning anyway) my wife and I will continue to pay our taxes, to see others get handouts that we never qualify for. I know some people who got the $900 bonus through the GFC 6 times. 6. They actually went to Centrelink thinking there had been a mistake and they were told no, that’s correct.
At the risk of opening another debate or two…
…The carbon tax is going to be just another example of this - I can see our household power bills, petrol and food prices will skyrocket, while the compensation will get handed to others. Tax and spend, tax and spend. The government get to buy votes with our hard eanred.
Is there any wonder why people exploit things like Negative gearing?
Hear Hear.
Worth adding some thoughts on income-splitting into the mix. Legal, but only available to some. And which side of politics gets the small business (the ones who CAN do income splitting) vote?
the UK liberal party, pre social-democrats, advocated for a ‘social wage’ for a long time. A remarkably progressive idea which taken to its logical conclusion would remove significant numbers of lower income families from the whole PAYG and benefits/wage gap entirely. Dependend-spouse is just demeaning and doesn’t reflect the societal value of a non-wage-earning partner, reflected as cost in the insurance as drastically MORE value if you try and replace it with paid labour.
Some people just don’t get numbers. Its not possible for 15% of the country to earn $150,000 or more, and those people BE poor. FEEL poor: oh puh-lease. Try living like the other 85%.
But in that $100,000 and up bracket, I keep finding co-workers who find the money to send BOTH kids to private school, run two cars, take a holiday in Noosa. Feel Poor? Excuse me?
-G
ABarker - “As a Married man with no children (and none on the way - ever, that we are planning anyway) my wife and I will continue to pay our taxes, to see others get handouts that we never qualify for.” So when my kids are paying taxes to pay your pension, PBS bill, medical costs etc in your old age and your “families” contribution to society will have finished will you still be complaining?
GGM - This budget has a measure in it that will stop minor’s getting more than $3k tax free out of trusts (there were almost 200,000 such minors in the last financial year) which will prevent some income splitting.
Great article Bernard. You have vocalized much of what I have been thinking on this subject. The “outraged entitlement” (or it entitled outrage?) beggars belief.
More than a few of the people sounding off have also taken advantage of the other social engineering extravagances (like first home buyer grants) and the whacky-world that was the refinancing loan approval process of the last decade; to get themselves into a financial position that relies on these welfare payments.
Not one of these people says “Maybe I can do without the second Foxtel box in the bedroom.”
Maybe the means testing needs to also be coupled with an expenditure analysis to further weed out the leeches.
For example (not that I’m picking on Rupert) a cross check of foxtel subscribers and FTB recipients. There is a perfectly good commercial free-to-air network (which we are already propping up) along with the ABC, therefore Foxtel is an extravagance and can be deducted from the government payment. You don’t have to get rid of it; but the taxpayer doesn’t have to pay for it either.
Whatever the solution, the welfare windfall needs to be tightened up.
“the prevailing sentiment is quite the reverse of pride in self-reliance — a failure to hunt down every single handout for which you’re eligible is almost a personal failing, doing the wrong thing by your family, almost unAustralian.”
So true! And what I like best is the hypocrisy of people who eg. don’t give to charity because “that’s the government’s job”, own extensive property investments, then complain because their assets mean they don’t qualify for the dole.
What’s happened to this country? Oh, I forgot. John Howard and Peter Costello.
Interesting piece Bernard
I’ve long believed that that Howard knew only too well that he was laying the foundations for a structural deficit through his pork-barrel fetish for endless tax cuts and middle class warfare - precisely because it would prove such a huge political stumbling block for Labour over coming decades
You have to remember that most of the people whining about these changes don’t actually have a household income of over 150K - have you noticed amongst all that has been written and talked about this in the media no one mentions just how few Australian households actually have incomes over 150K - around 12% - most of which have incomes WELL over 150K and weren’t getting family payments anyway
What the Toorak Taliban are pandering to here in aspiration not reality.
As usual, their strategy is predicated on getting a whole bunch of people whose household incomes are nothing like 150K - foaming at the mouth over how unfair this will be for them and their kids when (not likely for most of them) they finally over come the odds and rise to be amongst this countries more affluent. We should take solace in the fact that this kind of mindless conservative populism doesn’t work nearly as well down-under as it does in the USA
Now if we were to look at household incomes of journalists and media middle management generally, we might understand why this is such a bigger deal for them than it is for most Australians. It’s their own socio economic class being targetedby these changes and it’s obviously hard to write articles damning your own aas bludgers when you will be facing them over a glass of pinot noir at dinner next weekend
This is why I believe the media has it’s ass in such a twist over cut backs to middle class welfare when the reality is that only 2% of those who were actually receiving family payments prior to this budget will be substantially affected by these changes anyway.
I’m disabled, but am able to make pretty good money thanks to having skills and aptitudes that are in some demand. I use taxis fairly frequently, and routinely find myself having to defend my choice not to apply for and use a taxi concession card — the assumption is that if you’re eligible for some benefit, then you must be a fool not to take advantage of it.
It’s disheartening that people have become to feel so entitled to hand-outs. I want our welfare spending to go to people in need, not to people in greed.
What I find particularly interesting is that, rather than contrasting with the old middle class ethic of self-reliance, current recipients of these payments frame their argument as an extension of it. A sentiment along these lines: “I work hard, I pay my taxes, and now the government is telling me that I don’t even get anything back” is common on News Ltd comments sections. It’s a classic example of trying to have your cake and eat it too: they don’t want to be lumped with the archetypal dole bludger, so they present themselves as not equally but more deserving of government support, precisely BECAUSE they have good jobs and are not, therefore, the undeserving poor.
Meanwhile many people are claiming that there will no longer be an incentive to work hard, because of the decreased tax breaks cutting in at a certain income level. I say call their bluff, and see who takes their bat and ball and goes home because a payrise may mean they might not qualify for FTB A or what have you. My guess is: hardly anyone.
Also, an honest question. Has any Labor politician actually said that a $150k income for a household is “rich”? Because an awful lot of the current debate seems bogged down in semantics over whether $150k is rich or not. Which is tangential to the question of whether such households ought to receive government handouts.
I laugh at all of this - the ones doing it tough are the singles paying all the tax and getting no assistance - but still have the pleasures of paying rent/mortgage, utilities, health insurance etc,. AND NO TAX BREAKS OR FAMILY ASSISTANCE.
Where is the compassion for singles - they are not driving the 4WD’s like you see the mummy brigade driving to drop off their spawn on the school run or part of the latte set. If you’re single, you’re definately on the poverty line - and this govt thinks your rich - what crap. I am sure they can’t wait for the carbon tax and rate rises. Well done j-U-LIAR.
Whatever their household aggregate income, there are thousands of young families, particularly in the metro areas, that are paying off stupendous mortgages on $400,000 - $600,000 houses purchased in the past 6-8 years. Ironically, these purchases, back then in the decade of living dangerously, are what is now sustaining the economy. Come tax time, when you’re sitting across the desk from the accountant and are asked if you want to claim the Locality Allowance, the Entrepreneur’s Benefit, the Family Tax Benefit, Mature Aged Workers Offset, the Family Pharmaceutical blah blah etc etc, all of which you are eligible for, you find that by simply saying yes, you cop a great big fat refund cheque from the Australian Tax Office, totally disposable, as honestly earned as the day is young. Isn’t this what we voted for?
