This was the tax forum where the fairness agenda was lost, at least from the government side. This was shown by Wayne Swan’s apparent dismissal of the possibility of funding any welfare payment increases by cuts to the excessive tax concession to the rich, such as tax free pensions for all superannuants and access to pension concessions for couples on about $800 per week. Contrasting this with people having to live long term on about $32 per day does not look good as a Labor government’s future agenda.
The only apparent concession to the less well off is not really one but a disguised payment to much-better-off tax payers. The raising of the tax threshold will flow to everyone, offering an extra $500 a year to middle-income people but much less to the poor. The current effective threshold for low income earners is $16,000 because of the low income tax offset (LITO) which tapers to about $30,000. This means the change to $18,200 as a threshold promised as part of current tax changes will really benefit only those who had no access to the LITO, and reduce the need to put in a tax return.
Raising the threshold is more expensive than a low income rebate and there is no evidence it will encourage many low income earners into greater workforce participation. The savage complexity of withdrawal rates on Newstart and various family payments are much more of a disincentive than the 15 cent tax rates. Raising it to $21,000 therefore will give little to those on the bottom rate but more to those on the top rate who do not need a tax cut.
Making it easier for people to enter paid work is complicated because most find the maze of payment systems so confusing they give up. The loss of net gains can be up to 70 cents in the $1, or even more as various payments and concessions fade out. The idea that there will be more people saying “now I can afford to work because of the tax changes” fails to understand welfare payment problems. Not only are they too low to allow people to look for work with any confidence, but they also have different rules about tax withdrawal rates and possible penalties. I used to be able to work it out for friends but can no longer keep track of the intricacies.
That is where the changes need to be, as outlined by Welfare Rights, ERA, ACOSS and others at the tax forum. These covered changes needed to encourage second income earners (mothers) as well as other unemployed. Despite their views receiving surprisingly high support from people such as Judith Sloan, the government remained untouched by their constituencies’ very reasonable requests for higher and simpler payments.
A couple of quotes from The Sydney Morning Herald reports show the government’s indifference to the question of fairness:
“… the Treasurer, Wayne Swan, said the government’s first priority was to lift the tax-free threshold to $21,000, which would deliver every wage earner a modest tax cut and free 1.2 million people from paying any tax. It would be worth about $500 for someone earning $60,000.
“The Australian Council of Social Service chief executive, Cassandra Goldie, said it would cost $1 billion to lift benefits to a more reasonable level. The Community Services Minister, Jenny Macklin, said she understood concerns but hoped delegates understood ‘the budgetary issues’.”