



Joe Hockey's budget will hurt your hip pocket


Ross Gittins

Joe Hockey has been softening us up for the tough budget he’s preparing for next month.

Joe Hockey has been softening us up for the tough budget he’s preparing for next month. Photo: Andrew Meares

If you think you’re having trouble coping with the rising cost of living now, just wait until you see what the politicians have in store for you over the next three years. In all likelihood, you’ll be losing a significantly higher proportion of your pay in income tax, though people on low incomes will be hit a lot harder than those on high incomes.

This will happen because an increase in the overall tax we pay is inevitable, but it suits both sides of politics to avoid the obvious, up-front increase that would come from raising the rate of the goods and services tax (or from extending the tax to spending on fresh food, education and healthcare) and rely on what Malcolm Fraser called ‘‘the hidden tax of inflation’’ – otherwise known as bracket creep.

The pollies know voters much prefer any increase in taxation to be hidden from their view. Trouble is, the increase in ‘‘marginal’’ tax rates (the tax on the last part of your income, such as on a pay rise or some overtime) many workers face will be so big, you’d have to be pretty thick not to notice.

Treasurer Joe Hockey has been softening us up for the tough budget he’s preparing for next month. Fine by me. But he’s studiously avoiding admitting there’s no way his spending cuts will get the budget back into lasting balance. He’s pretending all the problem is on the spending side (and all caused by Labor), when he knows the problem on the budget’s revenue side is just as big, if not worse.

Consider the facts. Collections from company tax – which account for about a fifth of total tax collections – aren’t likely to grow any faster than the economy (gross domestic product). And collections from indirect taxes – which include the goods and services tax and excises on alcohol, tobacco and petrol – are likely to grow a lot more slowly than GDP.

Collections from excises are declining relative to the rest of the economy, partly because John Howard abolished the indexation of the petrol excise, but also because consumers’ spending on alcohol and tobacco accounts for an ever-declining share of their total spending.

Collections from the GST are also in relative decline, because consumer spending has stopped growing faster than the overall economy (as it did when households were borrowing heavily) and because consumers’ spending on items subject to the GST is growing more slowly than overall consumer spending. Putting it another way, private spending on untaxed education and healthcare is growing faster than our spending on taxed items.

That leaves collections from income tax, which account for about half the federal government’s total collections. Assuming regular tax cuts, income tax collections will grow in line with GDP. Only if further tax cuts are avoided will continuous bracket creep mean income tax collections grow strongly enough to make up for the revenue-raising deficiencies of the GST and other indirect taxes.

Guess what? All the budget projections Hockey is using to justify big cuts in government spending assume no further income tax cuts. Without that assumption the underlying weakness on the tax side would be apparent.

His first reason for ignoring the budget’s revenue-raising weakness is his need not to expose as wishful thinking the line Tony Abbott ran from the moment he became Liberal leader, that the Libs  stood for low taxation, opposed all ‘‘great big new taxes on everything’’ (except the GST, of course) and should be voted for by anyone who didn’t like the sound of the carbon tax or the mining tax.

Hockey’s second reason is that any hint of increasing the GST (or any other tax) would allow Labor to do to Abbott what Abbott did to Labor. The party of higher government spending opposes the other side’s new taxes for reasons of blatant political advantage.

But Labor also professes to oppose the GST because it’s ‘‘regressive’’ – taking a higher percentage of low incomes than of high incomes. It must face the unpalatable truth that the past eight tax cuts have left us with a rate-scale that now makes bracket creep highly regressive.



Now that’s regressive. Does Labor really think a rise in the GST would be much worse?

Ross Gittins is economics editor.


  • How about , we recover tax evaded in general from tradies, cabbies, cash labourer all over the country??

    Date and time
    April 02, 2014, 5:40AM
    • These people are not the problem. It is the corporate tax evaders that are. But with a Liberal Government you won't be seeing any action taken on them any time soon. In fact they will be encouraged: they are who the Liberal govern for, after all.

      The problem as Ross says is on the revenue side and when you have ideologues like the LNP in power, they will never raise taxes, particularly on the rich. They will continue to subsidise the Gina Riheharts of this world at the expense of the the poor and middle class.

      Under Abbott, the middle class will be lucky to survive. It is dying in the US. And God help anyone on disability pensions or single mothers pensions. You are easy targets - you can be demonised in the Limited News press and no-one will care or stick up for you because we all know how ''undeserving'' you are.

      Austerity has been an overwhelming failure in Britian and Europe with unemployment the likes of which hasn't been seen since the Great Depression. Hockey is jumping on this right wing band wagon and it will be to our detriment.

