There's a new cultural war – and it's targeting progressive tax rates
Often when we hear talk of cultural wars, it’s about political correctness and a desire to glorify some skewed vision of western civilisation. But the real war to change our culture and society is being waged on the economic front – especially on the issue of taxation. And the result of the current debate over the government’s income tax plan could fundamentally alter the way our society operates.
Pretty much all you need to know about our economy at the moment is that in the past 12 months, Australia’s GDP has grown by 3.1% in real terms – the best growth for nearly two years; at the same time, the average compensation per employee has grown at a slower rate than inflation.
Wages growth has been putrid for so long now that previous recordlow growth levels are considered an improvement, and any previous normal growth is decried as extreme.
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This week, the national minimum wage was raised by 3.5% – a figure that the budget predicts will be the average for all workers from 2020-21. And yet the announcement was met with cries of horror from business groups – the Australian Industry Group’s chief executive, Innes Willox, suggested it had the potential “to be a major disincentive to employment”.
It was a nice reminder that the chief feature of the past seven years – household income at best flat and according to some measures, falling – is one that business groups and the government are very happy to continue.
And how do you maintain that? One way is to ensure labour has little power to bargain for better outcomes.
This week, the ABS reported that in the first three months of the year there were fewer strikes than had occurred in any three-month period in our history. Just 18 industrial disputes began and only 23 took place during the March quarter – breaking the records set in the first quarter under WorkChoices back in June 2006.
Going on strike now involves such an inordinately complex regulatory process as to make it out of bounds for most workers. Redtape hating conservative governments oddly love regulations that restrict the ability of workers to organise and attempt to get getter pay.
On this score, the conservatives have largely won their cultural war – nearly four decades of vilifying unions and legislating to weaken them has left a situation where the ability to collectively bargain has been neutered and real wages growth is seen as an extravagance.
The next battle is on tax where the government is doing its best to destroy the social contract that has bound us since the second world war.
The attack on progressive taxation was put forward with the most delightful stupidity by the Institute for Public Affairs this week.
In its submission to the Senate economic committee’s review of the personal income tax plan, it argued that progressive taxation “discriminates against Australians by income. Other forms of discrimination, such as by skin colour, race, or ethnicity, are rightly abhorred, yet the income tax system openly discriminates against people by income”.
Yes, discriminated high-income earners. Someone should organise a telethon.
Malcolm Turnbull may not put forward his views in such an idiotic manner, but his views are certainly in concert with the IPA.
This week, he boasted that should his government’s tax plan to remove the 37% tax bracket go through, it would result in people earning between $41,000 and $200,000 paying the same tax rate of 32.5%. And while his own government’s figures show this move will benefit only those earning above $120,000, he continues to falsely suggest that the policy is about combating bracket creep.
We know it is false because his own suggestion of what bracket creep is betrays his real target.
He asked in his news conference: “how many times have we heard over the years – people say bracket creep is a real disincentive for people getting ahead? For getting another job, for taking a promotion, for working overtime?”
Firstly, the answer is no one has ever said that – at least not anyone who understands how income tax works – and secondly what our prime minister is describing is not bracket creep, but progressive taxation.
Bracket creep is when you work in the same job and get a pay rise that moves you into a higher marginal tax bracket – or even if you stay in the same tax bracket but your average rate of taxation goes up.
What Turnbull is decrying is a world where people on higher paying jobs face a higher level of taxation.
Bracket creep is mostly an issue at the bottom end of the income scale and the real disincentive to work is not moving into a higher tax bracket but the drawdown of government benefits as a result of earning a higher amount, and such things as HECS/HELP and the Medicare levy.
None of this is addressed by getting rid of the 37% tax bracket.
What it does do is give a tax cut to those earning more than $120,000; it also reduces the overall amount of revenue.
The Parliamentary Budget Office calculated this week that the removal of the 37% tax bracket and increasing the top tax threshold from $180,000 to $200,000 would cost an average of $8.3bn a year from 2024-25 to 2028-29.
Throw in the cost of the company tax cuts, and we’re talking about massive cuts in government spending to pay for them. But this is not a nasty side effect – it is an intrinsic part of the plan – less tax paid by the rich, and less money spent on public services and benefits.
This is the real cultural war – and because of the virtual impossibility of rescinding tax cuts once legislated, losing the battle over tax may mean losing the war.
The attack on progressive taxation was put forward with the most delightful stupidity by the Institute for Public Affairs this week