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Budget--ooops tax cuts « Previous | |Next »
October 15, 2007

The Federal Government has offered $34 billion in tax cuts as part of a five-year plan, throwing down the gauntlet on tax policy on day one of the election campaign.Howard and Costello chose the first day of the election campaign to release early the mid-year budget review and said the money to cover the cuts would come from significantly improved growth forecasts and employment growth.

A fist-full of tax dollars is an opening shot in the election and a significant shift in their 'go for growth' brand that has previously relied on porkbarrelling in Tasmania and elsewhere. Politically, it has got the jump on Labor in a big way. as Rudd hasn’t released a tax policy yet. Howard and Costello must be desperate to get some traction going by attempting to shift and reframe the media narrative forms (annihilation) at the start of the campaign.

Costello released the mid-year budget review today, upgrading growth forecasts and employment growth from previous forecasts, that will generate revenue which will pay for the tax cuts....The 30 per cent threshold will increase from $30,001 to $34,001; and the 40 per cent threshold will increase to $80,001 and the 45 per cent threshold will increase to $180,001, as announced in the 2007-08 Budget.

From 1 July 2009 the effective tax free threshold for low income earners rises to 15,000 and the 30 per cent threshold to $35,001. From 1 July 2010 the 30 per cent threshold will increase to $37,001.

One good aspect is that it encourages the welfare to work shift by reducing their effective tax-free threshold and particularly by lifting the threshold up until which you pay 15 cents in the dollar, is boosting the number of people joining Australia's workforce.

On the other hand, 4.25% growth represents an economy pushing the limits of its capacity. So pouring tax cuts into such an economy must risk the chance of overheating. And overheating means inflation, and inflation means rising interest rates.that's how the Reserve Bank of Australia would see it.

Why not better services or infrastructure to lower taxes? Where's competition reform in energy and water? Or human capital improvements?

| Posted by Gary Sauer-Thompson at 9:44 PM | | Comments (20)


didn't Captain Smirk accuse Howard of buying off the electorate, a while back? So why is he there with Howard doing exactly that? What's happened to his principles? You know the ones about the need to keep a lid on spending and stopping the pork barrel.

Hmm. Re unemployment figures, if the government has to cut the threshold to tempt the 'idle' back into the workforce, must prove this nonsense about unemployment figures being fudged and it being hard for unskilled or older workers to find work is just do-gooder nonsense.
No social infrastructure is a cherished ideological ideal for the Howardists- let the mortgage belt "choose for themselves" instead of having "their" money wasted on "welfare bludgers" and atheist schools that only teach literacy and radical lovethy neighbour socialism stuff.
In other words it's code for the mortgage belt, telling them Howardists will junk the economy itself if necessary, so long as they can negotiate a deal with mortgage belt loyalists themselves. It is corrupt and divisive and works a charm every election. It also fits in with neolib ideology concerning small government and wasteful (state) government health and education which should be privatised.
" Why should I pay the first part of my income to support a bludgers wife in hospital for a miscarriage (say) when mine can't even afford silicon knockers for me to maul when drunk after the cabaret on Saturday Night",
is the usual mean -spirited mortgage-belt thinking that might exemplify this.
Classic wedge and ignores all the rate rises that will come with an overheated economy next year. It was actually a rude smack in the face for Glen Stevens who had obviously signalling caution to the politicians in the poll lead-up: he will now probably have to put rates up, but the government can blame him and the states, whilst presenting themselves as the saviours of the mortgage belt and scourgers of the lax, via tax cuts rerouting money away from what would often be vital infrastructure spending.
Rudd must also get into the auction and he is locked into neolib policy regardless of whether he wants this or not.
Destructive bastards!

The media narrative in The Australian is 'Howard king hits Rudd.' Thus

John Howard has seized the election campaign initiative and caught Kevin Rudd flat-footed by offering a $34 billion election tax sweetener - the biggest in the nation's history...It left Labor on the back foot, with Treasury spokesman Wayne Swan calling for more time to absorb the economic figures, despite Labor having spent the past month demanding Mr Howard bring on the election campaign.

Howard has swept into his stride in the race. Labor has been left standing at the startign line

you would have thought that Costello would want to avoid a situation where increased spending sparked by the Government's tax cuts would put upward pressure on interest rates due to the cuts boosting consumer demand.


