“We need more policy debate in Australia, not less. That should be the lesson from Peter Costello’s ongoing dispute with Malcolm Turnbull,” a great opinion piece in The Australian by former Crean and Latham policy adviser Simon Banks says today. “Rather than attacking Turnbull, Costello should help him. Turnbull and senior Labor backbencher Craig Emerson have done Australians a service by opening up the debate on income tax reform.”

But please don’t overlook the latest effort by the Australian Democrats’ Andrew Murray. He’s got a cracker of a paper on his website headed “Tax-free Thresholds – a tax issue we must confront.” Its abstract is simple: “Australia’s tax-free threshold is too low”.

“Australia’s income tax-free threshold is $6,000, and is unchanged since 2000,” Murray says. “It is not indexed and is therefore constantly losing real value… Had the 1980 personal threshold of $4,041 kept pace with earnings, it would now be over $14,000.”

As Murray bluntly states, “People cannot live on $6,000 a year. Australia’s welfare floor is $12,500, calculated as the minimum income required for basic subsistence. There is no justification for income taxing someone earning that amount.”

He quotes the Centre for Independent Studies paper Tax Reform to Make Work Pay: “Since the value of the personal tax-free threshold has slipped to less than half what a single unemployed person gets in income support and rent assistance, the government now takes money away from us long before we have secured our own basic subsistence… It makes no sense to tax low income earners into poverty, and then to pull them out of it by giving them welfare benefits and/or tax credits. It makes a lot more sense to allow people to keep more of what they earn so that they are not enmeshed in the welfare transfer system.”

“The tax-free threshold is supplemented by a numerous and distorting array of tax exemptions, concessions and deductions, plus a myriad of welfare measures,” Murray says.

“Australia is just one of many countries in the OECD debating how to make their income tax system simpler, fairer, more efficient and more competitive. There is a need for the Government to respond as soon as possible to the high public interest in structural reform of the income tax system, with a comprehensive white paper covering detailed proposals or alternatives.”

What were those lines from John Stone about a lazy Treasurer?

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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