NO.116

LABOR’S TAX BLUNDER

With no tax plan of their own, having taken four days to copy the Coalition’s plan, Labor has made an elementary but fundamental error. The consequences of that error are that under Labor’s proposal, 45% of taxpayers would be worse off.

Page 8 of Labor’s press release includes a “Ready Reckoner”, which sets out the Coalition’s five year goal and Labor’s six year goal. The thresholds for both goals are listed in Labor’s release as not changing from those scheduled for 2010-11. That might be Labor’s goal. But it is not the Coalition’s goal.

The Coalition’s five year goal, set out in my press release of 15 October 2007, included the following:

• 45% of taxpayers facing a marginal tax rate of 15 per cent or less;
• 85% of taxpayers facing a marginal tax rate of 30 per cent or less; and
• 98% of taxpayers facing a marginal tax rate of 35 per cent or less.

Putting 45% of taxpayers on a marginal rate of 15% or less in five years’ time is an ambitious goal. Under the Coalition’s carefully considered five year goal, the 15% threshold would not be fixed at $37,000, but would need to rise to $41,000 to achieve this. Other thresholds would need to rise to meet the distributional goals.

Therefore, under Labor, income between $37,001 and $41,000 would be taxed at 30 per cent, not the 15 per cent that applies under the Coalition goal. That is additional tax – $600 in most cases – applying to those earning above $37,000 right up to $102,000, where the benefit of the 30 per cent rather than 35 per cent rate would start to outweigh it. This makes a mockery of Mr Rudd’s claim that “Middle income earners would be the major beneficiaries of Labor’s six year tax goal”. Middle income earners below $102,000 would be worse off.

Attachment A shows the estimated tax scales under the Coalition’s five year goal compared with the tax scales under Labor’s six year “aspiration”.

Attachment B shows the difference in tax benefits for Australian taxpayers under the Coalition and Labor.

Labor would increase marginal rates and damage work incentives in the crucial part of the tax scale that Wayne Swan has spent years complaining about. It would mean $600 per year more tax for taxpayers between $41,000 and $90,000, with all taxpayers between $37,000 and $102,000 worse off under Labor.

Labor’s tax policy is not playing Robin Hood, but the Sherriff of Nottingham – paying for flattening at the top end of the income scale by reducing incentives for low income earners and slugging middle Australia with an extra $600 a year in tax.

This basic error shows why Labor can’t be trusted to manage Australia’s $1.1 trillion economy.

MELBOURNE

21 October 2007

Contact: David Gazard

0428 405 107