The government’s tax cut policy is best understood in two parts. There’s the actual cut that will happen from July 1. And the cut that’s off in the political far distance, two elections hence, if it gets legislated.
The second — involving lifting tax thresholds and then removing altogether the 37% income tax level — can be ignored for present purposes, although if implemented it would be a massive flattening of our progressive tax system, and contribute, probably significantly, to increased inequality by giving thousands of dollars of tax cuts to high income earners. But let’s worry about that in the 2020s. There are more urgent issues around inequality, namely wage stagnation, to be concerned about.
The immediate tax cut, delivered via an income tax offset and a small bump in the current 32.5% tax threshold to $90,000, will max out at $530 a year for average wage earners (those on $90,000 will get $665). And that’s all they’ll get over the course of the whole tax cut policy — high income earners will get tax cuts worth thousands a year in the mid-2020s, while average workers will be stuck on $530.Those on incomes below $50,000, though, will get significantly less, albeit reflecting the low level of tax they already pay.
Both News Corp and Morrison were trying to dress up the $10 a week as a big help to families. And Morrison directly linked the tax cut to wages growth. “Wage growth has been slow. I can let them keep more of what they have earned by letting them keep it in their own pockets,” Morrison told the Financial Review last week. So let’s put that to the test. For the average earner getting the full benefit of Morrison’s tax cut, it’s an after-tax pay rise of 0.8%. For private sector workers currently receiving 1.9% wages growth, that’s not insignificant — but compared the healthier wage rises workers were enjoying a few years back, it’s a pittance — less than one quarter’s private sector wage rise in 2011.
Meantime, the government insists that wage rises are just around the corner. Having overestimated wage growth for five years, it still insisted in the budget that wages will rise 2.25% this year and 2.75% in 2018-19. Growth was 2.1% in the 2017 calendar year off the back of pay rises in the government-controlled health and education sectors; we’ll find out what it was in the March quarter next week. Perhaps Morrison and workers will get lucky and growth will jump up to the 2.25% forecast — which will be good news all round, although not if it’s again driven by hospitals and schools budgeting.
A more concrete step to improving wages growth for low income earners could have been taken in the budget: boosting resources for the Fair Work Ombudsman, which over an extended period has failed to protect low income earners from rapacious franchisees across the retail sector and only belatedly begun to take serious enforcement action.
Labor could play a role, too. A key contributor to low wages growth in the retail sector is the appalling SDA, which has done over its own members by agreeing deals with the big supermarket chains that cut wages. It’s high time the SDA was called to account by the broader labour movement and the parliamentary party — although given the latter enjoys millions in donations from the SDA every year, don’t count on that happening any time soon. Or on your wages surging.