Tax cuts for the rich? Seriously Mr Hockey?

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(Image via @KoalaRabies)

Treasurer Hockey's latest thought bubble is to have the workers pay for tax cuts for the rich by imposing 15 per cent GST on fresh food, health and education​. Former Assistant Commissioner of Taxation John Passant reports.

THE OTHER day, Australian Treasurer Joe Hockey, talked in vague terms about tax reform. What did come out of his thought bubble of a speech was a commitment to cut the top marginal tax rate (which is 45% of every dollar for those whose income goes over $180,000) and the next level down (37% on the income greater than $80,000).

Hockey said bracket creep was forcing more people into higher tax rates. This just means that as your pay goes up part of your income over time ends up in a higher tax bracket, so your average tax rate increases.

Say you were earning $140,910 and a Tribunal decided you were really worth $185,000. The $5,000 above $180,000 would be taxed at 45%. Now before you tell me such a pay increase would never happen, that 31% pay increase is precisely the pay increase MPs got in March 2012, and then received another 3% pay increase on top of that three and a half months later to $190,550. Nice work if you can get it.

Only 2.7% of income earners are in the top bracket and most of them get there by living off our labour. They are bosses, or managers for bosses, or well-paid snake oil salesmen and women for capital, like tax and other lawyers.

Hockey did not detail how much the tax cuts for those on more than $180,000 would be, nor did he tell us in any detail and to parrot every true conservative, where the money is to come from.

Maybe despite the years of Budget deficit and debt doom and gloom they’ll just blow that even more. Hints from the Treasurer in his speech indicate two major areas Hockey has in mind to fund tax cuts for the rich — sacking even more public servants and imposing the GST on health services.

However, you don’t have to be a genius to figure out that the government has form in cutting a large number of public service jobs, that is cutting social welfare spending, that wanted to tax us with a GP co-payment, that wanted to cut pension increases while leaving the superannuation of millionaires untaxed, that is cutting funding for public health, education and transport, will try to do the same again to fund a tax cut for its rich mates.

And that is before they try to increase the GST to 15% and impose it on fresh food, and health and education spending.

In other words, we workers will pay for the tax cuts for the rich Hockey has floated.

Hockey’s main argument is that the wealth will trickle down from the rich go-getters to the rest of us. It is not true. Trickle down is a lie.

The Howard and Costello tax cuts were returns of some of the extra revenue they had collected through bracket creep. Hockey is proposing to do the same thing, not of the extra tax he has collected already, but apparently just future bracket creep.  Even then, if he gave it all back it would be $25 billion less revenue over the next four years.

One way of doing this would be to index tax brackets. He won’t because that would deny them hidden extra revenue they can return in the form of tax cuts in the run up to an election or maybe even a by-election.

An alternative would be to tax the rich more and redistribute it back to ordinary workers in the form of tax cuts and better welfare and social services and public services like health, education and transport.

Australia is a low tax, low spending country. It’s time we started taxing the rich and the big business tax avoiders more, not less.

This story was originally published on John's blog enpassant.com.au and has been republished with permission. You can follow John on Twitter @JohnPassant.

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