When a politician promises to give you something in 10 years, you can bet it’ll never happen.
Promised tax cuts in Tuesday night’s Budget won’t match expectations, and a Coalition government — which, after almost five years in office, should be renowned for getting government out of our lives — will have overseen further growth in government expenditure and debt.
At 7.30pm, Treasurer Scott Morrison will rise to deliver the 2018-2019 Commonwealth Budget.
Every Budget is important. They are crucial to marking out a government’s agenda. But this one is particularly important because it will be the last to be delivered before the Australian people deliver their verdict on the Turnbull Government.
As we’ve come to expect, much of the broad policy agenda behind this year’s Budget is already on the public record.
We know there will be personal income tax cuts. We know there will be infrastructure spending, much of it in the great state of Victoria. We know spending will continue to increase about 2 per cent. We know there will be a deficit of about $20 billion. And we know there is a debt bomb that keeps getting bigger every year, currently headed for an eye-watering $684 billion by 2027-28.
What we don’t yet have a clear idea about is the detail.
And for the 2018-19 Budget, the disappointment will be in the detail.
The tax cuts will be small. At the weekend, Morrison said: “I’m not going to pretend these are going to be mammoth tax cuts or anything like that.” Which means they’ll be way down the other end of the scale. More mouse than mammoth. They will also be phased in over 10 years. Which means they won’t actually happen.
Promising a cut to the top marginal tax rate somewhere in the mid-2020s is worthless. In order for you to believe that will actually come about, you’ve got to believe the Coalition will remain in power until 2029 to see out its 10-year plan. That would make the life of the Abbott/Turnbull Government longer than that of the Howard government.
Another aspect of the tax plan is that any cuts in the early years will be focused on low- to middle- income earners. It’s likely we’ll see an increase in the tax-free threshold, an increase in the low-income tax offset and a reduction in the rate applied to those earning $87,000 or less (and/or a slight increase in the income threshold for those brackets).
These are not the ingredients of thoughtful tax reform. Any serious attempt at reforming Australia’s income tax system needs to confront some hard truths about who pays tax and who doesn’t.
Here are a few:
1. The top 1 per cent of income earners are responsible for 17 per cent of the total personal income tax revenue;
2. The top 10 per cent of income earners are responsible for 45 per cent of the total personal income tax revenue; and
3. The bottom 50 per cent of Australian households have an effective personal income tax rate of 0 per cent.
The reason these inconvenient facts are important is obvious: you can’t give tax relief to people who don’t pay any tax. Cutting taxes only matters for people who actually have the money they have earned confiscated by the ATO.
Tax relief at the bottom end of the income scale also pushes the burden of government on to fewer people. This problem is amplified in an environment such as the one we find ourselves in now, where government expenditure continues to increase.
A tax rate of 45 per cent at any point on the income scale is preposterous.
Spending almost half your time working for the government and not your family, friends or local community, or yourself is absurd.
A serious tax reform agenda would confront that issue head on, in full recognition these are people who take risks, invest, create jobs and help to build a flourishing and prosperous economy.
They are also the people who would flock back to the Coalition, after the infamous superannuation betrayal, if the top marginal tax rate was cut from 45 per cent to, say, 40 per cent. They would still be enormous contributors to government coffers but they would have a reason to be invested in this government.
None of the discussion about tax reform is to deflect or ignore the painful cost-of-living pressures that, in particular, those on lower incomes struggle with every day.
Analysis by the Institute of Public Affairs’ Daniel Wild has revealed that over the past 20 years, house prices have increased by 330 per cent, childcare costs have soared by 310 per cent, electricity prices have increased by 215 per cent and insurance is up 209 per cent.
Every household in the country is dealing with those out-of-control costs and, especially in an environment of low wages growth, governments are not doing enough to cut the red tape that keeps pushing prices higher. In fact, if the government slashed red tape in Australia, the economy would grow by about the same amount as the government takes in personal income tax — every year.
There is a clear way forward for the government but doing the right thing sometimes takes an enormous amount of courage.
US president Ronald Reagan cut company and personal income taxes before the 1984 presidential election and went on to win 49 out of 50 states. Imagine what might be possible if Prime Minister Malcolm Turnbull and Mr Morrison surprised us all on Tuesday night.