With Australian electioneering well underway, and smearing much in evidence, Kenneth Davidson, writing in The Age, reveals that that Coalition promise of $34 million in tax cuts is no cut at all:
"John Howard's $34 billion tax cut is neither a fistful of dollars nor tax reform. It is a chimera designed to give back to wage earners the growth in the tax burden as wages rise with inflation, pushing workers into higher tax brackets.
Malcolm Fraser introduced income tax indexation in 1976 to impose discipline and honesty on government financial management.
The automatic indexation of income tax scales in line with inflation was taken for granted by taxpayers. It was quickly abandoned so that the Fraser (and subsequent) governments could get the credit for tax cuts legislated in parliament in a blaze of publicity.
But nobody has tried this old ploy on the scale of the Howard Government, apparently building the strategy for the six-week election campaign around it. Nevertheless, if the headlines are any guide, the media have taken the bait. They all stressed the total $34 billion tax cut. It looks huge — because it aggregates four years' worth of cuts.
Canberra economist Ian McAuley has crunched the Coalition's tax cuts in real and nominal terms, based on Treasury's inflation rate assumption of 2.75 per cent for 2007-08 for the four-year period.
The figures — online at the Centre for Policy Development website — show that the
so-called tax cuts of $34 billion are about equal to the cost of full tax indexation over the period.
In other words, if wages don't keep pace with inflation or if inflation moves above the upper band of 3 per cent set by the Reserve Bank to manage monetary policy, wage earners' real disposable incomes could fall despite the nominal tax cuts."
"John Howard's $34 billion tax cut is neither a fistful of dollars nor tax reform. It is a chimera designed to give back to wage earners the growth in the tax burden as wages rise with inflation, pushing workers into higher tax brackets.
Malcolm Fraser introduced income tax indexation in 1976 to impose discipline and honesty on government financial management.
The automatic indexation of income tax scales in line with inflation was taken for granted by taxpayers. It was quickly abandoned so that the Fraser (and subsequent) governments could get the credit for tax cuts legislated in parliament in a blaze of publicity.
But nobody has tried this old ploy on the scale of the Howard Government, apparently building the strategy for the six-week election campaign around it. Nevertheless, if the headlines are any guide, the media have taken the bait. They all stressed the total $34 billion tax cut. It looks huge — because it aggregates four years' worth of cuts.
Canberra economist Ian McAuley has crunched the Coalition's tax cuts in real and nominal terms, based on Treasury's inflation rate assumption of 2.75 per cent for 2007-08 for the four-year period.
The figures — online at the Centre for Policy Development website — show that the
so-called tax cuts of $34 billion are about equal to the cost of full tax indexation over the period.
In other words, if wages don't keep pace with inflation or if inflation moves above the upper band of 3 per cent set by the Reserve Bank to manage monetary policy, wage earners' real disposable incomes could fall despite the nominal tax cuts."
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