Ordinary Australians are being screwed by the tax system – but you’re not allowed to know that.

What’s Peter Costello got to hide? Plenty.

We already know he’s the Deputy Leader of a party of manic control freaks with some serious problems with facts, truth and accountability.

However, it increasingly appears that it’s ideologically bankrupt, too.

Back in September, the Australian reported: “Almost 1 million Australian families lose 60c of every extra dollar they earn, despite five years of the Howard Government’s welfare changes and tax cuts.”

Economics correspondent Sid Marris and Freedom of Information Editor Michael McKinnon wrote:

“Confidential research commissioned by the Prime Minister’s own department shows that the number of people on the high ‘effective marginal tax rates’ of 60 per cent or more is little changed from 1997 to 2002.

“Worst off are families with only one parent working — the group John Howard has declared he wants most to help.

The issue hasn’t gone away since. Chris Wallace returned to it in the Oz just last weekend:

“The Howard Government has failed to reduce the tax burden of the poor, despite holding hard evidence for more than a year that low-income earners face marginal tax rates of more than 60 per cent.

“A secret cabinet document obtained by The Weekend Australian shows that 120,000 families – one in five of all single-breadwinner couples – are subject to the punitive marginal tax rate.

“The cabinet-in-confidence report of the Work and Family Interdepartmental Taskforce, dated December 2002, shows that single-breadwinner families with an income of $30,000 to $40,000 a year are hit with a ‘60 per cent plus’ marginal tax rate on extra income earned by the spouse moving into the paid workforce.

“This is higher than the rate of 47 per cent paid by millionaires in Australia on their marginal income…”

Opposition Families spokesman Wayne Swan has been having fun with the topic throughout summer.

He turned up in Wallace’s article, too, with comments made at the Labor conference on how “the punishing effective marginal tax rates on low-income earners created by the sharp withdrawal rates of government assistance amounted to a ‘secret tax’ on families.”

Wallace wrote ” ‘The Government’s tax and social security changes have caused nearly a doubling in the number who face punitive marginal tax rates,’ Mr Swan told the ALP conference.

“The cabinet document contains a detailed example: ‘A couple with two children (one under five years, the other aged between five and 12 years) and a primary earner on $30,000 per annum would gain only $4276.56 per annum in disposable income by sending the other member of the couple out to work for 20 hours a week to earn $15,000 per annum, assuming paid child care would be needed for six hours a week.’

“Mr Swan claimed that 1million people were hit by the punitive 60 per cent plus effective marginal tax rate.

“That high effective marginal tax rates have become one of the main barriers to getting unemployed people back to work was identified by leading academic economists and former top Treasury bureaucrats who spoke in November at the Towards Opportunity and Prosperity Conference, jointly hosted by The Australian and the Melbourne Institute.

“The Weekend Australian has also learned that Health Minister Tony Abbott’s ambitious plans to fix the problem in his then role as employment minister last year were kyboshed on cost grounds.

“It is understood that Treasurer Peter Costello, with Mr Howard’s backing, killed off any prospect of a comprehensive solution, arguing the priority must be tax cuts for all…”

Which is all a very long introduction to Peter Costello’s dirty little secret. And that is?

The Government’s own documents show it is screwing the very people it claims to champion – and it’s not prepared to help them. Instead, it wants to build up a big pile of pork to dole out come election time.

It’s a dirty little secret the Treasurer seems prepared to go to extraordinary lengths to hide.


Freedom from information

Costello’s secret has slipped into public view largely thanks to the digging of the Australian’ FOI Editor, Michael McKinnon.

Yours truly has seen one of his requests on an entirely different subject. In that case, poor McKinnon seemed to be suffering a bad does of paranoia.

However, the lad clearly enjoys the backing of his bosses. Indeed, it’s a tick in News Limited’s favour that they are prepared to resource and support someone in such a role – and McKinnon has made the most of it in this matter.

In November, he wrote how Costello had invoked rarely used suppression powers to refuse a Freedom of Information request from the Oz for key records that seem likely to reflect directly on his performance as Treasurer.

