Economy

Apr 29, 2014

Abbott’s fistful of dollars will be a slug on states as well as voters

Tony Abbott's proposed income tax rise will hurt the states as well as consumers, and risks a demand crunch -- all for a fiscal sugar hit.

Bernard Keane — Politics editor

Bernard Keane

Politics editor

"This isn't the fifth term of the Howard government," Prime Minister Tony Abbott said in question time several weeks ago. Indeed: the proposed "debt levy" will restore personal income tax rates to levels last seen in the Howard government's third term, when Peter Costello, under pressure from newly arrived backbencher-in-a-hurry Malcolm Turnbull, increased income tax thresholds and reduced tax rates. Back when the Howard government took a quarter of GDP in taxation revenue. But the more accurate comparison is with a different Howard era, the second term of the Fraser government, when the "fistful of dollars" promised voters by the Liberals before the 1977 election was wiped out by then-treasurer John Howard's "income tax surcharge" of 1.5% to fix the deficit. So Tony Abbott, who in 2012 promised "tax cuts without new taxes", isn't the first Liberal to break a promise and impose a tax levy under the guise of fiscal discipline. But the Tony Tax won't merely affect taxpayers. The tax, as outlined by Coalition favourite Terry McCrann today, is highly progressive, and targeted at middle and higher-income earners, as it should be. But in being so, it is aimed at discretionary consumer spending, which is more likely to be subject to the GST than basics like food and health, which form a much greater part of the spending of low-income earners. As a consequence, the Tony Tax will simply direct revenue away from the GST, and thus state governments, to the federal government. It's a revenue shift between levels of governments that will leave struggling states, already facing difficulties with flat GST growth, with an even bigger budget challenge. Assuming the Tony Tax raises around twice as much as the National Disability Insurance Scheme levy, established by the Gillard government last year, which was estimated to earn $3.2 billion in its first year, it will lead to the siphoning away of over half a billion dollars a year from the states and territories and into federal coffers, a neat little trick that state treasurers will be less than happy with. But even at that level, the tax will be no more than a sugar hit to the budget given the size of the deficit next year. Let's compare the sort of revenue raised by a levy both to the deficit and to some other budget costs.

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21 comments

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21 thoughts on “Abbott’s fistful of dollars will be a slug on states as well as voters

  1. zut alors

    The ‘Tony Tax’, the name fits so well. His favourite shock jock will have to repackage this lest Abbott appears to be an almighty fibber. And history has taught us what importance that particular shock jock puts on pre-election promises which are then broken.

  2. Migraine

    Enough with the bloody levies, just tax me already!

  3. Robert Brown

    But it’s not a tax, it’s a levy! 😀

  4. DiddyWrote

    With reports of “internal dissent” over the “crazy” debt levy within the party room, i suddenly had an uncomfortable feeling this was all a big charade.
    Abbott and Hockey get to make out that they were going to spread the pain up the food chain and tax the “wealthy”.
    Unfortunately with the back benchers screaming and the media accusing them of reneging on their pre-election promises it all became too hard and the levy had to be dropped.
    Instead of being Robin Hood, Abbott regretfully has to let the hardship fall fair and square on those who can least afford it.
    Or am I becoming overly cyclical where this government is concerned?

  5. DiddyWrote

    Sorry I’m not going round in circles, I meant to write cynical (not cyclical).

  6. CML

    I’m cynical enough to agree with you Diddy!
    As Bernard points out, this ‘Tony Tax’ (love it!), will be much less efficient than removing some of the other concessions currently being dished out to the wealthy.
    Why is super for the over 60’s (and I’m one of them) such a sacred cow, anyway? I know of people who have millions in super and they still get a part pension. Not on!

  7. Khupert the Runt

    Now let me try and get my simple mind around this….

    We’re going to have a levy to help reduce the deficit, which will raise less money than we decided to give to the Reserve Bank when we didn’t need to.

    So if we hadn’t promised that money to the Reserve Bank we wouldn’t have needed the levy?

    Right?

    So the deficit – after we have given the money to the Reserve Bank we didn’t need to – will be a bit bigger, than if we hadn’t decided to give the Reseve Bank the money, and raise a new tax to pay for it.

    Sorry Tony you are the ultimate phoney.

  8. klewso

    The “Jfk tax” – “Just f***ing kidding”?

  9. David Hand

    I think the payment to the reserve bank was necessary. I don’t know the details but I can’t possibly understand any other reason than to get a payment that is inevitable at some stage on the books as close to the exit of Labor as possible.

    Abbott’s paid parental scheme is utterly ludicrous.

    The deficit levy is a tax.

    Abbott should not have promised no new taxes in the election campaign if he was ever to consider this.

    The only possible escape hatch is if it kicks in at $100k and is large. Say 4%.

    This budget needs to change course. It doesn’t need to deliver a surplus any time soon. It must simple stop the headlong rush into debt.

  10. DiddyWrote

    Hi David Hand at #9,

    The payment of nearly A$ 9 billion to the reserve bank by Hockey was neither asked for or required.
    The reason it was paid, in my opinion, was that Hockey wanted to have as much red ink in the budget deficit as possible. He needs this in order to justify the swingeing cuts to the civil service and excuse the need to sell public assets at both a federal and state level.
    Behind this all is ideology, Hockey and the LNP fundamentally do not believe the government should be supplying services and help to Australians. This can be supplied by the private sector.
    Sadly I believe that this will result in poorer, more expensive services that will further increase inequality and decrease social mobility, forces that are bad for any civil society.

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