A rose by any other name …

Most of the discussion of the Abbott government’s recently announced revenue raising measure has focused on semantics: is there a meaningful difference between a levy and a tax, has the government broken its promises and so on. All of this is boringly predictable. The last government to treat its election promises as binding obligations was Whitlam’s. Perhaps Rudd would have kept his promises if it weren’t for the GFC (I don’t think he broke many before that), but with that exception we’ve got used to the various theatrical devices associated with ditching promises: Black Holes, debt crises, Commissions of Audit and so on. The reaction of Bill Shorten and the Labor Opposition is equally predictable. The job of the Opposition is to oppose, and in particular to excoriate the government for breaking any promise, no matter how ill advised.

On the other hand, I’m disappointed that the Greens have taken the same line. Their job, in my view, is to use their leverage to promote sustainable social democratic policies, and to oppose regressive market liberal and environmentally destructive policies, regardless of source. So, for example, they were sensible to wave through Hockey’s abolition of the debt ceiling, even though it involved breaking a silly promise. They can’t stop the government breaking lots of promises on the expenditure side, so they should try and achieve balance by supporting sensible proposals to raise additional revenue.

The case in favor of an increase in taxes for higher income earners[1] is obvious. The big cuts promised by Howard in the leadup to the 2007 election, and largely matched by Rudd were unaffordable at the time and became even more so when the GFC led to slower growth in real and nominal incomes and therefore to less of the bracket creep that normally pays for such cuts. Along with Costello’s massive handouts to “self-funded” (but publicly subsidised) retirees the previous year, these cuts are the main reason it has been so hard to achieve a return to surplus after the GFC stimulus was wound back under the Labor government.

So, it makes sense to increase the rate, and to keep it high until bracket creep finally works its magic and restores the revenue raising capacity of the income tax to something like its pre-2007 level. I haven’t done the numbers but it seems as if four more years ought to do it. So, a temporary increase that can be called a levy makes sense. And, if everything else is held constant, an increase in revenue translates one-for-one into a reduction in debt.

Summing up, if Abbott wants to increase income tax on high earners, I’ll support him. And, if he wants to call this policy a “debt reduction levy”, I don’t have a problem with that.

fn1. Doubtless, we’ll get objections that taxpayers on $80 000 a year aren’t really high income earners, although the median wage for full time workers is around $60 000. But the extra tax payable by someone on $80 000 is precisely zero: the levy is only payable on income in excess of that level. Even at $180k, the levy is only $2000/year or about $40/week – a small fraction of the discretionary spending of most people earning this kind of income.

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