On Tic-Tax Toe: It's Nought In Crosses

by Andrew Fraser - Canberra Times

House of Representatives attendants started handing out booklets of Treasurer Peter Costello's Budget speech in the chamber at 7.58pm on Tuesday night.

By that time, the Treasurer had just embarked on Page 10 of his 11-and-a-bit page speech.

He had just gone through the outline of the almost $22 billion of tax cuts over four years.

Many Labor MPs quickly turned to Page 9 to check the magnitude of what they had just heard.

Coalition MPs were equally keen to get their hands on the booklet, but more by way of being able to flourish the document about which they were so heartily and frequently hear-hearing.

As the attendant approached, booklet outstretched, one MP waved the literature away, shaking his head.

Prime Minister John Howard knew all he needed to know about this Budget. Or should I say this popularity contest?

Liberal leadership speculation has cast a long shadow over this Budget, since Howard's "Athens declaration" that he might well feel disposed to stay on and fight and defeat Labor's Kim Beazley a third time, thereby squashing Costello's prime ministerial aspirations - unless the Treasurer had the bottle to mount a challenge.

Was it Costello's 10th Budget, or Howard's 16th, as cheekily suggested.

Just when did the tax cuts get written in? And at whose instigation? Costello's or Howard's?

Why were we having them at all, given we're just coming out of an election, not going into one?

It was all about leadership, the players themselves and us in the complicit media seeking, as ever, to make everything about personality.

Beazley promised immediately to block the tax cuts, and then came out on Thursday night with a set of his own.

Both sides are playing populist tax alteration, not tax reform.

For something as substantial as that, you'll need a parliamentarian, not a politician.

Out of 226 members and senators, there aren't too many of them.

Andrew Murray heads the very short list.

In one simple explanation, the Democrat spokesman on taxation (and eight other portfolios) unveiled this week a Budget strategy that really lifts low-income earners without adversely affecting business, and it provides for the years ahead, with physical things as well as future funds.

It invests in infrastructure, with plans to the business-suggested level of $25billion over time from a government well in surplus itself investing in rail, especially, then ports and telecommunications, rather than expecting the private sector to do it, and simultaneously constraining state governments from doing it.

The Murray plan invests in education and training.

While agreeing with the aim of the Costello welfare-to-work reforms, Murray says the Treasurer has not provided enough mechanisms to get people happily back into the workforce.

And Murray's tax plans are at once clear and courageous.

They go something like this:

"Income tax needs to be clearly understandable to the community ... you're far better off with a system where people get to keep as much of their income as possible ... You need to get as many people out of the income-tax system who shouldn't be in it," he said.

Raising the tax-free threshold was the major step, to about $10,000 initially (it is presently $6000).

Many part-time and casual workers should not be paying tax at all. No-one below the poverty line, of $12,500, should be paying tax. Large numbers of low-paid people would still be needed "to be able to compete effectively domestically and internationally".

"But what you've got to do is raise their disposable income so if, for instance, you aimed at a $20,000 tax- free threshold, the effect of that would be to take away $2400 worth of tax, because the average tax someone pays on $20,000 is 12 per cent," Murray said. "You put $2400 more in their pockets ... so you can raise their living standards but still keep a low-paid sector."

The minimum wage was still required, but the serious problems in its delivery could be assuaged via the tax overhaul. The present ACTU minimum-wage claim, for $26.50 a week, would cost employers between $33 and $35. That was expensive. Yet, in the hands of workers, it would be worth only $11 to $13. Something which costs $35 benefits the employee by $11 or $13!" Murray said.

"It's so much better to achieve the disposable-income increase, which is a raise in living standards per person, through the tax system than through the minimum-wage system."

After lifting the tax-free threshold, Murray proposed indexation of the tax rates, and made a sharp contrast to Costello, who hailed his Budget's top-rate threshold increase to $125,000 as almost double what it would have been if indexed - adjusted in line with inflation - when the Government came to power in 1996. But that's only half the story.

"If the $6000 new tax-free threshold in 2000 had been indexed, it would now be well over $7000," Murray said.

The bottom rate should be indexed first, and then, after wiping out tax concessions, "welfare for the wealthy", the top rate could and should be indexed, too.

"The problem with the Government is they've got it around the wrong way," he said.

"First of all, you've got to benefit the low-income people permanently, because that's what indexing does, then you sort out the top rate."

This was structural reform.

"Regardless of the size of what the Treasurer's put in, it is an adjustment process. It is not locked in as a structural mechanism."

It's a great idea, but no-one will ever vote for it - because they won't hear about it, as we in the contest-crazy media haven't got time to give policy any prominence.

Not when there's a war on.


Andrew Fraser is The Canberra Times political correspondent