The Guardian • Issue #2085

Labor’s tax con

  • by Anna Pha
  • The Guardian
  • Issue #2085

Photo: Timothy Krause – flickr.com (CC BY 2.0).

Feeling the heat from millions of Australians suffering a cost-of-living crisis and pressure from within Labor caucus, the Albanese government has succumbed by announcing some tinkering with the previously legislated Stage 3 tax cuts. Labor’s amended Stage 3 cuts, if passed by Parliament, will only scratch the surface of addressing people’s needs, with those on the lowest incomes not gaining any benefit.

The Stage 3 cuts are the third in a series introduced by the former Coalition government in 2018 and 2019. If implemented they would have cost the government an estimated $320 billion in lost revenue over the first 10 years and an estimated $21 billion in foregone revenue in 2024-25.

Incomes have not kept up with rising costs of food, energy, mortgages, rent, transport, education, and other essentials. The ‘relief’ offered by Labor’s Stage 3 tax cuts fails to address these issues and will still leave workers with a less equitable tax system.

REGRESSIVE

Over the past 4 decades successive governments have gradually made the taxation system more regressive by flattening marginal rates, and introducing the Goods and Services Tax (GST) which has shifted the burden of taxation onto workers and others on lower incomes.

A progressive tax scale is one where those on higher incomes carry higher marginal rates.

Corporations don’t pay GST. The taxation system is used against workers, with wage and salary earners paying the lion’s share of direct and indirect taxes. There has been a marked relative decline in taxes paid out of company profits.

Close to 80 per cent of the tax cuts are forecast to benefit the top 20 per cent of Australia’s income earners, leaving those earning less than $40,000 no discernible benefits.

For example, a full-time worker on the current minimum wage of $45,906 per annum ($882.80 per week) will receive a miserly tax cut of $826.65 per annum ($15.90 a week). This cut is only $804 higher than the Coalition’s.

Someone with a taxable income of  $200,000 or more stands to gain $4546 from the cuts.

Labor’s cuts cost an estimated $28 billion less than the Coalition’s would have. This still leaves a massive shortfall in revenue for a government pursuing a rapidly expanding military budget at the same time as attempting to balance its budgets. Tax cuts mean loss of income. They have the same impact on a budget as increased spending.

Something has to give. Tax cuts for the rich, billions of dollars on nuclear submarines and missiles, and rising subsidies for fossil fuels can only mean less money for health, education, the NDIS, social security payment, and community services.

That’s not to mention an estimated $57 billion increase in interest repayments, with the increase in government debt resulting from the tax cuts if expenses stay the same.

HIDDEN TAX RISE

One issue receiving little attention is the abolition of the low-and-middle income tax offset (LMTIO). This tax offset of up to $1,500 depending on taxable income was abolished at the end of June 2022. The net result is that many workers are worse off and will continue to be out of pocket under Labor’s (or the Coalition’s) Stage 3 cuts.

Someone with an income of $45,000 has lost an offset of $1275 but will only receive a tax cut from Labor of $804, leaving them $471 worse off!

The full $1500 was wiped on a taxable income of $50,000. Labor’s tax cut for that income is $929, leaving those workers $571 worse off.

MISS OUT

“[T]his revised package does not yet help people on the lowest incomes facing the most severe crisis: people whose incomes are below the tax threshold and pay no income tax,” Australian Council of Social Services CEO Cassandra Goldie said following the release of Labor’s tax cuts.

“It also is yet to address our revenue challenge, which remains. Australia is already the 9th lowest taxed amongst 40 OECD countries.

“People receiving income support payments are worst affected by the cost-of-living crisis.

“Right now, we’re hearing about people sleeping in tents, regularly skipping meals and going without essential medication. Last week, I spoke to a woman who has saved money to buy camping equipment because she is facing imminent homelessness. She will see no benefit from tax cuts, and faces losing her home.

“JobSeeker and related payments must be urgently raised and without further delay. Our unemployment payment is just $54 per day, or $19,000 per year. The government must not leave behind the people already in poverty.

“It is wrong for one of the world’s wealthiest nations to continue condemning people on low incomes to poverty,” Goldie said.

WHAT LABOR SHOULD DO

The Turnbull coalition government’s Stage 3 tax cuts should be abolished. Instead, there should be an extensive overhaul of the system to make it more progressive with much higher rates for those on higher incomes, far above the current 45 per cent.

The present tax-free threshold of $18,200 has been in place since 2012-13 – just over 10 years. This must be increased as it affects part-time, gig and casual workers – usually most highly exploited – who do not gain a single cent from the Stage 3 tax cuts.

All social security payments should be increased to at least the poverty line. It is criminal that Labor continues with the punitively low unemployment, Austudy, and other social security payments. These increases could be funded by abolishing the tax cuts on higher incomes, fossil fuel subsidies, and by slashing military spending.

Tax taxation is a class question. It is about the distribution of wealth produced by workers and should serve the interests of workers.


Marginal tax rates explained

Marginal tax rates refer to the percentage rate of tax you pay on different portions of your taxable income. For example, the current tax rate on income on or below $18,200 is zero. Nobody pays tax on their first $18,200 of income, no matter how much more they make on top of that. The tax rate on income between $18,200 and $45,000 is 19% or 19 cents for every dollar in that tax bracket. Someone with a taxable income of more $200,000 would pay 45 cents in the dollar on their income over $200,000 and also the tax on tax brackets below that level. They receive the tax cuts of workers on lower incomes.

Taxable income

Marginal tax rate

Current

0-18,200

0.0%

18,200+

19%

45,000+

32.5%

120,000+

37%

180,000+

45%

Coalition Stage 3

0-18,200

0.0%

18,200+

19%

45,000+

30%

200,000+

45%

Labor Stage 3

0-18,200

0.0%

18,200+

16%

45,000+

30%

135,000+

37%

190,000+

45%

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