Hugh - What is the Locality Allowance? The Entreprenurs Tax offset (a ridiculous Howard Govt invention) has been canned in this Budget, the Mature aged workers tax offset is, strangely enough, only available to those over 55 and still working so in fact encouraging older people to work and not tkae the pension and the “family Pharmaceutical benefit” (in fact the medical expenses rebate) get’s you 20c for every $1 you spend over $1500 for the current tax year and this budget has just increased it to $2000 on medical costs after the medicare and private health reabates have been taken into account, so generally you have to have some pretty serious illness or dentist bill to get anything let alone a “big fat refund cheque”
Lorry: single people say what you have said, often. And then I talk to them 5 years later when they are with a partner and have one child… and they laugh at their earlier attitude.
“So when my kids are paying taxes to pay your pension, PBS bill, medical costs etc in your old age and your “families” contribution to society will have finished will you still be complaining?”
I’m not complaining now, even though my taxes are helping to pay for your kids’ education, your kids’ health care, your kids’ transport etc. Ever thought of that?
Maybe we could have a Herald Sun front page featuring people who pay tax, contribute to the overall wellbeing of our society and are - shock! - pretty much ok with doing that. There are a few of us, as it turns out, Australia hasn’t completely turned into a nation of frothing self-obsessed greed freaks just yet.
Totally agree with Matt McLeod re: people saying you’re a fool not to take advantage of ANY benefit you can get, no matter how little you need it. I was fortunate enough to get through Yasi without any damage - no house damage, psychological damage, friends or family suffering etc etc. However, because I had the minor inconvenience of no power for 48 hours exactly, I was eligible for the $1000 benefit. I had a huge moral objection to applying for this because after all, anyone who saw the cyclone coming and stocked the fridge up anyway was an idiot, and no matter how much panic buying there was it did not add up to anywhere near $1000. But everyone said it was stupid not to take it, free money etc etc, entitlement this and that…so I applied for it (somehow managed to pass Centrelink’s rigorous questioning…sarcasm) and donated it. I don’t know why being without power for 48 hours is worth $1000 but gee if you can get money for it…I guess you better take it hey or people think you’re an idiot!
Son of Foro - “Maybe we could have a Herald Sun front page featuring people who pay tax, contribute to the overall wellbeing of our society and are - shock! - pretty much ok with doing that.” I am very much OK with that, I have worked full time since I left Uni at 22 (had some part time jobs prior to that) and I didn’t have my first child until I was 33, so for those 11 years my taxes were paying for someone else’s benefits, now I continue to work, pay tax and my wife (who worked from 22 to 37 before having kids) receives about $8k in benefits per year. In a few years she wil return to work in some capacity and those benefits will reduce or disappear.
My earlier point was that everything goes in a cycle at everybody at some stage will be a tax payer and at other’s they will be a recipient of benefits and by my wife receiving benefits now we have been able to produce future tax payers that will support our aging population ABarker included.
Hey Jimmy, Bernard wrote that “high-income earners make a conscious decision to take handouts from government, despite their relative wealth compared to most of the population.” What I’m saying is that it needn’t be a big conscious (conscience?) decision. In the privacy of the office (like the ballot box) we all do what we like. A few hundred or a couple of thousand dollars in cash, coutesy of the Tax Office is a strong inducement.
The Remote Area Allowance (not Locality Allowance, sorry) is one for those in the regions (Zone A, B, C etc) and will hand you a few hundred. The Entrepreneurs Allowance is / was about $500 straight up. You’d be amazed how easily an annual bill of $1500 bill for medical/pharma can be with sick children or oldies in a largish family. $150 a month? Easy!
Oh and my kids haven’t started attending school, we live in a small city in rural victoria so we only have a few bus routes to pass as public transport and we have private health insurance
Hugh, I am a practicing accountant so I know how many people claim the medical exp rebate, it’s not a great proportion and even if they were $1000 over it (ie wass $2500 out of pocket exp now $3k) they got $200 back, at your estimate of $150 per month they would get $60 back under the old system and nothing back under the new one.
AS for the Entrepreneurs tax offset, firstly it was only available if your business turnover les than $75k (so sales of less than $1500 per week) and was 25% of your entreprise tax liability (pasing out between $50k turnover and $75k) so it was only really of benefit to service enterprises who didn’t have many expenses or people who were income splitting but regardless this budget scrapped it so to me that is a tick for this budget.
The Remote area allowance is for people who live in remote area’s like outback NT or WA so the vast majority of people can’t get this.
Howard has a lot to answer for starting this pathetic middle class welfare trend. Receiving “welfare” in this country is a privilege not a right. We have become a nation of greedy, selfish, its all about me, McMansion loving, 2-3 cars, everything that opens and shuts, have to have it now…in order to keep up with the Joneses.
In the words of Kennedy “its not what your country can do for you , its what you can do for your country” - start living within your means like people on low incomes have to do.
Jimmy - if welfare is cyclic then I must be getting a lot of money in the future. I have been paying tax for full time employment since 15yrs, went to uni part time (paid HECS too) and have never received any form of welfare or unemployment benefits in my life - my partner has done the same but started full time employment at 17 and studied part time and never received welfare.
I am sickened by people - all people on welfare. My household is a high earning household over $200k and am not claiming hardship, far from it - but I do object to the excessive taxation and “levies” forced on us by this socialist govt and the welfare mentality of this country. Trying to get ahead in life and disciplining oneself for future benefit should be applauded not taxed.
Children are not an excuse for handouts - if you breed em, then you feed em. This applies to our “future” pensioners - save for your own retirement and don’t bottom feed off other tax payers- take some responsibility now and save as opposed to gamble, smoke and play bingo. Learn a new words like discipline, risk and reward - you may be pleasantly surprised.
Lorry - I am including public education, public hospitals, public transport, PBS, roads etc in benefits but if your household is earning more than $200k well you would be in about the top 5-10% of income earning household in the country so yes you are unlikely to get any “welfare” but you are clearly in the minority and that is the price you pay for living in a civilised progressive society.
You might also be suprised to know that back in the real world of average or below average income saving to fund your own retirement isn’t as easy as cutting out vices.
Well said Bernard, thanks for this article!
If only there was a genuine movement to speak of middle class bludgers. Today tonight/ACA/7.30 where are you to do the exposes?
As a high income-earner, let me just say that I earn my income entirely from the sweat of my brow - I have not benefited in the least from public roads, public health care, the police force, firefighters etc, and furthermore…
Gee, it seems Australia has already become a welfare state.
Memo to Tony Abbott: Don’t lead a people’s revolt; lead a taxpayers’ revolt.
All recipients of transfer payments and family payments are bludgers.
Get off my back.
You want a McMansion? Save for it instead of borrowing.
Diddims can’t afford a holiday in Bali or a new TV? Shame!
You want your kids to go to private school? Pay your own way.
You can’t afford kids? Why didn’t you think about that before you had them?
You can’t afford to live in Sydney? Move to W.A. or QLD. and earn more in the resources and energy industries.
Just stop whinging and whining.
Half of the DSP’s and most of the long-term unemployed are bludgers too.
Soon, even age pensioners will constitute bludgers. What happened to their superannuation?
