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December 17, 2005
So Australia's forecast budget surplus continues to increase (up by $2.6 billion ) to $11.5 billion for 2005-6. and yet Peter Costello, the Treasuer, continues to talk about government savings, keeping spending to a minimum and even shaving spending.
Nicholson has it dead right---Costello increasingly looks to be under seige.
 So he should be underseige. The Howard Government has been sitting on its hands on tax since it won its GST reform in 2000. The tax cuts in recent budgets have done little more than hand back bracket creep, and then only for the 42 per cent and 46 per cent tax brackets.
With all that money slothing around the government's coffers you can understand why people are pushing for genuine tax reform to reduce tax rates at the top and lower end.
Malcolm Turnbull is right: Australia can afford to tackle real tax reform. The tax cuts in recent budgets have done little more than hand back bracket creep, and then only for the 42 per cent and 46 per cent tax brackets.
How can those wringing their hands about the internationally uncompetitive 48.5 personal marginal rates of tax and forget about those shifting from welfare -to-work face 50-70 marginal tax rates? How is that an incentive to work? If there is to be tax reform in the 2006 budget then it needs to be fair.
The Treasurer's message is that the focus should be on containing government expenses so that funds left over can be returned in tax cuts. The crunch is on the Treasurer to show what sort of tax reformer he is. Will he continue to tinker with the marginal tax rates, or will he make a start on substantive tax reform.
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Your comment about the lack of focus on the welfare to work transition and the high effective tax rates applying in those income ranges is spot on. However, like every commentator I've read on this, you underestimate the EMTRs involved. 50-70% is only the withdrawal of the dole. There is also tax and medicare to contend with. Single income couples with children have quite a long income range where the EMTR is 104%. That's a tad worse than 50-70%, eh?