Posts Tagged ‘income tax’

MegaGeorge points out that the Libs’ advertising appears to be looking further down the road than 24th November. Here is the latest ad he is talking about:

Megalogenis notes that:

What it neglects to mention is the year when this hole is supposed to appear in Labor’s tax scales. It’s five years from now, in 2012-13, according to the material Peter Costello supplied this week.

The message, then, is don’t vote Labor a second time.

Does that mean the Libs think this one is lost and are laying groundwork for the rebuilding process? The alternative is that they think a very abstract scare campaign is going to work – that the electorate will be both willing and able to contemplate how we will stand in relation to tax scales, employment levels, and wage-driven inflation several years down the road. There doesn’t seem to be much sign that it is working, and I can’t imagine it will – the threat is much less direct and the credibility of the Liberal Party less strong than in the 2004 fear-mongering about interest rate rises.

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The counter-announcement

Labor’s tax plan is out. I didn’t get to see the press conference and will have a good look at the detail later, but a couple of quick impressions:

  • The amount is not so far behind the Coalition ($34b vs $31b), so those who aren’t tuned in to the nuance should not be immediately disappointed.
  • They are actually eliminating a tax rate entirely – which means it has a better claim to being legitimate tax reform than Team Howard’s policy.
  • These guys actually seem to take education seriously – a nice change.

This should prevent the polls from being the story du jour, although it also gives Howard a couple of days to study it before the debate.

Obviously, being the first big announcement of the campaign for Labor, this is going to be covered everywhere. For starters, discussion is underway at Larvatus Prodeo and Blogocracy.

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Ken’s post at Road to Surfdom about the tax cuts and the neglect of public services (by the government and in the political discourse) is well worth reading, if you haven’t already. And the picture of Tip is a ripper.

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It’s pro-Howard editorials ahoy! at the GG this morning. From Janet Albrechtsen:

The Prime Minister is undaunted by a presidential campaign. Indeed, on the day the real election campaign began, Howard pinpointed Rudd’s weakness. As he said on Sunday when announcing the November 24 election, love him or loathe him, voters have always known where the PM stands on an issue and what he believes in. During the past decade he has earned himself a reputation as a conviction politician, tackling issues unfazed by the howls of opposition from some quarters. Witness his long-time involvement in the culture wars, his sponsorship of gun controls, the introduction of the GST, Australia’s involvement in the Iraq war, the intervention into indigenous communities in the Northern Territory. Each was pursued because of Howard’s conviction on these issues.

WTF?! The “never ever” GST? And the NT intervention, followed by the reconciliation pseudo-backflip? I’m surprised that she didn’t point out his commitment to climate change. And we’re supposed to like the fact that he has been an unwavering sycophant on Iraq? Apparently, having conviction is more important than being right and open to new ideas.

Then we have academics Sinclair Davidson and Alex Robson (the same authors who recently published a critique of the Australia@Work report in the GG) lauding the Coalition’s “tax reform”:

How should Labor respond to the tax challenge? That Peter Costello appears to have caught the Opposition off-guard reflects poorly on its own tax policy (or lack thereof). If Kevin Rudd really is the economic conservative he claims to be, he will embrace this tax plan and go even further to avoid any possible me-too criticism.

But this will be difficult. The Labor Party platform already includes a proposal to increase the superannuation guarantee by 66per cent (from 9 per cent to 15per cent). That this impost is to be jointly funded by employers, employees and taxpayers is little consolation. It is a tax increase, no matter how you look at it.

A tax increase intended to ensure that retirees have enough super to prevent a greater burden on the welfare system as our population ages? How daft – it sounds like Labor is showing “the vision thing”, which these authors say a government doesn’t need.

Finally, we have the editor-at-large. Larvatus Prodeo already has a spot-on commentary about this one – Kelly’s focus is entirely on how the Team Howard announcements have been received, or indeed is an attempt to shape the narrative of how it has been received. There is no consideration of the fact that these policies actually have societal implications. Here’s my (least) favourite example:

Claims that Howard should have spent the revenue on better services are ludicrous in political terms. Health and education are Labor issues, no matter how much funding Howard provides. Howard and Costello must play to their strength: the economy, tax and jobs. This is the only avenue to their election victory. If they cannot win the election on their strengths then, by definition, they cannot win the election.

So, Howard is entitled to neglect key social issues such as producing the healthiest and best-educated nation he possibly can, because they are “Labor issues”? Possum Comitatus used the Crosby-Textor data to illustrate the way that issues can “belong” to one party or the other, so I can appreciate the political reality of what Kelly is saying here, but that does not mean that the media should give the pollies a free ride on issues. The candidates will try to keep the message on the issues they want to talk about – the voters should be given an opportunity to hear about the good and bad aspects of their policies. Kelly, along with the rest of the GG’s editorial staff, is helping to sell the political message for Team Howard rather than helping to facilitate a substantive consideration of the issues.

UPDATE: Shanahan was up to his usual tricks today, this time spinning the Newspoll analysis of how the parties rate on key issues. Possum Comitatus has shown it for the load of crap that it is with a couple of quick regressions.

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George Megalogenis analyses the detail of the tax cuts:

But don’t buy the Government’s line that this is “tax reform”, because there is yet another shuffle going on.

Single people are, again, seeing some of their bracket creep returned to working families.

The switch can be seen in the number and type of tax cuts on offer yesterday.

The fundamental flaw in the Government’s tax scales remains the 30 per cent rate. It has been cut just once, in 2000.

The Government deploys LITO to ease the tax burden at the lower end of the income ladder, but leaves those singles on a little above average earnings going backwards through bracket creep.