Everyone but me is a bludger.
It’s remarkable that people earning over $200K whinge about how taxation is a disincentive to them earning over $200K. And let’s not forget that old chestnut, that the only way of proving you work hard is a pay packet in excess of $200K.
http://www.youtube.com/watch?v=aF8wLg5Asgo
I don’t understand the logic that “low income earners” only deserve “welfare”(aka tax return) because they don’t make as much money(nor pay as much tax).
Is it my fault that people are low income earners? Did I make them do that job? Am I personally responsible for forcing them to remain in their position? NO, of course not. THEY made those decisions.
Now don’t get me wrong. I’m not about bashing those who work low income jobs, my problem is with this constant view that only those who are poor do it tough. I personally make around $100K a year, but i’m not driving around in porsche’s, lighting cigars with $50 bills. $100K these days it pretty mediocre and is barely enough to buy and pay a house off.
You know what would help people like myself? The god damn government keeping their hands out of our pockets…. thats what. The harder I work, the more they take. How is that fair? Should I personally have to pay because others aren’t making as much as me? Is it my fault or responsibility to organise and manage life decision of others?
And now we come to the crux of it. ALL welfare is wrong(except for the seriously disabled, their carers and pensioners… in other words people unable to work). Not middle class welfare, not low income welfare… ALL welfare. In this land of Oz there are places crying out for workers… begging and pleading, yet I’m meant to pay for people who can’t be bothered working? It’s MY fault they are too lazy to go to where the jobs are and work? Why should I have to pay for that? Why can’t they work these jobs, why must I pay for their laziness?
And thats really what annoys me. I’ll stand shoulder to shoulder for anyone who wants to work hard, but I refuse to accept bludging.
Stop whining about being a low income earner and make some hard life decisions.
$80K+ Job Vacancies in the mining industry in Queensland and WA RIGHT NOW.
Anyone that wants to work and make more money… pick up the phone. Don’t cry for more handouts. We know the work is there, so where the bloody hell are you?
Jimmy, if you are an accountant then you would know that the Remote Area Allowance applies to a very big area of Australia including some of the bigger regional cities - try Townsville for example. Now of course, you could say that a real Aussie battler in Townsville (on $100K) should say to the accountant - “no mate, I won’t tick the box for the Remote Area Allowance” and I would say, t’riffic. Plenty wouldn’t.
If someone pays $15,000 in tax and gets $1000 back in rebates, how is that welfare?
It’s a return of a very small portion of your money. You are not being given anything, rather… having less taken away from you.
The only way it could be welfare is if you recieve more money back then you pay. That means that you are a drain on others…. others who pay significantly more than they recieve back.
I’m watching Tony Abbott’s budget reply speech right now.
Tony, it’s not all about you, your wife and your daughters.
Tony, you shouldn’t plagiarise Bob Menzie’s “forgotten people” [“forgotten families”].
Your two fingered typing for the TV news this afternoon was an embarrassment to all people under the age of 70 years.
Great article- and humorous.
Read Tony’s reply to the Budget and he is banging on about “legitimacy” again. We were robbed-he really is a sore loser.
Will someone explain to him that if he loses the Grand Final, he doesn’t get a chance at another one in the first game of the new season.
Another criticism of his speech is that he does’t go anywhere near the accountancy of the delivered Budget- because, of course, he (and Hockey) can’t count.
But his speech is aggressive (is it bullying?) as usual and will have Julia and Wayne in a total flap. Australians don’t tire of the “biffo”.
Yep poor Abbott on $220,000++ PA and his wife works trying to cuddle up to the Howard battlers. What a crock of crap! Just dog whistling about Julia not being married with kids again = digusting person and he claims to be a “christian”
I have lived in this country for most of my 68 years and have never felt so disappointed in the way the society is heading being led all the way by News Corp and their ilk in the media.I looks like Bob Brown is the only one to stand up to this craven mob and tell it like it is.
I am starting to feel ashamed to call myself an “Australian” what with all the greed and selfishness that has invaded social discource like a foul odour aided and abetted by a baying media pack.
Fairness and decency seems to have been left way behind and I also blame the Howard years for the state the country is in now.Keating was right when he said”when you change the government you change the country” Unfortunately Howard and his cronies changed our nation for the worse and I fear it will be a very long time before we see those better days again.
The middle class need words like “transfer payments” and “family payments” so they can still talk about “dole bludgers”.
Another good piece BK.
THETRUTHHURTS is the only non-bludger. If you’re reading this message and your screen name isn’t THE TRUTHHURTS, then congratulations! You’re a bludger!
“Is it my fault or responsibility to organise and manage life decision of others?”
You spend the entirety of your post doing just that, so apparently it is!
THETRUTHHURTS is my hero. He’s such a hardworking man. He works hard. He’s not a bludger and he’s not on welfare. Heroism, thy name is THETRUTHHURTS
Groan… another burst of inane, childish twitticisms from the one man peanut gallery. Oh well, I’ll just go back to doing what everyone else does and ignore them. I wish there was a block button though think of the time we’d all save not having to scroll past them.
First I’ll just say I detest the income tax system. I detest its pretensions of Robin Hood fairness, robbing sometimes from the rich to give to the poor, but just as often robbing from the person who did not hire the right accountant. I hate its double hit on all forms of pro-growth saving and investment, so that even the government borrows money overseas in low-tax bond jurisdictions instead of from its own citizens who would pay more tax on the interest. I hate its subsidy of anti-growth residential property scalping, and its myriad little rewards and penalties for this and that … I loathe the complexity that causes many taxpayers to rearrange their whole income around tax minimization, grotesquely distorting the labour and capital markets. And I find the whole highly visible politics of income tax demeaning of us as a society: the way we quibble and whine over a few score dollars being transferred to some other person that could have been transferred to me, me, me!
Having said that, TTH is correct: it’s not “welfare” if you’re putting more in than you’re taking out.
Howard would have preferred simply to tax people more evenly. Arguably, it would be fairer simply to have one flat income tax bracket above the tax-free threshold. But voters cry blue murder when anyone suggests such a thing — they see the upper tax brackets as an expression of social justice rather than a means of raising the most revenue with the least pain for everybody.
So Howard compromised, effectively lowering the tax rate for some taxpayers who were already paying the top two tax brackets while supporting dependents at home. And of course, at some point this compromise became a sort of political carnival game: if you can potentially shoot down five marginal seats in a row, then you win a Barbie doll, a Teddy bear, or an increase to family tax benefit XYZ.
Abbott likes to make the point that “middle class welfare” is a misnomer for tax concessions. And he’s right up to a point, but his scheme for parental leave goes way beyond that point.
There’s a widespread myth that rich people don’t pay any tax. I think it’s truer to say that some people at all income levels are able to reduce their tax to very low levels, using mostly legitimate tax lurks but with a little bit of fraud here and there. For example residential speculating/scalping is very popular throughout the middle classes, partly because it is taxpayer subsidized, whereas all other forms of investment are heavily taxed and in many cases double taxed. Tony Abbott’s parental leave scheme would mainly give back tax that parents have paid in recent years, but in some cases it would give back tax that they haven’t paid at all. If you’re given more by the taxpayer than you put in, then that is welfare.
