It seems the Coalition’s flawed Budget deficit levy is a done deal, with The Australian reporting that:
…senior ministers [will] lock-in an increase in the tax rate for those earning $80,000 or more on the grounds there is no other way to ensure equity in the overall budget package.
Wealthy Australians who do not receive government benefits could not be asked to “share the burden” by losing payments, The Australian was told, so the best way to be fair was to add a 1 per cent tax on earnings from $80,000 to $180,000 and a 2 per cent tax on earnings above $180,000…
The Australian was told yesterday the tax increase has been decided in principle, although the details were yet to be finalised. Some cabinet ministers insisted they were taken by surprise when news of the idea leaked on Sunday.
The tax hike will raise about $2.5bn a year and will be roughly equivalent to the removal of benefits to those on lower incomes. Limiting the measure to those on $180,000 or more would only raise about $1.3bn a year.
The Government’s attempts to reign-in the Budget are beginning to look like a scrambled egg.
Along with the Budget debt levy, the Government has proposed cutting the threshold for family tax benefits to $100,000 – in its own right a worthwhile initiative given that the family tax benefits program ($20.3 billion) represents the third largest single area of federal government spending.
However, as argued by Trisha Jha in The Guardian today, the case for reform of family tax benefits are substantially weakened by Abbott’s steely resolve to implement an expensive paid parental leave (PPL) scheme that will overwhelmingly benefit higher income earners.
Apart from PPL’s mammoth cost of more than $5 billion, and that it will do next to nothing to enhance labour force participation, there is also the issue that its proposed thresholds are way out-of-line with family tax benefits.
After Abbott’s small concession yesterday, the PPL scheme will now have a $50,000 cap. However, it is only a cap on the amount someone can receive. Someone earning well above $100,000 will still be eligible for the scheme. Moreover, PPL’s generosity is compounded by the fact that eligibility is assessed on individual income instead of combined income, as is the case for family tax benefits.
As noted by Ms Jha:
The proposal to restrict family benefits would see an even starker and more untenable difference emerge between family benefits and the proposed PPL scheme…
Cutting assistance to comfortably well-off (if not necessarily wealthy) families is justifiable on the grounds of trimming fiscal fat and reducing entitlements – but to impose a new tax on these same families while simultaneously allowing them to access an incredibly generous paid parental leave scheme is contradictory.
Of course, there are many other contradictions within the Coalition’s Budget razor. Why, for instance, has it targeted family tax benefits but left the biggest area of welfare spending – the Aged Pension – off limits? While the Government stated during the election campaign that it would not touch the pension – and so does not want to be seen as breaking an election promise – it also stated that it would not raise taxes, and yet here we are facing a Budget debt levy?
And then there are superannuation concessions, which are already nearly as costly to the Budget as the Aged Pension, are growing more quickly, and overwhelmingly benefit higher income earners, with wealthiest 10% of superannuation contributors reaping over 36% of the policy’s benefits. If the Government is truly interested in restoring the Budget back to long-run health, whilst ensuring equity, it is hard to ignore the giant black hole that is Australia’s superannuation system.
