L-A-W

I’ve stopped doing instant reactions on Budgets. There’s always plenty available now, at places like Inside Story, as well as in the newspapers.

But there’s often something of interest that gets overlooked a bit. In this case, it’s the government’s proposal to legislate tax cuts for the rich seven years in advance. This is an idea with a lengthy and inglorious history, taken to a new extreme.

As far as I know, the first government to legislate future tax cuts was that of Paul Keating, who proudly proclaimed, before the 1993 election, that his tax cuts were not mere promises, but L-A-W. Sadly, he ran into difficulties and the L-A-W had to be amended to take some of the tax cuts back.

The next instance was that of John Howard and Peter Costello, in the 2007 Budget, which promised three years of tax cuts with an aspiration for two more. Kevin Rudd matched most of this and carried through, unwisely in my view, given that the exigencies of the GFC forced him to break other promises. The lavishness of the Howard-Costello tax cuts and the near-stagnation in nominal incomes since then explain why we haven’t had any significant tax cuts since – the bracket creep that Howard and Costello counted on never happened.

The Morrison-Turnbull proposal takes the worst of Keating and Costello, combines them and squares them. Legislated tax cuts, going far beyond the forward estimates and the next two Parliaments, based on wishful thinking about future income growth. This farce makes Morrison a serious contender for “worst Treasurer ever”. His proposals are substantially more regressive than anything proposed before, while marking a new low in corruption of the Budget process.

7 thoughts on “L-A-W

  1. the bracket creep that Howard and Costello counted on never happened.

    Yes it did. In a progressive tax system, any growth in a person’s nominal income means they pay a higher average tax rate, even if they haven’t moved into a higher tax bracket.

  2. Rudd should not have gone ahead with the upper end of the Howard-Costello tax cuts and should have wound back some of their other ridiculous largess to the wealthy, to reduce the structural deficit and pay for some other reforms.

  3. since howard the corporate tax rate has come down but wages have not risen.

    the story now is if corporate taxes come down wages will rise.

    why should they?

  4. Worst treasurer ever? In terms of actual harm done qua treasurer, surely he can’t beat Costello. (Qua immigration minister, of course, it’s a different story). Unless he gets the regressive flat tax up, he’s aspirationally worst, at best

  5. «The Morrison-Turnbull proposal takes the worst of Keating and Costello, combines them and squares them.»

    Sure, but at the same this is just leftoid fatuous moralizing. For many voters they only question that matter is “Do they deliver big house price and rent increases?”, and whatever other little tricks they get up to are pretty much ignored, good for entertainment.

    Conversely for most low-income voters the single most important issue is how huge a chunk of their small earning they need to make and how many of them can squeeze into a room to pay less.

    In most anglo-american culture countries the biggest voters issue is not waffle about future taxes or even employment, it is housing prices that is housing costs.

  6. Smith :
    the bracket creep that Howard and Costello counted on never happened.
    Yes it did. In a progressive tax system, any growth in a person’s nominal income means they pay a higher average tax rate, even if they haven’t moved into a higher tax bracket.

    @Smith From Wikipedia: “Bracket creep describes the process by which inflation pushes wages and salaries into higher tax brackets”

    I’m not sure how you can move into a higher bracket without moving into a higher bracket.

  7. As I understand it, no parliamentary government can bind its successors (or even its future self) with respect to budgets and taxation. The only way to fetter future governments or legislators – in countries with a written constitution – is by passing a constitutional amendment, a high bar that can itself be amended or repealed the same way.

    I would consider such statements from a politician as prima facie evidence of unfitness to hold office.

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