“Even as recently as yesterday, economists were “stunned” when the Australian economy shed - 21,000 jobs in April vs. consensus forecasts of +17,000 being added.
Treasurer Swan was stunned too, because we aren’t going to see +4% GDP growth in an economy shedding labour on the East Coast.
Budget forecasts for GDP growth in FY 12 are fanciful”
A surplus return in FY12/13 is impossible unless Swan increases taxes substantially.
Surely all you Liberal supporters should be blessing the day that this refusal to index the threshold for means testing to CPI as an opportunity to ramp up these payments next time your lot is in power? But carry on complaining about our taxation system, which I seem to recall the last guys claimed to have reformed.
Australia - a state of entitlement.
What I think Costello would have liked to do if they had had control of the Senate at the time he was reforming tax, was to introduce a higher level of GST and bigger income tax cuts.
All of the biggest distortions in our tax system are in the income tax. There are other small taxes which cause more pro-rata levels of distortion (such as state insurance tax which KPMG estimated for the Henry Review to be costing Australians $1.80 for every $1.00 of revenue it raises), but for sheer scale of mangling the market economy in labour, capital, and goods and services, income tax is the great monkey on our backs. It’s like running a car with the engine on one side, the brakes on the other side, and the steering system turning one wheel to the left as it turns another wheel to the right.
Costello knew that cleaning up the mess would be impossible. Even with control of the Senate that came later, there are so many voters who are more interested in how much tax the Joneses are paying than how much they themselves are paying, that it would have been suicide to clean it up.
Better simply to apply across-the board tax cuts, so that these distortions gradually diminish into irrelevance. For example, Keating had failed spectacularly to clip the wings of property negative gearing in his short-lived attempt to quarantine rental income. Costello took a much more subtle step towards achieving the same thing, by shifting the tax burden from income tax to GST. Over time he would have continued this transition, and those infamous distortions would have just gradually faded away.
@Holden
Surely you realise that being conservative means never having to be consistent on anything. Thus they can run an endless campaign deriding “welfare waste” then criticise their opposition for making minor cutbacks targeting those who need welfare the least - families who earn more than 85% of all other Australians
Of course one only has to note the social Darwinism/biological determinism implicit in most of their arguments in support of middle class welfare to understand why the Toorak Taliban think the Government should be doling out cash to Audi drivers whilst beating the underclass profusely around the head with sticks to get them job ready and off welfare all together.
Zeig heil baby!!
Free Country - They had control of the Senate for the last term if he really wanted to do what you suggest he could of done it, surely you are not suggesting he said “You know what this would be a great idea and there is nothing to stop me getting the legislation through but we aren’t reforming tax right now so oh well I won’t do it”
I find the whole highly visible politics of income tax demeaning of us as a society: the way we quibble and whine over a few score dollars being transferred to some other person that could have been transferred to me, me, me.
…there are so many voters who are more interested in how much tax the Joneses are paying than how much they themselves are paying, that it would have been suicide to clean it up
Amen on both counts. Taxation has become so politicised, and the voting populace so conditioned to pork-barrelling, that no government has had or will foreseeably have the guts to tackle it on a principled basis.
Well they did, actually, so I oversimplified. During their final years, once the end of the legacy net debt was in sight, they significantly reduced income tax rates — diluting the effects of tax distortions, negative gearing, and the insatiable political pressure for so-called “middle class welfare”.
I seem to remember they had the opportunity for tax reform, Free Country. The imminent demise of the Howard Government was obvious to everyone (except Howard). What better chance to get your legislation through, cause there’s no tomorrow!
More accurately, they realise that history has shown time and time again - and currently is once more to varying degrees across the western world - that the bigger you allow the gap between rich and poor to grow, the worse off society is.
A lot of historians certainly make that claim, DrSmithy, while making excuses for the comprehensive failure of the communist project. And the cost of having an underclass with no income at all is certainly much higher than that of providing basic support. But the empirical evidence on the punitive use of very high tax rates on the rich shows that the reverse is true: you collect less tax, not more, and the difference has to come out of the pockets of the less mobile working class, one way or another.
I’m a little mystified at what relevance “the communist project” has to the discussion.
I’m amazed you made it through that paragraph without using the words “Laffer Curve”.
Please demonstrate some “empirical evidence” that high tax rates and low tax rates are always accompanied by low tax takes and high tax takes, respectively.
(I guess all those prosperous countries with high tax rates and the best standards of living in the world are just a figment of our collective imaginations.)
Interesting to see the report today that found Asutralia was one of the lowest taxed countries in the developed world.
DrSmithy - Of course I’m talking about the Laffer curve. Exhibit A is UK tax receipts before and after 1979, when Thatcher, among other things, reduced the top marginal rate from 83 per cent to 60 per cent. Between 1978 and 1983, you can see tax revenue doubled, and continued to rise steeply thereafter. In 1988, the top marginal rate was reduced further to 40 per cent, and you can see once again from 1987 to 1991, tax revenue increased by 30 per cent and continued to rise sustainably.
Exhibit B, on allowing a greater spread of wealth generally, is China under Deng Xiaoping, the most underrated statesman of the 20th century in my view. Deng’s free market reforms carefully isolated the economic from the political, so we have the nearest thing to a laboratory experiment showing that economics, not democracy, plays the leading role in improving the welfare of all citizens. There are still many people in China who are terribly poor, but you would have to do acrobatics with the data to avoid concluding that even the poorest are infinitely better off under Deng than they were under Mao, even those that didn’t starve literally to death.
Sorry, I left out the UK tax data: guardian.co.uk/news/datablog/2010/apr/25/tax-receipts-1963
(read “… became better off under Deng and his successors”. Deng of course died in 1997 but reforms continue on the path he established.)
Looking at the posting times of comments in this thread, I can’t help wondering how many people are posting on the bosses’ time. In other words, stealing from their employers.
What a lot of holier-than-thou pathetic *envious* whingers many of you are.
Free - As less than 5% of taxpayers earn more than $150k and our top tax rate of 46.5% doesn’t kick in until $180k (which would mean probably 98% of taxpayers are only paying 38.5%) does your example of the UK actually compare?
Sorry that should be “98% of taxpayers are paying less than 38.5% as their top rate.”
I said “among other things”; the top tax rate was just an indication of a tax regime which was generally aimed at social justice rather than promoting revenue, growth, and real wages. Thatcher made wide-ranging reforms including dramatic reductions of the income and corporate tax burden. Hawke, Keating and Howard did something similar in Australia.
Here’s a Congress Joint Economic Committee paper from 1996 evaluating the effects of Reagan’s tax cuts from the same period: house.gov/jec/fiscal/tx-grwth/reagtxct/reagtxct.htm
And do you have some evidence supporting your assertion that Australia’s tax rates are on the wrong side of it ?
One example does not a rule make.
There are far too many pages on the web debunking the Laffer Curve, but the easiest example is to look at the USA during ’90s, when Bush I and Clinton raised taxes (which, contrary to the supply-siders cries of armageddon, raised tax revenue). Then look into the 2000s, when Bush II dropped taxes.
The point here is that taxation policy doesn’t have anywhere near the impact that some people like to insist it does.
Ah. So people are oppressed, imprisoned, censored and murdered, but at least are no longer starving to death. A clear win for trickle-down economics.
