Cabinet battle brewing over deficit tax

ScreenHunter_2294 May. 07 08.35

By Leith van Onselen

The Coalition’s proposed debt levy is facing a major battle from within, with cabinet remaining split over the measure.

Opposition from former Howard Government king pins – Peter Costello and Peter Reith – amongst others, has reportedly fanned the flames, as is the diminishing prospect that the measure would ever become law, given that Labor, Palmer United, and the Greens seemingly oppose the measure, as do some minor party representatives and independents.

According to my cousin, Peter van Onselen, reporting in The Australian today, opposition voices from within cabinet include deputy Liberal leader, Julie Bishop, and former leader, Malcolm Turnbull. And “to scrap the tax altogether now would be humiliating, but not to at least amend it could be political suicide for Tony Abbott. The government has backed itself into a corner on this one”.

As I keep arguing, abandoning the levy would be no bad thing, since it would effectively shift the tax burden even more onto employees, when fundamental tax reform is instead required to broaden the tax base, and improve efficiency and equity. The deficit tax is also a short-term fix to what is essentially a long-term structural Budget issue.

In any event, with the Budget papers due to be printed this weekend, time is running out for the Coalition to decide whether the deficit tax is in or out. Regardless, the Government faces wrath from the opposition and media – either for breaking a key election commitment not to raise taxes, or for being weak kneed and bowing to political pressure.

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  1. Politics is politics, so I expect to see to out.
    The strategy is talk hard, deliver little and get a boost back in the polls.

  2. It would have been no harder politically to tackle concessions on super contributions, capital gains and negative gearing. Instead Abbott went for this dumb deficit levy on anyone earning over $80K. Surely that’s gonna hit more people than removing the rorts, and tightening means tests?

      • Hopefully Malcolm is whispering some alternative policy ideas in his fellow cabinet members ears, and keeping an eye on the numbers.

        Abbott’s personal approval rating is just awful, and for Shorten to be anywhere near him as preferred PM this early in the term speaks volumes.

        Dare I say #libspill

      • “Dare I say #libspill”

        I knew mig would win you over eventually!

        Was it that creepy new avatar that pushed you over the edge?

      • drsmithyMEMBER

        Hopefully Malcolm is whispering some alternative policy ideas in his fellow cabinet members ears, and keeping an eye on the numbers.

        I have yet to see any meaningful evidence the rest of the Liberal Party have any problems with the fundamental direction of Abbots current actions.

        “Give those who need no help as much as they want without shame and those who need help as little as possible, while making them feel ashamed” is the mantra of the modern Liberal Party. How many members today are different from the days of Howard & Costello ?

        Turnbull is in the wrong party.

    • The Patrician

      If Abbott/Hockey introduce a debt tax instead of restricting NG to new builds only, they should be roundly condemned.

    • “Instead Abbott went for this dumb deficit levy on anyone earning over $80K.”

      Watch for it to either be dropped completely or raised to $150-180k and above.

    • My 2 cents is that Abbott probably thought that by labelling it a “deficit” levy he could make it appear to be Labors fault, something which clearly backfired, especially now Bowen has come out swinging blaming Hockey for front loading the budget since the election.

    • General Disarray

      Indeed, Lorax.

      But the special interests – that wield the power within the LNP – would have had a fit.

  3. Broaden the tax base is code for “complicate the looting process so that those muppets don’t realise how much they are being fleeced”


    • Tax big on a few or tax little on everyone.
      The “looting”process doesn’t have to be complicated, it could (if done properly … i know big IF) even simplify taxes by removing inefficient ones.
      But I sense it will be a matter of giving something back on one hand and taking it back on the other …

      • casewithscience

        50% TAXATION = Social responsibility.

        No man is an island, we all have a responsibility to share with our fellow man.

      • 50% taxation is too high. Religious entities seem satisfied with a tithe of 10% to benefit the greater good.

      • Slavery should be encouraged, they clearly inhabit the moral high ground when it comes to social responsibility.

        Slavery is Freedom
        Ignorance is Strength
        War is Peace

      • casewithscience


        Religious authorities do not build roads, provide defence or oversee ports. They also get government funding to assist with the sick, poor and students (of which, their history leaves much to be desired – see the dealing with the poor during the 18th century, or their interference with Universities throughout).

    • drsmithyMEMBER


      As noted by Claw a day or two ago, there are numerous small, deserted islands throughout the world.

      It would be nice if we could drop people like you onto them to live the tax-free, Government-free lifestyles you so deeply desire.

  4. “it would effectively shift the tax burden even more onto employees”

    … HIGH income employees.

    So tell me again why the political left is against this?