      The Liberal are destroyers of everything they touch. The economy is next. We are just lucky they weren't in charge during the GFC or we would have lost those years of prosperity too.

      Date and time
      April 02, 2014, 5:59AM
    • Suggestor, that would definitely be a good start.
      Everyone should pay their way and stop whining. People want first world facilities and services however they expect others to foot the tax bills required to support such spending.
      Cut welfare COMPLETELY !
      No pensions, dole, handouts etc etc, but rather make people responsible for their own decisions and future. We live in a state where many many people believe the government is some magical gold lined bottomless pit.

      Pistol Pete
      Date and time
      April 02, 2014, 6:17AM
    • I was going to reply to you , Suggestor , but between deciding to do so and logging in CJ's comment appeared. He/she says almost exactly what i would have said. Also - the Libs. opposed the mining super-profits tax and forced gillard to water it down to noithing while the super-profits go 90% to foreigners. Miners and farmers get fuel subsidies and Abbottt still wants to give rich new mothers more tax-payers' $$ and waste millions on "Inquiries which are just blame-game Labor witch-hunts. If they had their priorities right and really did want to govern for all Australians as Abbottt said he would there'd be no problem.

      rural NSW
      Date and time
      April 02, 2014, 6:23AM
    • So CJ who drives the economy? I can tell you it isn't anyone who lives off government. Who are the people in our economy who generate taxes ? Answer: people who are willing to take risks while there is still some incentive in our system to earn more money. You can raise taxes on the rich but that will just drive innovation and investment to places like Singapore or even New Zealand.

      Try talking to anyone who has tried to run a private business in France and you will see where Union dominated Labor wants us to go. I know a Frenchman who was once an avid defender of the French socialist system but he gave up when he tried to run a business. He subsequently moved here with his Australian wife at the first opportunity.

      Labor and the Greens are no friends of the middle class. Labor has always milked the middle class ever since Whitlam's time. PAYE taxpayers bear an unfair burdon. During Hawke and Keatings time PAYE bracket creep was their way to pay off the deficit. Labor's Carbon Tax compensation custs out for anyone earning more than about $80k per year. Try telling anyone living in Sydney on $80k per year that they are rich enough to absorb the impost of this tax that achives nothing but makes Christine Milne feel important and secures Green preferences.

      When Abbott opens his mouth I get the impression he at least understands the pressures of the middle class. Bill Shorten and most of current Labor would not have a clue (Latham was the last Labor person who did). An economy too reliant on government spending (as Ross seems to prefer) is an economy that creates unsustainable budgets and will become internationally un competitive.

      Date and time
      April 02, 2014, 6:36AM
    • Suggestor, here's a radical idea.
      Why don't we get rid of family trusts?

      Date and time
      April 02, 2014, 6:37AM
    • how about those who make the most money and pay the smallest percentage of tax pay the appropriate percentage of tax.

      Date and time
      April 02, 2014, 6:59AM
    • Everyone has their favourite tax lurk they would like to see closed. Mine is the zero tax on pension payments from superannuation brought in by Costello. Someone I know very well is on a healthy tax -ree six figure pension on which no tax is paid. His only "income" is his share dividends for which he receives cash back for imputation credits.
      Ah, but hitkeeps him off government benefits I hear other non-tax paying pensioners declare. Wrong. Since he has "no assessable income" he and his wife receive seniors support payments a couple of times a year as well as subsidised private health insurance and a range of travel and pharmaceutical concessions.
      So, six figure unassessed income and a hand out for a range of government goodies.

      Date and time
      April 02, 2014, 7:03AM
    • I agree!

      And how about we also stop the politicians going on their constant expensive trips to anywhere they want - the so-called 'study tour'. Just take a look at the Liberals in the ACT and their prostitute study tour in Europe and one of these Liberal politicians is taking her HUSBAND all paid for by the tax payers.

      Stop the entitlements to politicians now!!

      Date and time
      April 02, 2014, 7:07AM
    • @CJ .. actually, the cash economy IS part of the problem. One way of addressing that is to broaden the GST tax base - make it cover everything, no exceptions, and possibly increase it at the same time.

      What's that I hear, you don't like that idea because it'll hit YOUR hip pocket? That makes you part of the problem, and not part of the solution.

      We ALL have to contribute, and the sooner everyone realises that the more likely we are to get a government that is willing to make decisions that whilst unpopular, will improve the economic position of this country.

      Date and time
      April 02, 2014, 7:15AM

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