I know your type, DrSmithy, and I know that you will take every denouncement of the Laffer Curve, no matter how flimsy, including but not limited to cases of the Laffer optimum having to be recalibrated, as evidence of debunking the entire model. The most famous example cited again and again is the poorly-supported myth that Reagan’s Laffer-based tax cuts did not have the desired effect, a claim which is itself debunked in the 1996 JEC paper I linked above (( house.gov/jec/fiscal/tx-grwth/reagtxct/reagtxct.htm ))
As for your implication that quality of life in China did not significantly improve after Mao’s death and Deng’s economic renaissance, that may be the most ignorant thing anyone’s ever said in these columns.
[Moderator: this comment has been slightly edited. Please avoid any personal jibes against other commenters]
Freecountry:
What the great weight of empirical evidence actually shows is that the single most important factor in propelling economic growth is DEMAND - ensuring your working and middle classes feel confident and have the capacity to spend, thus driving IT
Contrary to the supply-side psycho-babble peddled by our neo-feudal overlords and their mindlessly compliant but ever aspirational serfs, capital naturally flows were ever it sees a nice combination of low risk and a healthy profit. Pretty much regardless of whether it has to ultimately pay a few % more or less in taxes on those profilts
The GFC wasn’t caused by a lack of capital but by the fact that the entities who owned and controlled capital globally had something of a panic attack - they stopped lending and investing because demand-side indicators showed a dearth potential profit adrift in an ocean of endless risk.
From a more parochial perspective, whenever there is a lack of excess demand needing to sated in any particular vertical market here in Oz, capital will naturally flow elsewhere, often overseas, especially if greater rewards on offer there than they are here in Australia. This is the major fallacy in the notion that greasing the pockets of the wealthy causes it to trickle down to the plebs
If you really want to see what happens when a Government massively cuts taxes for wealthy in pursuit of economic growth as a core plank of it’s economic policy, I suggest you go take a bus tour around Ireland
Over time the single biggest and most consistent driver of demand in this country is household and consumer spending- and it is this spending that is the single biggest creator of jobs in this country.
Not the generosity of the mining barons who cyclically invest big in pursuit of profit and create a few new jobs in the process. Australia is a services based economy - service industries account for almost three-quarters of our national output and just under four out of every five jobs.
I am not even going to address your baseless assertion that there was some direct correlation between economic growth in the UK and tax cuts for the rich. If you do a little research you’ll find it had much more to do with changes in population growth, greater access to European markets and global economic expansion that just happened to be going on at the same time - Or have you conveniently forgotten that both the USA and UK plumbed the depths of a diabolical recession during the late 70s?
Very few wealthy people in Britain ever paid those very high tax rates anyway - they simply moved their money through Guernsey and other conveniently placed tax havens. Whether they invested in the UK was a function of their projected ROI, not what rate of tax they might ultimately pay on those profits. As anyone who actually has money well knows, tax minimisation is the easy part of all this. So please note that having some clue as to what you’re talking about will no doubt prove helpful in future.
If the GFC has taught us anything in all its that if you give a small group of extremely wealthy individuals greater unregulated access to capital, whether in the form of huge tax cuts or access to other people’s pension funds, they will invariably be tempted take ever increasingly greater risk in pursuit of profit, making world economy less stable in the process.
The simplest and most effective way of ensuring economic growth and stability are putting in place policies that give the masses, the working and middle classes, greater capacity to consume and thus drive the demand that capital is inextricably drawn to like a moth into the flame. This neo conservative notion that government policy should always target the interests of the few in order to serve the many is the biggest crock of dog since Pope Pius XII asked the voices in his head if the Assumption of Mary actually happened
The empirical evidence is unequivocal - the mythical dragon of supply-side voodoo economics has been well and truly slain. All that remains is the passage of several centuries before those conservative economic fundamentalists are dragged kicking and screaming into the new millennium and forced to stop worshipping false profits
Free - Could you respond to DrSmithy question of “And do you have some evidence supporting your assertion that Australia’s tax rates are on the wrong side of it ?” Because to me effectively having a top marginal rate of only 38.5% plus the report released today saying we are among the lowest taxed countires in the developed world would indicate that we aren’t.
I didn’t actually make that claim, but I will now. A great deal of that income tax goes not to paying for public goods, but to funding all the transfers and “middle class welfare” that Mr Keane has been talking about. If you reduce the transfers, then you reduce the level of taxation needed to fund those transfers. That’s the first reason.
The second reason is, as I said at 9:12 and 11:04, Australia’s income tax is a spaghetti soup of rentseeking and tax dodges, and cleaning these up one by one is politically impossible. However, reducing those income tax rates and replacing them with broader, more efficient, and in my opinion fairer taxes, would dilute those distortions until they gradually fade away.
Third, GST is an alternative version of income tax (strictly speaking, it has the same factor burden), and any evaluation of income tax that doesn’t take that into account is deceptive. By slashing the income tax rates at all brackets, and raising the GST rate to make up the difference, you would find that the real cost of living goes down, even for those people whose income was already below the tax-free threshold. The reason for this apparent paradox is that those people who may think they are not paying income tax, actually are paying it: they pay it in the cost of all the goods and services they buy which somebody earned income in the course of producing. That is to say, if you buy anything within Australia, the income tax of everyone who produced and handled it is built into the price.
You may intuitively think GST makes the poor poorer and income tax doesn’t, but you would be wrong. According to research for the Henry Tax Review, every dollar of income tax revenue costs the Australian consumer about 15 cents more than every dollar of GST revenue. Please see the inset Box 1.1 at the bottom of this page:
taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/publications/papers/Final_Report_Part_1/chapter_1.htm
No.
The “denoucements” mainly serve to give concrete examples.
The real reason the Laffer Curve is useless can be seen simply by looking at it. Outside of a classroom, it has neither descriptive nor prescriptive capabilities, because there’s no way of telling where you currently are, where the “optimum” is, or even what the scales on the axes are.
Ah, yes, Reagan. The man who first put America on it’s current course of economic and social self-destruction.
You might have a point if that’s what I’d said.
It’s true that measuring the Laffer curve is an inexact science and it’s common to misjudge exactly where the optimum is. To leap from there to claiming it’s a figment of the imagination reminds me of “creation scientists” claiming that every mistake ever made in palaeontology is proof that evolution is a hoax. If volume of opinion on the internet is what you call evidence, then the moon landing was a hoax, Elvis is alive, and Obama is a foreign spy.
Or, alternatively, you use that money to do useful things like build infrastructure and educate people.
This is not an argument that taxation is too high, merely that it is inefficient.
Let’s put some numbers on this. How much are you proposing income taxes should be reduced ? How much would the GST need to be increased to cover the funding shortfall ?
No, the main problem is because it’s a regressive tax it allows the rich to become richer still, since the relative impact of a GST increase for them is much smaller, and an income tax reduction is much larger.
I notice the Henry Review recommends two income tax levels, as well.
An “inexact science” ? That’s got to go down as one of the understatements of the year.
I didn’t say it was a figment of the imagination, I said it was useless for description or prediction in any real-world scenario.
Yes.
