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Issue #1641      June 4, 2014

Budget 2014-15

The hidden tax agenda

There is one budget trend which could rightly be described as unsustainable, very unsustainable, and that is the revenue raising side which Treasurer Joe Hockey remains very quiet about.

Treasurer Joe Hockey.

Over the past three decades the taxation system has been undergoing gradual reform, a process continued in this budget. These changes, some appearing quite small at the time, add up to an incredible loss of potential income. Without them, the present and recent budgets would have carried surpluses.

The process commenced in the 1980s, with the Hawke/Keating Labor governments reducing both the highest marginal personal income tax rates and raising the threshold at which higher rates kicked in.

The highest marginal rate in 1985-86 was 60 cents in the dollar. It was already down to 47 cents when the Howard Coalition government was elected in 1996. Howard brought it down to 45 cents in the dollar. The reduction to 45 cents alone means a loss of 25 percent in personal income tax.

But that was not all. The Howard government’s main contribution was raising the threshold at which the highest marginal rate kicked in – from $50,001 when they were elected to $180,001 in 2008-09. Labor had already increased it from $11,346.25 to $50,001.

In today’s prices, the lifting of the threshold at which the highest marginal rate commences is the equivalent of an increase from $30,000 to $180,000 or 600 percent – costing the government billions more in potential income.

Manufactured debt

According to calculations done by a researcher for The Australia Institute, the government would have had an additional $38 billion for the 2012-13 federal budget and would have collected an extra $169 billion over the previous seven years had it not been for unsustainable [personal] income tax cuts that were made in the lead-up to the global financial crisis. “Had the income tax cuts not been made, the current budget would not be in deficit and we would be having a very different discussion about funding priorities,” Mat Grudnoff said. (“Tax cuts that broke the budget”, The Australia Institute, May 2013.)

“Budget difficulties are not something high income earners are likely to have been concerned with over the past seven years as they were the biggest beneficiaries of these tax cuts. Of the $169 billion in [personal] tax cuts, 42 percent of them or $71 billion went to the top 10 percent of income earners. The top 10 percent got more in tax cuts than the bottom 80 percent,” Grudnoff added.

The temporary, three-year, two percent deficit levy is a joke. It is not a two percent levy on income of the rich. It adds two percent onto the highest marginal tax rate. It is only applied to income over and above $180,000, not to the whole income. It amounts to a pathetic $400 increase for someone on a declared taxable income of $200,000.

The above figures are for personal income tax. There has been a significant reduction in the rate at which companies pay tax on their profits from 49 cents to 30 cents in the dollar over a similar period. That amounts to a reduction of just over one third in the amount they pay on their declared profits (never mind the hidden profits – the government is not chasing them!). The Coalition budget has found the money to further reduce it to 28.5 cents!

It is these tax cuts that are unsustainable. You cannot keep cutting revenue and maintain services and welfare payments when income is slashed by hundreds of billions of dollars.

It would interesting to know how many billions of dollars per annum the government is losing as a result of the privatisation of the highly profitable Commonwealth Bank, Telstra, airports, and other major public assets.

Regressive

The system of marginal tax rates on personal incomes has been flattened by successive reductions in the higher rates and the lifting of the thresholds, making it far less progressive.

This was compounded by the introduction of the GST by the Howard government.

It is a flat tax on people’s spending. Corporations are let off the hook. As against a progressive system where the rate paid depends on ability to pay – the wealthy pay a higher rate in the dollar – it is the same rate regardless of income. It is made even more regressive by the fact that those on lower incomes spend a much higher percent of their income on taxable goods and services compared with the rich.

The Abbott Coalition government has done its best to inflate the budget deficit and raise alarm bells about “unsustainable” spending and a looming debt crisis. It has announced $80 billion in cuts to states for health and education to force an increase in the GST or see public schools and hospitals close.

The Hockey budget is not about balancing the books or reducing government debt. These wild claims of unsustainability in government spending are based on lies and deceit, to try to justify the government’s abandonment of its responsibilities to provide social services and security to the people.

These claims are being made to cover up the massive redistribution of wealth from the people to the private sector that is underway and the shift towards direct corporate dictatorship.

If the government were sincere, then it would not be increasing military spending to $40 billion in coming years, which could overtake its spending on education. It would not be cutting company tax rates. It would abolish the multi-billion dollar fossil fuel rebate to mining companies, instead of cancelling the minerals resource rent tax which, despite its adequacies, does tax some of the largest mining corporations.

One of the main agendas driving the cuts is the eventual elimination of company tax. This goes hand in hand with the privatisation of remaining public assets and a number of government functions and services. These include the privatisation of Medibank Private, a lucrative source of income, and its share in the Snowy Mountains Hydroelectric Scheme.

The Communist Party of Australia strongly rejects the lies and deceit regarding “unsustainable” spending on health, education, social welfare and other government responsibilities. It calls for an increase in funding to these vital services and the social security system and progressive reform of the tax system so that the rich and corporate sector really do some “heavy lifting”.

Next article – Anti-Roma racism on the rise

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