Real reform would involve a step-down in the 30 per cent rate, but Labor can’t afford to do that.

George also states that he “Can’t see how these tax cuts won’t be offset by another interest rate at some point.” He suggests that Labor could say they will wait until the RBA meets next month to see whether they consider the Coalition’s policy inflationary. However, I agree with him that this is a risky proposition – if rates don’t rise, Team Howard can say “we told you so.”

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The Labor Party don’t need to buy into the tax policy debate at all right now. Team Howard is coming under fire without any help from Rudd or Swan:

Some economists are warning sweeping tax cuts announced by the Coalition today will make the Reserve Bank nervous and could push interest rates higher.

Senior economist with HSBC, John Edwards, says the tax cuts would put upward pressure on inflation.

“It certainly means interest rates would be higher than they would otherwise be,” he said.

“I cannot imagine were it not for an election the Treasurer would be contemplating these tax cuts of this order.

Oops. Surely the Vice-Captain has a counter-argument?

But Mr Costello says by lowering tax rates and raising thresholds, Australian’s will be better off and inflation will not be pressured.

“Let me make the point if you’d have spent the money you could have inflationary consequences, but to return it to people and to help them with their bills at a time when they’re facing cost of living pressures, I think is a very responsible thing to do,” he said

But wait a minute. Isn’t it true that working families have never been better off? What’s with these “cost of living pressures”? And so it’s inflationary if the government had spent the money (on health care, schools, universities, telecommunications, social security, etc.), but if ordinary people use it to pay off the interest free finance on their plasma TV it’s fine? Phew.

Can’t somebody else articulate an argument in favour of the tax cuts?

Peter Hendy from the Australian Chamber of Commerce and Industry (ACCI) agrees.

“The fact is that the Australian economy can always easily afford income tax cuts,” he said.

Always? Even under a Rudd Labor, trade union-infested government? Thanks – that means there’s no need to vote for Team Howard.

Meanwhile, Labor does exactly what they need to do:

Opposition treasury spokesman Wayne Swan says Labor will not be outlining its tax plan until he has had time to assess the Coalition’s tax proposal.

Mr Swan says Labor will make a responsible judgement on tax cuts before the election.

“The only responsible course of action here is to study the detail. We’ve said we’ll put out all our policies well before the election and we’ll do that,” he said.

“But in terms of what the Government’s put forward, we will take our time to study the detail. That’s the only responsible and reasonable thing to do.”

So, it’s Team Howard vs the media – and Labor can let them fight it out.

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Is this what Costello was thinking during the tax cut announcement?

The Treasurer also appeared to question the fiscal responsibility of some of the Government’s spending. “I have to foot the bill and that worries me, and then I start thinking about not just footing the bill today but if we keep building in all these things, footing the bill in five and 10 and 15 years, and you know I do worry about the sustainability of all these things.”

Of course not – that’s all in the past. They’re a team now.

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7.5 debrief

Red Kerry talks to Howard, Rudd, and Antony Green.

Howard looked pressured, flustered and bewildered. Didn’t like Kerry’s suggestion that much of the prosperity results from the resources boom, and didn’t handle it well. Suggested that increased state funding of hospitals is the federal government’s doing because of the GST revenue (for which the states gave up many of their own taxes).

Rudd did a solid job – held to the “we’ll put out a plan when we have it right” line, made strong arguments on other issues, and didn’t seem to break a sweat.

Antony Green on state-by-state analysis. I don’t know that I’m a fan of inserting psephological stuff after a couple of high-energy interviews.

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Here we go:

In an attempt to seize the agenda in the first week of the campaign, the government has thrown down the gauntlet to the Labor Party to release their own tax policy.

Treasurer Peter Costello has announced five years of progressive reductions of income tax that will see the current tax system eventually reduced to four tax brackets — 15, 30, 35 and 40 cents in the dollar.

So, what are the catches?

Mr Costello’s plan would extend well into a second term if Mr Costello became prime minister.

Good luck with that – I doubt Costello will either become PM or be re-elected for a second term (or a first full one).

Prime Minister John Howard said the tax plan would involve major restructuring of the income tax system.

Someone needs to look up “restructuring” in the dictionary. This is tinkering with tax scales, not altering the structure of the tax system – he’s thinking of the GST.

So, might all this extra money in our pockets increase spending and put inflationary pressure on the economy?

Mr Howard defended the policy against one reporter’s suggestion that it would work to push up inflation because more cash would be in the economy.

We have an industrial relations system that in fact contains wage pressure,” Mr Howard said.

By allowing employers to withhold real wage increases from employees in sectors where there is a power imbalance.

And what about the timing of this announcement?

Asked about the timing of the tax policy announcement, just one day into the election campaign, Mr Howard said: “The right time to release the tax policy is the time of the release of the mid-year economic review so that we are able to say immediately that these tax cuts are fully funded.”

I suspect the announcement is also intended to try to kickstart the Narrowing – because, after six months of telling us that the polls will become closer as soon as the voters see the reality of the election, Team Howard will look a bit silly and start to see a narrative they won’t like if the next round of polls do not show a few points of movement.

I’d much prefer to see evidence of Team Howard working to fix our hospitals, schools, universities, highways, telecommunications networks, etc. before they start throwing money at us. I’ll also be interested in how this plays when the board of the Reserve Bank meets in November.

Elsewhere, Tim Dunlop has some info and discussion, and Possum Comitatus makes some interesting points about the contrast between the new rhetoric and the old actions of Team Howard – the thread at Possum’s place also discusses the question of how quickly (or slowly) Labor should respond on tax policy.

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