It would be a bad move for Labor to release their tax policy in response I think. Better to work out what the cuts amount to in cash for the ubiquitous working families and point out that the cuts won't cover half an hour of childcare. Your tax cuts won't cover your losses under WorkChoices. Howard spent over a hundred million on ads and hands back a measly $2. Stuff like that.

Swan looked suprised, stunned and caught short by the Libs going for growth move. $34 billion in tax cuts knocked Rudd and Gillard's concern about hospitals off the front page . The Magic Pudding provides the cash answer to the Rudd/Swan argument about rising costs of petrol and food and the Coalition having lost touch with working (lower and middle income) families. It's a reponse to Labor's consistent criticism that the Howard/Costello government is one of the highest taxers in the world.

Will this truckload of cash help women escape from behind the picket fence to part time jobs? Will it give employers access to an source of already trained and productive labour?

You are right. Improved child care services is a key here. So will the ALP go for improved services rather than tax cuts?

Your'e right. Promising to add an extra $34billion to consumer spending power at a time when retail spending is increasing faster than it has increased in years, and when inflation is spiralling to or beyond the top of the Reserve Bank's target band, looks pretty risky.

No doubt the the Reserve Bank governor, Glenn Stevens, has his foot hovering just above the brake.He'll use it.

In the past five years, the Treasurer has cut income tax rates five times and the head of the Reserve Bank has pushed up interest rates nine times.

Yes, I agree Gary.
Lyn hit it right on the head. Stale sandwiches and (half a) milkshake, and they think they've won the lottery.
And it points the discussion in the right direction as outlined by Quiggin elsewhere.
That is, that the polls need to jolted for a "bounce" specifically in the mortgage belt, by symbolism-generated electricity employing emotional buttons pushed.
The theory goes that once the poll gap is reduced by the jolt, the closer poll numbers allow a clawback giving Howard a chance again on the basis of momentum generated on a manufactured come back.
Lyn is platinum right in suggesting a restrained response by Labor. They seem to be going that way as it happens, on today's evidence. Surely even a creature with brains the size of a chook's ought to be able to work out Howard's latest tactic and the flaws in the policy employed for it?
Besides, it gives the public time to digest Howard's gaffe with Grimshaw on network teev last night, involving interest rates.

Tax cuts? I'm so poor I don't get a cent.
Of course it could be worse - if these future cuts cause inflationary pressure my cost of living could go up.
What I want is the Commonwealth to commit significant additional funding to public health and dental services for starters and put more dollars into climate change mitigation/adaptation.

I read Sinclair Davidson and Alex Robson's "'Libs' election bonanza is also good policy" in The Australian. They say the tax cuts make good political sense since:

taxpayers will be better off because they will get to keep more of their own money instead of sending it to Canberra...good economic management -- cutting taxes -- allows individuals to pursue their own vision, instead of government imposing its single utopian vision on all of us...Voters want to choose how they spend their money rather than have some distant Canberra bureaucrat spending it.

I thought that polls showed that people want better services--childdcare, education, health.

re your comment

What I want is the Commonwealth to commit significant additional funding to public health and dental services for starters and put more dollars into climate change mitigation/adaptation.

You along with a lot of other people I reckon.

You are to choose though. You can choose to flash the plastic before next July when the extra $20 a week (for those earning $35,000-$50,000 a year) starts swelling your bank account. That would give you a solid sense of living the good times in a prosperous economy.

In their op-ed in The Australian entitled 'Libs' election bonanza is also good policy' your favourite economists Sinclair Davidson and Alex Robson argue that:

Under the Coalition's proposals, everyone will face lower marginal tax rates, including low-income earners. This should go some way towards facilitating greater movement from welfare to work. Indeed, the clear objective is to increase economic participation. Here, the policy is likely to succeed. .

They say that you may think that trying to improve incentives and further reduce unemployment would receive widespread support. But in Australia the politics of cutting taxes is the art of the impossible:
We should not be surprised if the mother of all negative fear campaigns swings into action to vilify these modest, sensible changes. Indeed, it has already begun, with claims that the tax cuts will apparently heat up an already over-extended economy causing inflation to rise.