This is probably politically impossible, but in an ideal world I would propose something roughly like this:
- double the GST to 20 per cent;
- fix investment income tax (eg bank interest, rent) at a flat 20 per cent;
- reduce corporate tax to 20 per cent, including income distributed as dividends, and with a tax-free threshold on profits up to some cost-of-capital benchmark such as the 10-year government bond rate;
- exclude share dividends (already taxed as corporate income);
- abolish capital gains tax (which double-taxes business and share investment, while simply giving property investors a reason to buy and never sell, making property unavailable and therefore unaffordable);
- set the income tax-free threshold at a statistical poverty line (which varies with the composition of a household) from year to year;
- tax all personal income at a flat 35 per cent above that poverty line … no ifs, no buts, no other rebates, no sweeteners;
- replace things like education and health rebates with flat-rate service vouchers for all Australians regardless of income level — eg the health insurance voucher equals the Medicare premium but can be put towards private healthcare instead; the education voucher equals the fee for public schooling but can be put towards private schooling instead.
I like that. Especially the reasoning behind the capital gains on property. I hadn’t considered that view before.
Sounds like an awesome system if you’re rich or nearly rich, since you’ll not only pay less tax on your salary, but dramatically less tax on your other instruments of income and wealth creation (dividends, property, rent, corporate income, etc)
Less so if you’re not, however, since you’ll be paying more income tax and more GST as well.
Some very quick & dirty comparisons, assuming a “poverty line” of $25,000:
Income $45k
Current income tax: 4650 + 8000*.30 = 7050
vs
Proposed flat tax: 20000*.35 = 7000
Income $60k
Current income tax: 4650 + 23000*.3 = 11550
vs
Proposed flat tax: 35000*.35 = 12250
Income $110k
Current income tax: 17550 + 30000*.37 = 28650
vs
Proposed flat tax: 85000*.35 = 29750
Income $150k
Current income tax: 17550 + 70000*.37 = 43450
vs
Proposed flat tax: 125000 * .35 = 43750
Income $200k
Current income tax: 54550 + 20000*.45 = 63450
vs
Proposed flat tax: 175000*.35 = 61250
Income $400k
Current income tax: 54550 + 20000*.45 = 153550
vs
Proposed flat tax: 375000*.35 = 131250
Broadly speaking, you are proposing ~95% of the population pay more tax, so the ~5% earning over $150k pay less.
Dr Smithy plus we are doubling the amount we pay in GST, and the wealthy are usually the ones benefiting the most from Capital Gains.
As an accountant though it sounds a great system becuase tax returns will become more complicated, having to distinguish between the various types of income so more work for acccountants.
Another problem is that eliminating capital gains tax will encourage speculative activity like property flipping and unproductive financial parasitism like high frequency trading.
CGT should be brutally high initially and tail off (significantly, in the long term) to encourage long-term, value-based investing.
Buy a stock and sell it a few seconds later ? Your CGT should be something like 90%.
Buy a stock and sell it ten years later ? Your CGT should be more like 10%.
The problem with that Dr Smithy is that there won’t be any “investors” any more, anyone doing short term transactions would become “traders”, which would bring the transaction onto revenue rather than capital.
DrSmithy,
You’re making the common mistake of assuming that the most visible form of tax is the one that has the biggest effect on your net cost of living and ability to get ahead. Individual income tax (including capital gains tax) comprises only 38 per cent of all tax revenue in Australia, or 47 per cent of federal tax revenue. In general, consumers pay the lot, one way or another.
The cost of living would come down significantly under my scenario compared with the status quo. Individual income taxes (including capital gains tax) comprise just 38 per cent of total tax revenue in Australia, or 47 per cent of federal tax revenue. The rest — company tax, motor vehicle taxes, fuel excises, and so on — are all paid by the consumer, because companies must either make a profit net of tax by selling the things we live on, or else go out of business.
There’s also a complexity and arbitrariness cost, which means not only do we as consumers pay for the other taxes the government collects; we also pay for a lot of revenue that it doesn’t collect, because companies and individuals focus a lot of their efforts on tax minimization, instead of providing us better goods and services at a lower cost. This is called deadweight loss, and it can be reduced by making the system simpler and cleaner.
So bring the 35 per cent down to 34 or 33 per cent if it makes people feel better, but the effect of this would be very small compared to how much the cost of living would be slashed under a simpler, more efficient tax system.
Free - How would this reduce tax minisation, put the flat rate at anywhere above 30% and anyone earning above the poverty line and below $80k has an increased incentive to find deductions or to start trading as a company or a trust with a corporate beneficiary instead of as a sole trader or partnership and if the flat rate is 35% andyone earning less than $180k has pretty much the smae incentive.
OK, so bring it down to 20 per cent. Actually, that’s even better. Make all tax rates 20 per cent, regardless of which type of tax, then there’d be no point in taxpayers trying to swap one kind of tax liability for another because they’d all be equivalent at the margins. The above numbers probably collect too much tax (I don’t have the means to model them, I’m just throwing numbers in the air) so 20 per cent is better. At that rate, scraping around looking for deductions is a waste of time.
I am struggling to see how such a massive cut to taxation revenue will leave sufficient money to run the country.
Not to mention the huge acceleration in increase the wealth gap it will sponsor.
I’m with you Dr Smithy, you’d have anyone earning under $16k having no impact, between $16k and $25k getting a small advatange, those between, $25k and $56k paying more income tax and those above $56k better off and the big earners dranatically so. Plus no CGT and a 1/3 drop in company tax rate, I can’t see doubling GST and increased disposable income generating enough to cover the massive drop.
Remember we were talking about the Laffer curve? As the tax burden decreases and becomes more evenly distributed, more economic activities become feasible, so the gross national income increases. As you said, the exact peak of the Laffer curve is hard to predict, but you agreed that the phenomenon does exist. Also, as I said, a lot of the tax revenue is not used for public goods but to cover all the unnecessary transfers, deductions, rebates ($30 billion for family tax benefits), compliance costs, cheating which gets around the compliance system, legal tax minimization which is economically equivalent to cheating, and so on.
GST, on the other hand, is much harder to avoid, and causes very little deadweight loss or distortion, so unlike income taxes, when you double the GST rate you do almost double the GST revenue, which was 14 per cent of all tax revenue (17 per cent of federal tax revenue) in 2009/10.
And I keep on saying this but you seem to be ignoring it: income taxes, as well as the excess costs of complexity, are built into the cost of everything that you or I buy, and everything the government buys, so every dollar would go further and you wouldn’t need as many dollars to pay for a hospital bed or a classroom or anything else.
The reason you’re struggling is because it’s a dynamic model in which any change to one thing has an effect on all other things. When you change taxes, it’s almost meaningless to say this taxpayer is better off by $100 and that taxpayer is better off by $100. It’s like asking whether a birthday cake would cost more or less once GST comes in.
As for this obsession with the “wealth gap” … in general, high quality tax reform brings down the cost of living relative to everybody’s income. If you become 20 per cent better off, what is it to you if the Joneses become 30 per cent better off? That’s the kind of small-minded envy that makes tax reform so difficult politically and keeps everybody, including the poor, poorer than they should be in a country like this.
Yes. I also remember you didn’t provide an even remotely convincing argument that Australia’s existing tax take was on the wrong side, nor any way of figuring out where it currently is, nor any way of figuring out where it should be.
