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Issue #1875      July 3, 2019

Wage rises, not tax cuts

The Coalition government is pushing ahead with its plans for highly regressive income tax cuts, hoping to gain enough cross-bench support in the Senate to pass them this week. If enacted, the cuts would entrench and deepen inequality and poverty in Australia, providing an excuse at a later stage for further cuts to government spending.

There is nothing for pensioners, the unemployed, carers, people with a disability, low-income self-funded retirees or others on low incomes. They face further cuts to social security payments, services and public housing as future governments struggle to fund these cuts. Likewise public servants will carry the burden with further capping and freezing of incomes and sackings.

It is no accident that there is not a cent for the unemployed, pensioners and other social security recipients. In the eyes of the Coalition government these people are undeserving and unproductive. The unemployed will still be expected to survive on $40 a day!

At the same time the government can find $154 billion in income tax cuts over the next ten years. That is on top of the $144 billion in cuts passed last year.

This is the same government that cannot find enough money to fully fund the NDIS and constantly underfunds other services.

Skewed towards the rich

Under the legislation, incomes up to $18,200 would remain free of income tax. The marginal rate of 19 cents in the dollar for incomes from $18,201 would be extended to incomes of up to $41,000 in 2022-23 and $45,000 in 2024-25.

At present taxable incomes between $37,001 and $90,000 carry a marginal rate of 32.5 cents in the dollar and 37 cents for each dollar between $90,001 and $180,000. For over $180,000 the marginal rate is 45 cents in the dollar.

The government’s legislation would slash the marginal rate of taxation on all taxable income between $37,000 and $180,000 to 30 percent in 2024-25! The government describes $180,000 as a middle income! This is a huge leap towards a flat tax system.

The government initially promised to rush through legislation immediately after the elections to increase the “low and middle income tax offset” to a maximum of $1,080 for singles and $2,160 for families on dual income.

Now it is tying this increase, set to be applied to 2018-19 tax returns, to its tax cuts in the years to come. Labor opposed the radical flattening of the income tax system, but now if it opposes the tax package will be accused of denying low-income earners an increase in their income tax offset.

Regressive

The government claims the tax cuts are progressive, saying that the rich would pay more tax than those on low to middle incomes. They might, depending just how high their incomes are, but that does not make a tax system progressive.

A progressive tax system is one where those on higher incomes pay tax at a higher rate in the dollar. The flatter the tax system, the more regressive it is. It cannot get much flatter than 94 percent of tax payers (the government’s figures) paying at the same marginal rate of 30 percent on taxable income over $45,000!

The Goods and Services Tax (GST), which is paid on most goods and services, is a highly regressive tax. Not only is it a flat tax, but those on lower incomes are more likely to spend a higher proportion of their income on goods and services that carry the 10 percent tax.

The wealthy on the other hand have a large proportion of discretionary income which can be spent on overseas travel, investments that do not carry GST, etc. Hence the GST is so regressive that in effect those on low incomes pay a higher proportion of their income on that tax.

Corporate subsidy

The government is also trying to deceive workers by claiming that these tax cuts will increase the wages of low and middle-income workers. By no stretch of the imagination can these tax cuts be called a wage rise.

They are not wages paid by an employer. Australian workers need a substantial wage rise now. This should come from employers. Tax cuts act as a corporate subsidy, letting employers off the hook when workers should be given a wage rise.

People pay the government taxes so that the government can provide services and run the country and they are all too willing to do so if it means better public hospitals, better public education, transport, housing and other services.

The government needs the income to provide services. That includes paying pensioners, carers, the unemployed, people with a disability and others in need so that they can live in dignity.

The economy is in a precarious position, interest rates are at record lows, unemployment, underemployment and precarious employment remain high despite what the government says.

Locking in future whopping tax cuts for the wealthy will not provide the economic stimulus that the Reserve Bank of Australia is calling for now. Australia is sliding head-long into recession, with a deep crisis on the horizon unless action is taken now to stimulate the economy.

The best way of doing that is to give those who will spend the money a wage rise or increase in their social security payment, not by tax cuts in five years time that are skewed towards the wealthy.

Progressive tax system

Australia needs a progressive tax system, one that is fair and raises adequate income for society’s needs.

The system of marginal rates has since the time of the Keating Labor government been gradually eroded. As a consequence it has lost a great deal of its former progressive nature. This latest round of cuts will do even more damage.

The system needs a complete revamp where individuals on higher incomes pay considerably higher marginal rates. The tax-free threshold needs to be increased.

At the same time serious action is required to end the tax rorts that wealthy Australians use to hoard their millions or billions in offshore tax havens. Likewise it is time the government got serious about pinning down corporate tax cheats.

A progressive tax system should not be considered in isolation, but take into account the income needed and how it is spent. For example, the billions of dollars spent on fossil fuel subsidies, on war preparations, on subsidising private hospitals should be diverted to socially beneficial uses.

Next article – Editorial – China in the world

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