      • casewithscience

        I am married with one kid (and not even in our most expensive city) and I have no idea how people survive on less than 200k.

        This may be my Mary Antoinette moment, but I just can’t see it.

      • george fripley

        casewithscience, It’s all about what you need versus what you want – very simple really.

      • drsmithyMEMBER

        I am married with one kid (and not even in our most expensive city) and I have no idea how people survive on less than 200k.

        Given you’re in about the top 3% of household income…

        There’s the obvious stuff. Does your child go to a private school ? Do you holiday overseas once or more per year ? Do you have a huge mortgage or do you rent ?

        With that said, my personal cutoff is about $90-100k. I would struggle to have a lifestyle I’d be happy with on much less than that.

  5. What should be an impossible sell to the Australian public is bringing in the debt levy, and at the same time proceeding with the cut to the company tax rate.

    • Mining BoganMEMBER

      There is nothing that is impossible to sell to the Australian public. The trick is in what tasty morsel you hide it in.

      It’s like worming your dog.

      • “Intellectual freedom among the proles is safe, because they don’t have an intellect” O’Brien 1984.

      • It’s Like Worming your dog — – 🙂

        Well said – – An apathetic mob at best.

  6. The class warfare is so transparent.

    Reducing the spending power of the less well off is good and has economic benefits of deficit reduction, reducing the spending power of the quite to extremely well off is bad because it reduces their spending power!

    Such blatant hypocrisy.

    Will Abbott be liar, liar, liar, liar, liar,liar after the budget comes down?

    Mr Abbott said on the night before the 2013 election: “No cuts to education, no cuts to health, no change to pensions, no change to the GST and no cuts to the ABC or SBS.”

  7. The labour market/pension/tax/super interaction really needs to be sorted out. There should be financial incentives available to those that choose to defer retirement and instead continue to work. They should be given every opportunity to remain in the workforce as long as they’re willing to work. Those who cannot work should not be expected to and should be able to receive a liveable pension. This is not too much to expect in one of the world’s wealthiest economies. As well, those that have an income other than the pension should be paying income tax, like everyone else.

    The NZ system bears thinking about. Everyone gets a pension, but everyone also lodges a tax return and pays income tax even if they have reached pension age. This structure can be optimised to create a porous overlap between work and retirement.

    We also must get used to the idea that some people are going to live much, much longer than is already the case. This is in line with improvements in population health right across the age frontiers, and will follow further advances in the treatment of degenerative and chronic illness.

    It is absolutely foreseeable that some individuals now alive will see their median age at death stretch well beyond 100 years.

    Consider this single example of change in life expectancy.

    A female turning 25 in Australia in 1960 had a median life expectancy in that year of 76.3 years. Such a woman would have expected to live a further 51.3 years and the median year of death for this cohort was predicted to be 2011.

    Yet by the time 2011 clocked over, about 85% of this cohort were still alive. They had a residual life expectancy at age 65 (in 2006) of a further 21.6 years (they were expected to live until a median age of 86.7 years.) This compares with their median life expectancy at birth of about 67.1 years. Their median life expectancy has increased 21.6 years since birth and 10.4 years since attaining the age of 25. Their life expectancy is, of course, still improving even now.

    For mine, this is an absolutely excellent outcome. I think we should celebrate such gains in life expectancy and all that it implies in terms of better health and more rewarding lives.

    We should also take note that even though the dependency ratio is now increasing, this ratio has been much higher in the past. At present the ratio is about 1.2 persons in the workforce for every person not in the workforce, including the young, the elderly, the unwell and those rearing children. The ratio was 0.8 in 1947.

    So we still have the numerical capacity to support the non-working population and, in any case, the economy is 8 times more productive now than it was 67 years ago.

    On current trends, persons aged 65 and over are forecast to peak at a maximum of between 25 and 28% of the population before the end of this century – or roughly double the current share.

    This simply speaks to the need to plan and adapt. We do have a long time to get this right. These trends are important, but they absolutely do not justify the fiscal cage rattling now being practiced by the LNP for their own partisan purposes.

    • The labour market/pension/tax/super interaction really needs to be sorted out

      Then you should be wishing for utter economic collapse.

      There will not, cannot be a mutual consensus, to restore equilibrium.

      We know this, game theory asserts as much.

      You only divert from the worst outcome of gaming when you assure death to the participants.

      Death to the Australian economy can only be seen in the midst of collapse and we know we need to detour.

      Slay the beast, leave boomers to eat dog food and bathe in Kerosene. They’ve spent all they’ve earned, they over indulged for all their lives to date, all this would be is a yin to their yang.

      • RP, this is still not a zero-sum game.

