Posted by John, November 8th, 2010 - under Tax.



It sounds appealing doesn’t it? Increase the tax free threshold from $6000 to $25000 and tax income after that at a flat 35 percent till we reach $180,000. That’s what the Henry Tax Review proposed.

Don’t be fooled. Many ordinary income earners will pay more tax but Tony Abbott and Julia Gillard will get cuts of up to $4000 a year.

The Henry Tax Review proposal is deliberately regressive. It rewards the rich and penalises the poor and working class as part of a trickle down strategy. This is consistent with Henry’s overall approach – tax what can’t move – like labour, land and minerals – and exempt or lightly tax mobile capital.

So he needs a mechanism to increase our income tax while giving the impression of implementing some great new equality measure. Increasing the tax free threshold, but with flat tax after that, is his sneaky way of doing that.

The tax free threshold is currently $6000 but the Low Income Tax Offset – a credit low paid workers get against tax paid – effectively makes the threshold for low paid people $16,000.

Under the Henry proposals that offset would disappear.

So the Henry proposals won’t make any difference for people earning less than $16000. People earning between $16000 and around $25000 will be better off. Instead of paying some tax they will pay none. From $25000 to $35000 the tax free threshold outweighs the increased tax from the higher 35 percent rate. Someone on that pay will be just a little better off.

But people on between $35000 and $94000 will pay more tax. Those in the lower end of that range would be paying an extra $500 in tax a year.

Labor rejected the proposal but Tony Abbott, the opposition leader, flirted with it passionately for a few days. That is until his Treasury spokesperson pointed out 60 percent of taxpayers would be worse off, and that 60 percent ranged from those on $35,000 to $94000.

Labor didn’t reject it because it flattens the tax rates and so is a regressive tax move. They have been at the forefront of flattening tax rates in Australia for the benefit of the rich.

They were just too scared politically to do it in such an outrageous fashion. But the systemic pressure to cut taxes on the rich and increase ours if we want to keep some semblance of a decent public school and health system will not go way. As profit rates continue to stagnate at levels well below the 1950s and 1960s rates that means higher taxes on us if public services aren’t destroyed.

Labor and the Liberals will be looking for backdoor ways to cut taxes on the rich and increase our tax burden.