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November 06, 2005
Continuing economic growth since 1996 has meant that losers from the previous round of economic reforms under the Hawk/Keating Labour Government have gradually been bought into the workforce. Costello and Howard have ensured Australia's continuing prosperity in a competitive world.
The image below is a tough one, and maybe unfair, given the way the Australian economy has continued to boom on John Howard's watch.
John Spooner, Honest John Economy Reconstructions, Pen & ink & watercolour
However, the cartoon is right in another respect. Australia is on the edge of a new era in industrial relations with the new round of economic reforms marked by the IR legislation [The Workplace Relations Amendment (Work Choices) Bill 2005] to create more competitive wage structures for low income workers. This by itself, is not sufficient to ensure continuing prosperity.The linkages to social welfare and the tax system need to be taken into account if the reform is to be fair--fairness here is not just a question of protecting the minimuim wage as the ALP claims of ensuring the unemployed get any kind of jiob as the PM claims.
If the outcome predicted by the ACTU and Labor Party---an increase in poverty and reduction in the living standards of the low paid---is not to eventuate, then the IR reforms need to be linked to changes in the social welfare and the tax system to provide the extra skills and participation in the economy. The reason for this is that way things stand at the moment low income families face very high effective marginal tax rates as they shift from welfare to work.
It is recognized by the Howard Government that the primary mechanism of social protection is the tax transfer system rather than the wages system. The Government argues that the use of social security benefits will discipline and encourage peole back to work, whilst the additional training programs would increase workforce participation and and help fill the skills gap.
But the Howard Government has done nothing to lessen the very high effective marginal tax rates encountered by low income families as they make the shift from welfare to work. And it has given little indication that it will do so in the future as a part of its tax reform agenda.
Malcolm Turnbull is aware of the problem and discussed it in his tax proposal paper.
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The high taxation that is faced at low income is a real problem, and IMO the worst aspect of our tax system. They are tax brackets which are designed for creep to extract as much money from the middle income earners as possible.
It would be interesting if the GST was left as a federal tax, and the federal government's ability to tax income was removed (which is a possibility if the states grew some balls). Then the states could compete on income tax policy and we might see some genuinely progressive thinking and policy on this issue.
Unfortunately Howard has increased the state, and the amount of wealth it extracts from the people.