Hockey announces tax cuts for 3% of taxpayers.

Treasurer Joe hockey has announced that he had “No choice” but to announce a new round of tax cuts. This is because 330,000 Australian taxpayers would be moving into a higher tax bracket in the next two years, a phenomenon known as “bracket creep”.

Joe Hockey prepares for tax cuts
Joe Hockey prepares for tax cuts

I don’t wish to be a killjoy, but I think we should shine the harsh light of reality on this particularly stupid idea.

People have been moving into higher tax brackets every year since a sliding tax scale was introduced but it suddenly become a compelling problem for the Treasurer.

So, why now?

It is not because he’s concerned about people paying more tax, it is because he’s concerned that the Abbott government has less chance than a snowball in hell of being re-elected. It’s part of the two pronged approach on the part of the beleaguered government: announce tax cuts and start a war.

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Bracket creep has been a simple and relatively painless way of increasing taxation rates from time immemorial. People pay a higher rate of tax when they move into a higher tax bracket but the painless element of it is that it only applies to their marginal income. So their take home pay goes up, but slightly less than previously.

There are lots of issues that get people marching in the street and Australia, but bracket creep is not one of them.

This is a political stunt, but it’s a transparent and obviously stupid political stunt.

One of the reasons that bracket creep is not a pressing issue amongst the Australian voters is that wages growth is at the lowest it has been for a couple of decades. People’s wages are not growing and consequently very few people are moving into higher tax brackets.

If the Abbott government were serious about “talking about jobs and growth”, then it would be talking about ways to stimulate wages growth.

Not long ago, the Treasurer was frothing at the mouth over the budget debt and deficit crisis. He has been able to do nothing to address this particular problem and now is offering tax cuts, exactly the opposite of what you would expect him to do.

There are a couple more fundamental problems with the issue of these tax cuts.

The first is that the Abbott government has announced an inquiry into the taxation system but it is systematically undermining that inquiry by limiting the areas that it can examine by ruling out changes to taxation rates for superannuation contributions, negative gearing and now announcing tax cuts to minimise the effects of bracket creep.

The second issue is that Hockey’s move pre-emptives discussion of the nature of the current taxation scales.

What is so wrong with bracket creep?

The whole taxation system is based on assumption that as you earn more, you’ll pay a higher rate of tax on the extra that you earn. It’s a system that is regarded as equitable by most Australian taxpayers.

It’s is a system that is remarkably different from the GST. Under this regime everybody pays the same rate of taxation on spending. It’s time that we had the “conversation” about what form of taxation we want in Australia: tax on income or a tax on consumption, flat rate or sliding scale?

Unfortunately, the treasurer’s announcement of tax cuts does nothing to advance this particular discussion.

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