Henry ends the year how he began – with a call for tax reform. As Henry wrote in February:
The biggest single problem [with our tax system] is the high rates of personal income tax and particularly the very high effective marginal tax rates (EMTRs) that face people on welfare who try to move to paid employment. Directly and indirectly these features of Australia’s tax system are a major impediment to higher labour market participation and to higher sustainable, non-inflationary growth.
And today, according to David Uren in today’s Oz, such tax reform is entirely affordable:
The federal Government’s tax giveaways to families, low-income earners, small-business owners and retirees will soar 27% to $52 billion a year by 2010, further undermining the opportunity for across-the-board tax cuts.
Treasury figures reveal the number of tax breaks targeted at different groups has risen from 240 to 270 over the past five years as the Howard Government has used the tax system to lock in the support of sections of the community.
The benefits of tax reform don’t stop at enticing people into the workforce; a reduction in the high marginal tax rates reduces both the ability and the incentive to avoid paying tax, and increased simplification reduces the need to employ an army of accountants.
Henry repeats his call from a fortnight ago – “The truth of the matter is that, at present, we have a conservative Government, ostensibly supportive of a reduced Government intervention in the economy, which collects and distributes more cash that at any stage in our history – it is time we demanded some of it back.”
On the international scene, GDP growth figures from the US and UK show two very different stories. In the US, a Commerce Department report found that GDP growth fell to 2.2% year on year in the third quarter, from 2.6% in the second quarter – chiefly due to the worst housing slump in 15 years. This is in line with US Fed predictions of economic cooling, which will lead to the easing of inflation – except for the fact that the core Producer Price Index for November showing a 1.5% jump in producer prices for one month. Hopefully it was a one-off.
Third quarter UK GDP growth figures, on the other hand, showed their fastest growth in two years (2.9%), prompting speculation of another rate hike in the new year.
Read more at Henry Thornton.