That sounds like an argument that taxes should always be lowered, and never raised.
This is classic trickle-down economics bullshit. “If only the rich owners have more money, they’ll spread it around”. No, they won’t. They’ll buy another house and a couple of cars to go in it, pay themselves a huge bonus for being awesome, and pay their employees the same amount they do now (or outsource the jobs to another country to save money).
It’s also a regressive tax, which is why it shouldn’t be too high.
Further, you have already argued that cost of living - ie: the stuff GST is charged - will go down. Clearly doubling the GST isn’t going to double the revenue derived from it if the cost of living drops by, say, 50%.
Ie: more hospitals beds and classrooms could be paid for with the same amount of tax revenue.
No, I’m struggling with it because you’re talking specifically about massive reductions in tax revenue and very vaguely about how that missing money won’t be required anymore.
Because it’s more like I become 1% better off and the Murdochs and Packers become 1000% better off.
A large wealth gap is a bad thing. It leads to social instability and contempt for the poor. Shrinking public services and privatisation of essential services. That’s why the countries with the highest standards of living have relatively small wealth gaps.
I’ve just spent two years living in America. I have no interest in seeing Australia end up like that.
It’s not about envy, it’s about fairness.
Free - If I was to earn the Average wage of $69k and had kids and my wife earned about $5k working part time currently I would pay $14,250 tax and would be eligible for FTB part A & B, under your proposal I would pay $13,800 in tax and lose the FTB (in my case around $8k a year), so my being better off would be totally dependent on corporations passing on their tax decreases to the consumer rather than just increasing their profits and that decrease would have to be greater than the corresponding increase in GST revenue.
You state that individual income tax makes up 47% of tax revenue, I assume that doesn’t include company tax revenue which you also want to slash by a third, but even if it did I need a little more evidence that the cuts will actually increase total tax intake than the Laffer curve you don’t even know where Australia sits on.
I find this yet another case of your theoretical world not meshing with reality.
Corporations don’t choose to pass on any cost saving to consumers; that would be irrational. What happens is that more competition enters the field, so corporations don’t have a choice: they either pass on most of the tax saving or they lose the competition to some other corporation that can afford to undercut them. This isn’t just a theory; it’s exactly what did happen as, among other things, the Australian corporate tax rate was lowered from 49 per cent in 1987 to 30 per cent in 2001.
DrSmithy,
Somehow I suspect that for you, it will always be about “fairness” until James Packer is forced to line up at the supermarket with you, this week’s specials catalog in hand, and carefully collect the fuel docket so that he can afford to drive his kids to the childcare centre across town in his Toyota 4WD, before rushing late to the office to struggle his way to the next mortgage payment and hope the electricity doesn’t get cut off.
What you don’t appreciate is that if your dream of “fairness” ever came to fruition to the extent that you stopped complaining, money would be rendered worthless. Striving to earn more money would do nobody any good, so people would stop trying. You could always try to motivate them with patriotism and noble-looking posters in the city square featuring hammers and sickles and musclebound working men, but nobody would care. They would no longer work to get ahead; they would work only to stay out of trouble with the party that arises to guide them. So you’d have to start denouncing those people as economic saboteurs, put together some hard labour camps to teach them what work is …
That’s good to know, I am sure Coles and Woolworths will pass on any tax savings fully in case IGA takes all their market share.
Even if they did pass on all the savings of the $74k in salary and wages the couple in my example earn the lose about $14k in tax and about $31k in mortgage repayments (on $400k at 6.75%) so we are down to $29k in disposable income. Ignoring the fact that expenses such as rates and utilities probably won’t drop under the new regime and assuming they spend every cent of their disposable income the couple would require a 27.5% drop in prices just to break even from losing $8k in FTB, hardly seems likely.
Companies would also need to be able to increase profits by 50% to make up for the loss of Coporate tax income and you still haven’t demonstrated That Australia sits in a position on the laffer curve that means dropping tax rates will increase tax take.
Jimmy, you want me to model exactly what the numbers should be and exactly how much revenue would be collected, whether it would be enough to pay for hospitals and schools, etc … I can’t do it. How many times do I have to say “dynamic model” … every variable changes every other variable. That’s also the same reason why the opposition cannot be expected to present an alternate budget; only the government has the resources to model it. (The Coalition tried something like that once from opposition in 1992; which is exactly once more than Labor have attempted it.)
No I don’t want the exact model but if you are going to propose these massive changes you need to have some comprehension of the real world impacts and that not everything responds in the manner theory dictates.
The fact that under your proposal the vast majority of individual tax payers would have to rely on substantial price decreases in order to be better off while high income earners make out like bandits and there is major doubts over whether the govt’s tax take would be able to be maintained should be enough for you to think, “Maybe this is isn’t the greatest idea”
I am not asking for detailed modelling just that it passes a few basic tests of logic.
Your ad-hominem rhetoric is predictable and boring.
Indeed. Which is clearly why no-one today bothers to work any harder and improve their life.
Your ad-hominem rhetoric is, once more, predictable and boring.
A rationale amounting to more than “trust me” and “lower taxes are always better” would certainly be a significant improvement.
Given the proportion of tax paid by higher income earners, your suggestions would probably drop the tax revenue related to (personal and corporate) income tax, plus CGT, by something on the order of 30-40%. That’s a lot of money to have to make back up from a higher GST (on cheaper goods, don’t forget) and efficiency improvements. Even when your goal is so unambitious as to merely match current services.
Well anyway, you asked for some ballpark figures to illustrate the more general points I was making about income tax complexity, “middle class welfare”, and the mean-minded envy that characterizes tax debate and blocks reform. So I gave you some off-the-cuff figures as requested, and you did a nice job of illustrating the rest of my point.
There are two ways of looking at tax. The pragmatic school looks to collect revenue, with the least all-round pain for everybody (especially those who can’t afford to pay much) and the least disruption to the functioning of the economic system. Then there’s what I call the social justice school, for whom the tax system is primarily a tool for redressing the iniquities that arise arbitrarily in a heartless free-market economy, and nobody really has a right to the gains they’ve made using someone else’s sweat and tears.
If I belong to the pragmatic school and you belong to the social-justice school, then we’ll never see eye to eye. But morality aside, history shows that the pragmatic approach — if it’s accompanied by a decent welfare safety net — causes real wage growth and living standard increase even at the bottom of the scale, whereas the social justice approach, if taken too far, in the vast majority of cases causes decay and misery.
No, you only gave ballpark figures for _half_ of the equation. You said nothing meaningful about how the other side of it would be balanced.
Who said anything about going “too far” ? How far *is* “too far” ? There are countries with much, much higher taxation than Australia.
In nominal figures, no, but if you’re thinking in nominal figures then the whole debate will never make sense to you. Sustainable long-term improvements in real income, real cost of living, and real standard of living, are the only things that matter in economic policy.
Anyway, what would be an example of a tax system you prefer. Perhaps one of the liberal-socialist Nordic countries? According to Wikipedia, Finland has mostly flat income taxes at municipal level (structurally, equivalent to our states) topped up by a progressive state tax (by “state” they mean central/national government) and VAT (GST) of 23 per cent.
