Do you like paying tax? No, I thought not. Well, I have good news. The
harsh measures in last week's budget were directed towards one
overwhelming objective: getting the budget back into surplus without
increasing taxes to do it. Indeed, Joe Hockey is working towards the day
when he can start cutting income tax.
If you hadn't quite realised
that, you could be forgiven. You've been unable to see it because of two
distractors: the deficit levy and the resumed indexation of fuel
excise.
But the levy is just a temporary pin-prick to the top 3
per cent of taxpayers who will pay it. And the price of petrol will rise
by only about 1 cent a litre per year. The effect of the excise
increase will be dwarfed by the ups and downs in the world price of oil.
The
catch is this: you may hate paying tax, but don't be too sure Hockey's
efforts to avoid tax increases and eventually make room for income-tax
cuts will leave you ahead on the deal.
Why not? Because to avoid
increasing taxes - and avoid cutting the big tax breaks some people
enjoy - Hockey has concentrated on cutting back all manner of government
spending. And most people - maybe all families bar the top 10 per cent
or so - have more to lose from cuts to government spending made, than
they have to gain from tax increases avoided.
That's particularly
true when Hockey's efforts to cut government spending take the form of
tightening means tests, moving to meaner rates of indexation and
introducing or increasing user charges.
Don't think just because
you voted for the Coalition Hockey is looking after you. It works out
that low income-earners - generally the old, the young and the
unemployed - are heavily dependent on government spending, and genuinely
middle income-earners with dependent kids are significantly reliant on
government spending.
Only high income-earners who've already been
means-tested out of eligibility for most programs (e.g. me) have little
to lose from Hockey's cuts. That's the reason for the deficit levy.
Without it, it would have been too easily seen that high income-earners
weren't doing any of Hockey's "heavy lifting".
Indeed, too many
people might have twigged that the whole exercise was designed to have
high income-earners as its chief beneficiaries. The spending cuts are
permanent and many of them save more as each year passes. But the
deficit tax is temporary.
Hockey wants us to believe he had no
choice but to do what he did. I accept he had to get on with bringing
the two sides of his budget back into balance, but he had a lot of
choice in the measures he took to bring that about.
He chose to
focus on cutting three big classes of government spending: health,
education, and income-support programs (pensions, the dole and family
tax benefits). Not by chance, these are the programs of least importance
to high income-earners.
He carefully avoided cutting the programs
of most importance to the well-off: superannuation tax concessions, the
concessional tax treatment of capital gains and negative gearing, Tony
Abbott's Rolls Royce paid parental leave scheme, the mining industry's
fuel excise rebate and other "business welfare" and, of course, the high
income-earners' favourite charity: defence spending.
And while slashing
away at health, education and income support, he was also busy
abolishing the carbon tax, the mining tax paid largely by three huge
foreign mining companies, cutting the rate of company tax by 1.5
percentage points and exempting federal grants to private schools from
his education cuts.
Hockey will tell you his net cuts to health,
schools and age pensions don't actually take effect until 2017, after
the 2016 election. This is the basis for his claim not to have broken
Abbott's election promises. (Remember, all the proceeds from his cuts
and charges in health care will go into the new medical research future
fund.) It's largely true - though only for Abbott's "core" promises.
Even so, Hockey's most objectionable changes are the punitive treatment
of the young jobless and the attack on Medicare's principle of
universality. The measures that will do most harm to the Liberal
heartland (including the children of high income-earners) are the
changes to HECS and deregulation of university fees.
Some people
are referring to Hockey's $7 patient co-payment for GP visits, tests and
scans as a tax. This is quite wrong. It's precisely because it isn't a
tax that it has been introduced. It's a user charge: use the service,
pay the charge. By contrast, taxes are amounts you pay the government
that bear no direct relationship to what you get back.
High
income-earners want more user-charging (for pharmaceuticals as well as
GP visits) because they're no great burden to the highly paid, but they
reduce the need for higher taxes. They reduce the cross-subsidy from the
rich to the poor.
I must warn you, however, of the one glaring
exception to high income-earners' insistence that tax increases be
avoided at all cost (to other people). The one tax increase they lust
after is a rise in the goods and services tax.
Why? Because they believe
it will be part of a deal in which the higher GST paid by everyone is
used to pay for another cut in the rate of company tax plus a cut in the
top rate of income tax.
