Flat White

Ditch the politics and make taxes fair

8 May 2018

7:28 AM

8 May 2018

7:28 AM

The big day is here – the last pre-election federal budget – and the Coalition government has promised something we’ve long been waiting for: tax relief for working Australians. Scott Morrison promises to “put more money back in the pockets of middle to lower income Australians to deal with their own household and family budget pressures.”

Recent budgets show a long-running trend of expanding spending programs and creeping tax increases. These have left Australians with a whopping $600 billion gross public debt bill of over $40,000 per household, to be paid for by our kids and grandkids. With our population ageing, this means immense stress on our pension system, vital to ensuring a safety net for those who worked hard their whole lives but can no longer provide for themselves.

Australians haven’t been allowed to keep more of our earnings since the early Howard years. With Americans reaping the rewards of the recent Trump tax cuts – $US1,182 a year for the typical American family on a $US50,000 income, there is no better time than the present for the Turnbull government to show its Liberal colours by rewarding Robert Menzies’ forgotten people. High income taxes are both a disincentive to work and a disincentive to spend money patronising Aussie businesses. Ultimately, they hurt us all.

Since Malcolm Turnbull took office in 2015, we’ve been slugged with threats of Medicare levy hikes and deeper dips into our pockets as workers are pushed into higher tax brackets which the government fails to index for inflation. As a result, Australian workers are paying more in tax every year without any increase in real income. Our low income tax threshold of $18,000 a year means that some of the poorest among us suffer and the incentive to work is eroded further each year, distressing our welfare system, damaging our productivity and preventing us from harnessing our human potential.

Our income tax regime is also unfair because of the complex system of rules and deductions which are claimed by 80 per cent of personal income tax-filers. Many tax-filing families are forced to rely on professional help just to make sure the government cuts away the correct slice of their earnings. Although this problem supports an entire accounting industry, it hurts families who cannot afford the right help and forces many of those who can to forego most of their savings through paying professional fees.

The United States remedied this problem by simplifying their tax code last year, repealing a convoluted system of deductions and instead, doubling the standard deduction available to all Americans. There’s no reason why we can’t do the same.

These issues must be rectified for a simpler and fairer system by lifting the tax-free threshold, repealing the complex system of deductions for a significantly increased standard deduction and indexing tax brackets to ensure we aren’t paying more simply because inflation makes us ‘creep’ into the next tax bracket.

But why stop at income tax? Company tax cuts have been intensely debated for the last few months and have faced an uphill challenge even though rates remain amongst the highest in the developed world.

Ultimately, company taxes are paid for by us; the consumers, through higher prices on goods and services, and by workers through lower salaries, fewer jobs and less investment in economically-stimulating projects. This is true regardless of whether these cuts reduce taxes on foreign or local companies. Ireland turned its economy into the envy of Europe by lowering its taxes and turning itself into an attractive place for foreign investment.

With France, the UK and the USA implementing their own cuts, the problem of profit and investment shifting overseas is set to worsen unless we keep our rate competitive. Since the USA legislated its tax cuts, over 200,000 jobs have been added to the US economy in January alone, with many companies including Boeing, Merck, Exxon Mobil, AT&T and Disney announcing billions in new job-creating investments, salary hikes for workers, charitable donations and other benefits. US unemployment is at a 17-year low and business optimism amongst small business and wage growth remain high.

Common concerns include the effect on budget revenues of introducing both company and income tax cuts in Australia. Economist Chris Murphy finds a 2.04:1 ratio of benefits-to-cost to the budget of the company tax cut alone, with a benefit-to-cost ratio of up to 1.4:1 for income tax cuts.

But let’s put even this aside. If history has taught us anything, it’s that a dollar left in the hands of consumers, workers or business is generally better spent than when left in government hands. A long list of wasteful spending and pork-barrelling can be scaled back to account for reduction to the government’s coffers.

Billions are being blown on South Australian submarines to ensure Christopher Pyne’s re-election. These could be produced overseas at a far lower price without compromise on quality. Over $15 billion is being spent on a medical research fund to replicate a function already undertaken by the private sector. Corporate handouts to large companies spruiking wind and solar have given us unreliable, expensive and intermittent electricity and are another example. The list goes on.

Income and company tax cuts coupled with cuts to government waste and overspending, are a solid budget recipe that will turbocharge our economy and reward hardworking taxpayers.

Satyajeet Marar is the Director of Policy at the Australian Taxpayers’ Alliance.

Got something to add? Join the discussion and comment below.

Got something to add? Join the discussion and comment below.

Show comments