They add that the welfare lobby's well-worn argument, that tax cuts are unfair because they favour the rich over the poor, confuses government spending with tax cuts. That they cannot tell the difference between being given a dollar by the government and the government not taking a dollar from a taxpayer tells you all you need to know about them: they will always have an excuse not to cut taxes.

I C you remember a previous posting of mine concerning Sinkers.
Nan's post was excellent in getting at the false dichotomy that these now-ancient theories premise their conclusions upon . Of major media in Australia, only the OZ would still have the front to peddle this rubbish. And after Monday night's Media Watch, any tendency to suspend scepticism concerning that crew would be tantamount to suicidal.
Back to Sinkers and Nan.
How is an individual's social vison necessarily any better than a parliaments, we could alternately ask. Let alone how a socially-concened individualmight deal with the mechanics of the system in trying to ensure that the money they want to pay does in fact go to education, health etc.
Am being facetious; know what Sinkers and co are on about re conspicuous consumption/consumer fetishism and the politics of excess in a world of much poverty. They should get off whatever white powder they are damaging their nostrils with.
My patience with these imbecilic people vanished eons ago..

Rudd + Co need to hold their nerve. It's not clear yet whether the big tax cuts into the future are a circuit breaker that will change the campaign's dynamics.

Their response--my advice if I were a top gun Labor strategist with an eagle eye, a crumbled suit and scruffy hair---would be to build on what they have been going on about these last five years.

Swan has pointed out the pressing social equity need to make changes at the bottom of the tax system in order to both entice people back into the work, and to remove disincentives for part-time working women wanting to work more.

Why not agree with that bit.Improve it.

But then I'm not a top gun Labor strategist with an eagle eye, a crumbled suit and scruffy hair.

you are right. Its hard to see how Rudd can avoid saying "me too" in response to a large slab of the Coalition's tax plan released this week.

For years shadow treasurer Wayne Swan has been advocating more work incentives for lower income earners who often lose half or more of any extra money they make when the withdrawal of family benefits is added to taxes.

They cannot disown or ignore this. They would have little credibility with the battlers.

one of the risks Rudd faces in taking your excellent advice is that voters may conclude that he is Howard-lite and nothing more and decide that is not a good enough reason to vote the Government out. So the Coalition has set Labor a political trap. Hence the Rudd is bushwacked argument currently being advanced by the Coalition media machine.

You can add to your advice as an eagle eyed top gun ALP advisor. You could say that while Labor should support the tax cuts for low-income earners, that still leaves scope for some different policies eg., those that people want--such as better health and childcare services.

You are right. Labor has higher priorities than giving higher-income earners yet more tax relief.

It should use the savings to give larger cuts further down the income scale, both on grounds of fairness and because they would encourage more people into work.

It has other options as well: it could allocate the money earmarked for higher-income earners tax relief to its own priorities, such as education and health.

Peter S
Labor argues that increasing education and skills levels is a high national priority and that the government should be driving it. It says that:

1. Australia has one of the lowest secondary school completion rates in the developed world.

2. An OECD report found that Australia spent 0.1 per cent of GDP on early childhood education, compared with the OECD average of 0.5 per cent.

Labor already has announced it will spend $450 million to give every four-year-old access to 15 hours a week of preschool. So why announce additional programs for early childhood education?

Why not puthe money where its mouth is? Wouldn't increased money for secondary and early childhood education produce a lasting dividend from the present surge of national wealth than yet another round of tax cuts for higher-income earners?

The arrival of the Age's Kenneth Davidson's 18/10 article,
" Howard's tax cuts are not tax cuts at all",
is fortuitous.
It offers the best summary so far of the election campaign.
He observes the "smoke and mirrors" of the so-called tax cuts which are actually only revenue neutral bracket creep adjustment and reckons Labor, if it can get past its infantile ideological problem with the Greens, will overcome this, provided Rudd's leadership is up to scratch.

the Coalition's proposed $34 billion tax cuts appear to be a radical new policy initiative. But, once inflation is taken into account, they are quite modest. It’s doubtful whether those on low incomes will have the bargaining power to keep their incomes abreast of inflation — a loss of bargaining power which is one of the consequences of WorkChoices.