Joe Hockey is at it again. Every time he discusses economics he shows his profound lack of understanding of even the basics.
He is now promoting income tax cuts and a gigantic GST tax rise. In addition, by broadening the GST he is in effect introducing a completely new tax, that is a tax on fresh food or medical services or education to name a few. So a "Great Big New Tax" in Tony Abbott's parlance.
As we know the GST is a regressive tax. For example, people on a low income, below the tax free threshold of $18,200, get a large tax increase in that they will now be paying a 15% tax on these additional goods and services. This is on top of having their GST tax increased on all existing goods and services. Since low income earners spend a much higher proportion of their disposable income it is they who will get the largest tax increase in percentage terms.
As for the idea of income tax cuts, his argument is that high income earners pay a disproportionately high percentage of income tax. But that is exactly what progressive tax is, isn't it? It is like he was reading some treasury paper and came across this astounding fact that high income earners pay higher tax rates. Hells bells! This has obviously come as a shock to Joe. It's also like he has never heard of progressive taxation, or understood why it is considered good policy, by, er, nearly everyone in the modern era.
I guess progressive taxation is, well progressive. It is a civilized and balanced policy that still allows the rich to get richer, but affords some redistribution to those less well off. It underlines a trait of Australian culture called fairness. Not socialism of the "nationalization of industry" type, but a reasonable, moderate policy that both major political parties have included in their policy platforms ever since income tax was collected in Australia by the Commonwealth.
Anyhow, Joe doesn't like it, probably because it is one of those "fair" things. But we do have to pull him up on his lying via sophistry and omission. He says that the top income tax rates in Australia are some of the highest in the world. He knows, but omits to mention it, that the high income earners in Australian don't actually pay those taxes. He fails to mention that we have many attractive tax deductions and concessions that those other countries do not have, and that as a result our high income earners, whilst having a higher headline rate, do not actually pay more tax than those high income earners in countries that have, on the face of it, a lower top marginal rate.
In short, Australian high income
earners pay the same tax, and often less, than high income earners in
countries with lower top marginal tax rates, after taking our higher tax deductions and
tax concessions into account.
Mr Hockey claims that he is concerned about bracket creep, but bracket creep is no more important when it comes to money in the pocket than higher wages. But Joe is against wage rises. In fact he is in favor of wage decreases if you look at his response to the recent Productivity Commission report into penalty rates. He is obviously not concerned about the well-being of those on low to middle incomes. He tried to make them pay for doctors visits, while at the same time maintained the massive tax concessions to the very wealthy via the superannuation system.
Now to the pseudonomics. It has been well known in economics that the classical "trickle down" thesis is highly conditional. It applies inside narrow margins and thresholds. And it has now been proved that the equity thesis is more correct and more important. In short, the lower the gap between the top 10% of income earners and the bottom 40% the higher economic growth will be. Inside reasonable parameters it is no longer thought that money given to very wealthy people finds its way, via investment in innovative and productive resources, into a driver of economic growth. On the contrary, it is healthy universal incomes that drive economic growth.
Joe talks of incentives, but again, it has been proven and peer reviewed economic science that the idea of incentives are highly conditional and also operate within narrow margins and only over high thresholds. Joe says he worries that people will withdraw their labour if they are taxed at high marginal rates, but studies and research have proven that executives paying 70% tax will still go to work for the additional $30 in every $100. They are very goal orientated, very results orientated, very competitive, and have a strong work ethic. Nothing much stops these people from earning the extra dollar. But we are only taxing our top execs 45% at the margin. And because of the tax free threshold and the lower marginal rates on the way up, lets not forget that somebody earning $200,000 per annum only pays an average tax rate of 32%. And after all the tax deductions and concessions, it can be anywhere from there down to zero!
So why has this so called treasurer decided that the biggest issue is income tax cuts, especially when he has told us that we have a budget emergency? It either doesn't make sense, or the only sense that it makes is that he is just a guy whose job it is to further enrich the already very rich at the expense of low to middle income earners, and at the expense of national prosperity.