Sweden has a flat state (central) payroll tax of 31.42 per cent and pension (superannuation) levy of 7 per cent, municipal income taxes around 25 per cent above some tax-free threshold, and state income taxes with brackets of 0, 10, and 25 per cent, bringing the highest marginal direct income tax rate to around 50 per cent depending on your municipal tax, or 88 per cent including payroll tax. It’s correct to include payroll tax as income tax, because they are equivalent.
But that also makes the lowest total rate around 38 per cent, so the spread from lowest to highest in Sweden is around 50 percentage points, not very different from Australia. Oh, and their VAT rate is 25 per cent. And they provide all sorts of benefits to everybody, for example they do not means test their extremely generous healthcare; they don’t go around whining like Australians about their rich neighbor receiving the same state assistance for education and health care that they do.
“The pragmatic school looks to collect revenue, with the least all-round pain for everybody (especially those who can’t afford to pay much) and the least disruption to the functioning of the economic system.Then there’s what I call the social justice school, for whom the tax system is primarily a tool for redressing the iniquities that arise arbitrarily in a heartless free-market economy, and nobody really has a right to the gains they’ve made using someone else’s sweat and tears.”
And yet you propose a scheme that in which you make massive tax cuts with no logical basis for the argument that revenue will be maintained let alone increased and leaves the bulk of the population worse off so neither school is satisfied.
Jimmy, there’s an overview of the Henry tax review here (( taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/Publications/Papers/Final_Report_Part_1/index.htm )). It’s very readable, not requiring specialist knowledge. The newspapers really should have serialized parts of this summary instead of gracing us with their endless opinions on it.
For someone who argues as much as you do, you should be far more familiar with it than you obviously are, especially after all the links and citations I’ve given you during our past discussions on taxation. Links which you either ignore or, at most, skim-read just enough to nitpick. Do some homework if you want me to spend any more time on you.
For a detailed look at why some taxes enable productivity growth (and therefore revenue growth) while others suppress it, see this KPMG analysis which was commissioned by the Henry Review:
(( http://www.taxreview.treasury.gov.au/content/html/commissioned_work/downloads/KPMG_Econtech_Efficiency%20of%20Taxes_Final_Report.pdf ))
Jimmy, there’s an overview of the Henry tax review here (( taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/Publications/Papers/Final_Report_Part_1/index.htm )). It’s very readable, not requiring specialist knowledge. The newspapers really should have serialized parts of this summary instead of gracing us with their endless opinions on it.
For someone who argues as much as you do, you should be far more familiar with it than you obviously are, especially after all the links and citations I’ve given you during our past discussions on taxation. Links which you either ignore or, at most, skim-read just enough to nitpick. Do some homework if you want me to spend any more time on you.
For a detailed look at why some taxes enable productivity growth (and therefore revenue growth) while others suppress it, see this KPMG analysis which was commissioned by the Henry Review:
(( taxreview.treasury.gov.au/content/html/commissioned_work/downloads/KPMG_Econtech_Efficiency%20of%20Taxes_Final_Report.pdf ))
Free - I am not arguing that “some taxes enable productivity growth (and therefore revenue growth) while others suppress it” but for you to argue that we should have a flat rate of tax at 20% and drop off FTB when the tax on the average income earner is already only just above 20% will lead to everybody being better off doesn’t wash. The high income earners will be better off and the average income earner will need a 30% or more drop in prices just to break even.
Given that logically there are more than 50% of people below the average going to 20% will mean an increase in tax for most, plus they lose the FTB plus there is an increase in GST but you expect us to trust you that there will be a massive drop in prices?
You have pointed to prevous cuts in tax resulting in increased revenue but look at the rates they are coming down from “the Australian corporate tax rate was lowered from 49 per cent in 1987 to 30 per cent in 2001.” “UK tax receipts before and after 1979, when Thatcher, among other things, reduced the top marginal rate from 83 per cent to 60 per cent” We have already moved along way down the “Laffer curve” do you really think that a further move will still result in higher receipts?
No. The higher tax receipts would come from higher GST. The overall revenue from personal and corporate income tax would decrease, which along with the reduced complexity burden, is the reason why the cost of goods and services would come down.
Would income tax come down exactly as much as GST comes up, making it revenue neutral? I doubt it, that would be just too much of a fluke, and as I said I don’t have the means to model it. The budget would have to go into temporary deficit to fund the investment in serious tax reform, which is a worthy justification for deficit.
In time, I believe the lower, cleaner, more consistent income tax would allow GDP growth to accelerate, causing revenue from GST and all the other taxes to grow faster than they did before. At some point, revenue would far surpass that of the status quo. How long would it take to do that? I have no idea. More than one year; less than ten years.
And of course, you don’t just turn the whole tax system on its head overnight. You plot a roadmap to do it over several years with incremental changes, and lots of multivariate number-crunching to ensure you don’t hurt people during the transition.
So let’s for arguments sake say prices came down 20% (which given that net profit will only increase 10% for corporations is probably on the high side), the GST increase would be 60% ($10 on $100 compared with $16 on $80), the consumer would now be paying $96 instead of $110 or a 13% reduction.
The vast majority are now paying more tax (after the loss of FTB is accounted for), leading to less disposable income therefore less spending and a decline in GST revenue but the high income earners are paying so much less tax that the total tax take is down and we will have to into temporary deficit and probably reduced investment in infrastructure.
You’re ignoring 90 per cent of what I said including where I mentioned deficit above, once again you’ve ignored the literature I cited, you’re still assuming linear relationships between tax rates and tax revenue, you’re ignoring the effect of removing deadweight losses, and generally just wasting time.
And another thing you’re ignoring: rates of pay and prices of goods and services are all flexible. As long as changes to taxation are clearly signalled well in advance and easy for people to understand, prices and wages are able to adjust accordingly, and the easing of the corporate tax burden enables employers to respond.
I keep trying to make this point: there are no fixed reference quantities in economics. Everything affects everything else, so simplistic linear calculations are meaningless. Even the Henry Review did not attempt to crunch the numbers on its recommendations. They just outlined broad objectives, which could be modelled in depth if the government showed any interest, which it didn’t.
Easing the corporate tax rates does allow the price of goods to go down or wages to go up or a mixture of both but as I have mentioned numerous times (far from ignoring it) the measures you are advocating require a substantial jump in wages or drop in prices. Whichever way you dice it currently most people pay less tha 20% tax and receive benefits that will be cut under your scheme.
Given that corporate Australia is more interested in it’s shareholders than anything else at least a protion of the tax decrease will be used to increase profits. The banks, coles and Wollies, Electricity Companies, Fuel companies, Telstra Councils etc do not have the competition to force a drop in prices nor the inclination to increase wages. Plus farmers are price takers rather than price setters so the basic “costs of living” will not be effected to any great deal.
Yes everything effects everything else, I assumed that in the 20% price reduction (again not ignoring) a businesses profit’s are roughly 1/3 their turnover and that they would pass on half the direct tax reduction (ie reduced the sales price by 15%) and the other 5% reduction would come from flow through savings.
I am not assuming a linear relationship between taxes and tax revenue but if you decrease the majority of the population’s disposable income and are still relying on increased revenue from GST (as per your post at 11.27) you are going to come up short.
I also mentioned your reference to a deficit but also assumed that (especially considering the deficit aversion in current society) going into further deficit to fund massive infrastructure investment would be ruled out