McKinnon told how he had “spent more than 10 months attempting to obtain, under FOI, publicly unavailable Treasury documents concerning the operation of the first homebuyers scheme, income tax bracket creep and baseline information used in the preparation of the intergenerational report on population ageing.”

The Treasurer, however, had frustrated his request by issuing what is known as “conclusive certificate”.

McKinnon explained, “A conclusive certificate, according to Butterworths legal reporting service, has the effect of establishing that any given document is exempt from the FOI Act”.

And he added how “administrative law experts… said the only occasion on which they could recall a minister issuing a conclusive certificate involved former industrial relations minister Peter Reith’s denial of Labor access to consultants’ reports on the Howard Government’s waterfront reform program in 1997-98”.

Not the nicest comparison for a journo to make about an ambitious pol.

In December, the Oz reported “The Administrative Appeals Tribunal was yesterday forced to abandon hearing appeals by The Australian to gain access to potentially damning Treasury documents after Peter Costello used extraordinary powers to suppress them.

“The Treasurer has moved to prevent the newspaper receiving 40 documents detailing the rising tax burden on ordinary workers.

“Claiming the release of the estimates might be ‘misleading or confusing’, Mr Costello has invoked special powers to block material sought under Freedom of Information laws.”

News Limited Chief Executive John Hartigan gave Costello a belting over the matter in a speech to the Australian Press Council you can find at http://www.crikey.com.au/media/2003/12/04-0004.html – and the matter seems set to continue.

Crikey understands that the Australian has assembled a very high-powered legal team and gone back to court with the aim of proving that Costello has illegally blocked the release of the documents. The Treasurer will have to justify why it is not in the public interest for Australians to see documents like “the number of Australians who will be pushed into a 42 per cent tax bracket with their next pay packet'”.

Two conclusive certificates are to be challenged – one produced over bracket creep documents and one produced over first home buyers scheme. The Treasurer is not expected to issue a certificate in relation to documents McKinnon about the intergenerational report.

Not what a 2iC looking for promotion wants in an election year.


The issue that won’t go away

As McKinnon and the lawyers have met, the tax issue itself has kept bubbling along into the new year.

On January 3 the Australian ran big with an item headed “Howard’s battlers losing out”.

“John Howard’s battlers are going backwards, with new tax research showing that lower and middle-income earners suffered a reduction in real incomes of up to $430 a year between 2000 and 2001,” Patricia Karvelas and John Kerin reported.

“Analysis of Australian Taxation Office figures carried out by the Opposition, which adjusts earnings against increases in the cost of living, has found the incomes of Australia’s middle class shrank by between $150 and $430 a year.

“The figures also show the gap between the rich and poor has widened, with the incomes of the wealthiest 5 per cent of taxpayers increasing by $4159 a year in real terms over the same period and their average taxable incomes increasing from $146,661 to $150,820.

“Australian taxpayers on the average middle income of $31,066 lost $150 a year in real terms over the period, their income falling to $30,916.

“Further up the middle-income scale, the largest decline was suffered by those in the $50,000-to-$55,000 bracket, whose average taxable income fell from $52,471 to $52,041.

“Even those towards the top of the middle-income bracket suffered a decline. Those in the $63,000-to-$80,000 band saw their average taxable incomes fall $245 from $70,470 to $70,225.”

A week later Wallace reported OECD findings that after seven plus years of Costello as Treasurer and a Liberal Government that is supposed to support individual choice Australia has the fourth worst tax system for rewarding effort in the developed world.

Swan responded with a detailed feature and kept the heat on through the Labor Party Conference. No doubt he’ll have more when Parliament goes back this week.


Source of the sauce

It’s important to remember that we’re talking about some very different sets of material here.

Let’s forget the OECD report for now (although, of course, it’s presumably based on figures produced by Costello’s own Treasury or the Tax Office).

Swan’s remarks have been based on Australian Tax Office statistics.

