Again this Budget, Treasurer Peter Costello has done nothing to cut the taxes for those on average incomes.
Yes, you read right. There are no tax cuts for those on average incomes. But as classic propaganda theory goes, the bigger the lie and the more often it is repeated the more likely it is to be believed.
Tax cuts for everyone, the headlines said. Nonsense.
Let us look at the person on average income from the year the GST came in through to the end of the 2008-2009 tax year. And let us compare that to someone on four times the average income in the same period.
The person on average income will be paying a higher proportion of their income on tax in 2008-09 than they were in the year the GST came in. (Comparisons with years before that are difficult because of disagreement about the effect of the GST and the compensation packages given for it, though there is a case for arguing that the person on average income will be paying a greater percentage of their income in income tax and GST in 2008-09 than in the last year of the Keating Government.)
Costello’s tax “cuts” are illusory. They do not give back what has been taken by bracket creep, the effect of people moving into higher tax brackets because of inflation and overall rising wages.
Bear with me on the figures, or skip them and go to the paragraph that starts, “In summary . . . “.
In the middle of 1999-2000, the average weekly wage was $772.00 a week, or $40,144 a year. In that year that income attracted $8423 in tax or 20.1 per cent of their income.
In the same year someone on four times average weekly earnings would be on $160,576 and pay $58,850 in tax, or 36.6 per cent of their income.
Fast forward to 2006-07.
The average weekly earner is now on $55,063 a year and pays $11,869 in tax, or 21.5 per cent of their income – about the same proportion.
Meantime someone on four times average weekly earnings is on $220,252 and pays $68,916 in tax, or 31.3 per cent – a big reduction.
In short, in seven years, the struggling Howard battlers have marked time. Indeed, they have gone backwards a tad. Meantime, those on four times weekly earnings have had almost one-sixth of their tax burden lifted from them.
And this is aside from all the tax avoidance scams that high-income earners can get up to.
Fast forward to 2008-2009 and take into account the so-called tax cuts for everyone.
On the Budget forecast, wages could be expected to go up 4.5 per cent for each of the next two years. Our average weekly earner is now on $60,130 and pays $12,639 in tax, or 21.0 per cent.
Meantime, those on four times weekly earnings are on $240,520 and pays $75,834 in tax, or 31.5 per cent of their income.
In summary, the “tax cuts” this Budget have left those on average incomes marking time. Their tax burden remains at just over 20 per cent of their income. Meantime, the gains made by high-income earners in the seven years after the GST have been locked in.
It is hard for Costello to argue that the Howard Government has done more for average earners than the Keating Government. When the Howard Government came to office in 1996, average weekly earnings were $728.40, or $37,877 a year. In that year this would have attracted $8900 in tax, or 23.5%. That is higher than at present, but then there was no GST. GST is probably worth at least 4 per cent, so the average earner is worse off.
These comments have to be tempered by the fact that the Howard Government has ramped up welfare spending. This has helped low-income earners and people with children.
The payments for children require an inefficient churning of money – levying it in taxes and paying back to the same people after an expensive bureaucratic process. It’s vote-buying. Why no just make the children tax-deductible?
Overall the Coalition’s rhetoric before it came to power that it would be a low-taxing government and a small government has not be borne out by its actions.
It continues to tax middle-income earners too highly. It has given relief to high-income earners. Meanwhile its take of the cake, measured as the percentage of its own-use spending to GDP, is now higher than at any time since Federation, as is the number of people it employs in its bureaucracy.
The biggest fruits of the Australian economic boom in the past 10 years have gone to the Federal Government itself — to be used as a giant re-election fund. It has not shared them with taxpayers to spend them as they see fit.
Propaganda is a powerful thing. If you believed it, you would imagine we have had 10 years of tax cuts just because the dollar figure in the pay packet changes. But when properly measured as a proportion of income there have been no tax cuts for the Howard battlers. They have just been conned into believing they are getting tax cuts when the Government hands back some of the excess created by inflation and rising wages.
But no government will legislate for automatic indexation of the tax rates. That would destroy the illusion.