May 21, 2014
THE SYDNEY MORNING HERALD’S ECONOMICS EDITOR
Do you like paying tax? No, I thought not. Well, I have good news. The harsh measures in last week’s budget were directed towards one overwhelming objective: getting the budget back into surplus without increasing taxes to do it. Indeed, Joe Hockey is working towards the day when he can start cutting income tax.
If you hadn’t quite realised that, you could be forgiven. You’ve been unable to see it because of two distractors: the deficit levy and the resumed indexation of fuel excise.
Illustration: Kerrie Leishman.
But the levy is just a temporary pin-prick to the top 3 per cent of taxpayers who will pay it. And the price of petrol will rise by only about 1 cent a litre per year. The effect of the excise increase will be dwarfed by the ups and downs in the world price of oil.
The catch is this: you may hate paying tax, but don’t be too sure Hockey’s efforts to avoid tax increases and eventually make room for income-tax cuts will leave you ahead on the deal.
Why not? Because to avoid increasing taxes – and avoid cutting the big tax breaks some people enjoy – Hockey has concentrated on cutting back all manner of government spending. And most people – maybe all families bar the top 10 per cent or so – have more to lose from cuts to government spending made, than they have to gain from tax increases avoided.
That’s particularly true when Hockey’s efforts to cut government spending take the form of tightening means tests, moving to meaner rates of indexation and introducing or increasing user charges.
Don’t think just because you voted for the Coalition Hockey is looking after you. It works out that low income-earners – generally the old, the young and the unemployed – are heavily dependent on government spending, and genuinely middle income-earners with dependent kids are significantly reliant on government spending.
Only high income-earners who’ve already been means-tested out of eligibility for most programs (e.g. me) have little to lose from Hockey’s cuts. That’s the reason for the deficit levy. Without it, it would have been too easily seen that high income-earners weren’t doing any of Hockey’s “heavy lifting”.
Indeed, too many people might have twigged that the whole exercise was designed to have high income-earners as its chief beneficiaries. The spending cuts are permanent and many of them save more as each year passes. But the deficit tax is temporary.
Hockey wants us to believe he had no choice but to do what he did. I accept he had to get on with bringing the two sides of his budget back into balance, but he had a lot of choice in the measures he took to bring that about.
He chose to focus on cutting three big classes of government spending: health, education, and income-support programs (pensions, the dole and family tax benefits). Not by chance, these are the programs of least importance to high income-earners.
He carefully avoided cutting the programs of most importance to the well-off: superannuation tax concessions, the concessional tax treatment of capital gains and negative gearing, Tony Abbott’s Rolls Royce paid parental leave scheme, the mining industry’s fuel excise rebate and other “business welfare” and, of course, the high income-earners’ favourite charity: defence spending.
And while slashing away at health, education and income support, he was also busy abolishing the carbon tax, the mining tax paid largely by three huge foreign mining companies, cutting the rate of company tax by 1.5 percentage points and exempting federal grants to private schools from his education cuts.
Hockey will tell you his net cuts to health, schools and age pensions don’t actually take effect until 2017, after the 2016 election. This is the basis for his claim not to have broken Abbott’s election promises. (Remember, all the proceeds from his cuts and charges in health care will go into the new medical research future fund.) It’s largely true – though only for Abbott’s “core” promises.
Even so, Hockey’s most objectionable changes are the punitive treatment of the young jobless and the attack on Medicare’s principle of universality. The measures that will do most harm to the Liberal heartland (including the children of high income-earners) are the changes to HECS and deregulation of university fees.
Some people are referring to Hockey’s $7 patient co-payment for GP visits, tests and scans as a tax. This is quite wrong. It’s precisely because it isn’t a tax that it has been introduced. It’s a user charge: use the service, pay the charge. By contrast, taxes are amounts you pay the government that bear no direct relationship to what you get back.
High income-earners want more user-charging (for pharmaceuticals as well as GP visits) because they’re no great burden to the highly paid, but they reduce the need for higher taxes. They reduce the cross-subsidy from the rich to the poor.
I must warn you, however, of the one glaring exception to high income-earners’ insistence that tax increases be avoided at all cost (to other people). The one tax increase they lust after is a rise in the goods and services tax.
Why? Because they believe it will be part of a deal in which the higher GST paid by everyone is used to pay for another cut in the rate of company tax plus a cut in the top rate of income tax.
Ross Gittins is economics editor.
Source : The Canberra Times