The original Marris/McKinnon item came from material prepared within the Department of Prime Minister & Cabinet.

And then there are the documents you can’t see.



The Church of England is based on the 39 Articles. Believers died for them under Bloody Mary.

Costello goes one better. He is risking political martyrdom over 40.

“I, Peter Costello, Treasurer, having examined each of the documents,” he declares “certify that the disclosure of the documents or parts of the documents as listed in the Schedule would be contrary to the public interest”.


“The release of a document that discusses options that were not settled at the time the document was drafted and that recommends or outlines courses of action that were not ultimately taken has the potential to lead to confusion and to mislead the public”, he says in one part of the conclusive certificate papers.”

But we read his press releases. The Government tells us about the decisions it makes. It should, anyway. We know what’s a hypothetical and what’s ended up on the statute book.

“The release of documents that are intended for a specific audience familiar with the technical terms and jargon used, has the potential for public misunderstanding,” Costello says.

Well, the Treasurer expects us to do tax returns – but surely he doesn’t assume we like flicking through the Tax Act on slow Sunday afternoons to keep up with the latest changes. He must know we use experts to translate this sort of thing for us.

And there’s even more.

Releasing some documents, apparently, could “threaten the protection of the Westminster system of Government”.

Ooh-er! What could these be?

Well, according to the list of documents Costello won’t make public, they might just include a “Minute and attachment providing briefing on a Herald Sun article” that has the clipping attached.

Yes, you read that right. A minute and attachment on an article in one of Australia’s best selling newspapers.

Then there’s the “Question Time Brief on Bracket Creep in response to a Sydney Morning Herald article that argued Australia’s top marginal tax rate is too high”.

Sounds subversive – and we haven’t even got onto the “Question Time Brief in response to Mr Terry McCrann’s claim that middle income taxpayers are most affected by bracket creep”. The well-known Bakuninite bomb-throwing Terry McCrann, that is.

This is “Yes, Minister” stuff – and if the Treasurer keeps it up he’ll never be in a “Yes, Prime Minister” position.


Cozzie’s possie

Costello’s dirty little secret is a real problem for the Government.

The Treasurer has made an almost unprecedented decision to block what he and the Prime Minister consider a politically unpalatable fact – that this is a high taxing government that gouges the people it claims as its own.

We’ve made plenty of comments in the last few months about tax, intergenerational equity and the Government’s reform agenda. There’s no need to repeat them here.

All Crikey readers know how the wicked Malcolm Fraser strayed from the paths of financial righteousness – despite the urgings of his Jiminy Cricket Treasurer. But now that he’s PM, isn’t Howard behaving in much the same way? Indeed, it makes you wonder if he might have been a bit more a willing accomplice to Big Mal back in 1981 and 82 than we have since been lead to believe.

Can we humbly suggest that if Howard had put as much effort into reforming personal taxation as he has into selling his version of history, he and his Treasurer wouldn’t be in the soup today.

So, what’s the Prime Minister going to do?

He won’t want this issue running in the lead up to the next election – but that seems inevitable if the Australian presses on. He won’t want a fight with News Limited and he won’t want to give Mark Latham a sledgehammer to bash away at his greatest prop – his claims to economic management.

However, is he prepared to humiliate the heir apparent?

Laurie Oakes’ column in the Bulletin last week shows that Camp Costello is restive. They seem quite happy to put the squeeze on the Prime Minister at the moment – and even borrow a few lines from Iron Mark.

Will Howard reciprocate and make the Treasurer back down. Will Howard make him drop the conclusive certificates?

That would be a real loss of face.

Bad blood so close to a poll? It could be nasty.

Costello is in a real bind. The Treasurer is stuck defending policies that seem to be screwing the very people the Government claims to champion – and being forced to take desperate moves to do so.

The issue damages his future as a leader and exacerbates the tension that already exists between him and Howard.

It might be easier for Costello – and a demonstration of his leadership credentials – if he owned up to his dirty little secret.




Hillary Bray can be contacted at [email protected]