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April 20, 2006

Reading the Australian Financial Review on the early morning plane to Canberra this morning was a bit of shock. One headline was about 30,000 jobs going as manufacturing moves off shore in the next 12 months. Currently 15% of Australian manufacturing is sourced from overseas, and that will rise to 25% over the next five years. That shift overseas is the response to the competitiive pressures frrom China. Australia hasn't even signed a free trade agreement with China yet. The jobs are low skilled ones.

Another AFR story was about the Howard Government saying no to tax reform and yes to minor adjustments of personal tax thresholds to deliver tax cuts. It will continue to increase the family benefit system (more welfare) to families with children by reducing the rate at which benefits are withdrawn. The Howard Government is saying no to increasing the $6000 tax free threshold for all taxpayers earning $10,000 or less; or reducing the rate at which benefits are withdrawn; or indexing the thresholds. So another hit for the low skilled as the Government starts to use the budget surplus to buy its next election.

And, buried in another report about increasing petrol costs, was the OECD's judgement that Australia's economic growth would be in the 2.9--- 3.2% band over the next two years, compared to the 4.7--4.9% band for the world economy. Presumably that lower growth rate for Australia is with a resources boom in WA, Queensland and the Northern Territory factored in. Australia's growth for the past 2 years has been under 3% and there's a global recession on the 3-5 year horizon.

And the Howard Government continues to pride itself on being good economic managers on those results? And I haven't even mentioned the current account deficit.

| Posted by Gary Sauer-Thompson at 11:11 AM | | Comments (2)


It's interesting how conservative govt's around the world are using tax breaks and welfare to shape social policy. Stephan Harper's Govt in Canada plans to dole out $1200 per child under 6, with the payments skewed towards two parent, one-income families. Apparently it would pay different amounts to different types of families with the same income.
We're all aware of the present Aust Govt's dissatisfaction with the number of sole parent families (particularly single mothers). Critical of welfare dependency, yet as the same time unwilling to use Govt funds to make child care affordable for single parents in lower income groups so they can take up employment and/or study. In my opinion the Govt's view of the ideal family is two parent, one income (mum at home raising kids until school age), the ideal 1950's family unit. Many of their tax policies are directed to this particular group, which in Australia, happens to be predominantly middle class.

I agree with completely with your account of the FTB (family tax benefit). The politics of it is that it is a cheap way to deliver benefits to a key group of voters.

Brian Toohey in Weekend Australian Financial Review observes:

Next year, a typical two-child family(with one spouse on average earnings and the other on a third as much) will effectively pay no net tax on the first $47,891 of what they earn, once account is taken of FTB.

Toohey argues that the tax reform being looked at is not big tax cuts to marginal rates, but to increase the $37,500 threshold on family income before the maximium rate of the main benefit (FTB A) starts to be withdrawn.

He suggests a $75 000 threshold is being looked at, costing around $3.8 billion.This means that hundreds of families would be almost $100 a week better off, leave room for modest tax cuts to the top rates, whilst maintaining an acceptable budget surplus.