        The economy will continue to grow. Real per capita incomes can still be improved, in line with 400 years of economic dynamism.

        There are real productivity benefits available if older workers can be retained in the labour market. As well, these workers, those that now depend on them, the budget, and younger cohorts of workers will derive gains if they can be retained in the workforce for longer.

        The question is how to go about achieving this.

        There needs to be simplicity, equity and efficacy. Surely it is not beyond us to manage the system so we can optimise and properly distribute economic welfare, especially considering the long time frames available and marvelous properties of compounding returns.

      • Surely it is not beyond us to manage the system so we can optimise and properly distribute economic welfare

        With our collective mindset, and boomer entitlement, I would assert it is beyond us at this point in time.

      • RP, I am a boomer, apparently. It’s never stopped me from trying to be reasonable.

  8. Ronin8317MEMBER

    The debt levy is both bad politics and bad policy. Even worse, Abbott neglected to sell the idea to his own party. I expect Abbott to pin this all on Hockey, ensuring that Hockey will never be in a position to challenge for the leadership. At this stage of the election cycle, a leader can only be removed via the party room, and ensuring there are no viable replacement is one reason John Howard remained PM for so long.

  9. Why is the budget still printed on paper? Simply post a PDF. This is a budget emergency, we should not be wasting money and paper!

  10. For those of you who enjoy pain….from the census….[email protected]/mf/6306.0/

    In May 2012 there were 509,200 full-time employees and 20,500 part-time employees receiving $2,500.00 or more per week. They comprise the large part of the highest paid decile but it’s not possible from the census stats to calculate their average pay.

    The information in the income tables implies the number of employees (which by definition includes part-time and full-time workers and owner/managers of incorporated enterprises) in the top decile was around 1 million in May 2012. The median income for this decile appears to have been about $2220 per week.

    Each 1% in income tax levied on this group would bring in about $1.2 billion pa. This would apply if wages and salaries equaled taxable income, which they do not.

    In this respect the stats from the ATO are also interesting. In 2010/11……statistics/…/cor00345977_2011TAXSTATS.pdf

    Taxable Income $80,001-$180,000
    Individuals 1,613,234
    17.2% of all taxpayers
    Tax payable $46.940 bill
    35.4% of all income tax
    Mean tax per taxpayer $29,096
    Mean taxable income per person $111,205

    Taxable Income $180,001 and over
    Individuals 251,397
    2.7% of all taxpayers
    Tax payable $34.773 bill
    26.2% of all income tax
    Mean tax per taxpayer $138,319
    Mean taxable income per person $366,153

    So in 2010/11 this 19.9% of taxpayers paid 61.6% of income tax.

    If Abbott sets out to raise, say, $1 billion from the $80,001-$180,000 range, he would have to increase their tax bills by $619 each. Their average income tax rate would rise from 26.2% to 26.7%

    If Abbott sets out to raise $1 billion from very high earners, he would have to increase their tax bills by about $3980 each. Their average income tax rate would rise from 37.7% to 38.8%

    These rates compare with an average tax rate for those in the $37,001-80,000 bracket of 18.2%.

  11. Nice photo, someone obviously digging hard into pre-Internet records to pull that one out from TA’s boxing days.

    Seems like PM has no easy options now, so he just has to pick the consequence he can live with and move on.

    But adding a new tax to break a promise, and doing it specifically on the people who voted for him is a new twist on things.

  12. george fripley

    One for Tony and his cabinet…

    The Politician’s Poem

    When the shit hits the fan there’ll be trouble
    And there’s only one thing left to do,
    We’ll all get our stories sounding consistent
    And the blame will be squarely on you.

    It’s not that we actually dislike you
    And you’ve not caused us any real trouble,
    But someone must take all the blame for this cock-up
    And they’ll find your name lying in the rubble.

    You’re in the unfortunate position
    Where it’s conceivable it might be your fault,
    And you’re senior enough in a Cabinet role
    That you could have called it all to a halt.

    But the proper trend in these situations
    Is to frantically manoeuvre away
    And distance yourself from disasters you caused
    And let some other unfortunate pay.

  13. Meh. It’s all irrelevant anyhow. The elephants in the room are Australia’s insanely expensive land and high dollar.

    The country’s economy is a one-trick pony now, and no amount of fiddling around the edges of taxation will make a lick of difference.

    I’m just waiting for 2016/2017 to see the reversion of Adelaide’s Northern suburbs to a Mad-Max like hell-hole with double-digit unemployment. The domino effect on house prices and businesses will be remarkable to behold. No amount of fiddling with income tax brackets will make any difference to changes like this.

    Reckon I might be able to pick up a nice house in Geetroit in about 2020 for spare change.