By Leith van Onselen

After spending many months warning of a fiscal emergency and the need for deep Budget cuts, Prime Minister Abbott has now taken the contradictory position of flagging income tax cuts in the Coalition’s second term:

TONY Abbott has raised the prospect of tax cuts after the next election, delivering a prosperity dividend for tough measures in the budget… “I would like to be in a position to offer tax cuts in our next term,’’ Mr Abbott said. “At the moment I’m certainly not guaranteeing that or promising it, but the whole point of getting the budget under control now, is so that we can give tax cuts in the not-too-distant future.’’ Mr Abbott said it would be “absolutely undesirable’’ for the average worker to be in the 37 per cent tax bracket by 2016 as a result of bracket creep…

Abbott’s aspiration for tax cuts flies in the face of the realities facing the Budget, which are more about declining revenues brought about by falling commodity prices and falling worker participation, rather than rising expenditure (see next chart).

His position is also a bitter pill to swallow for those sections of society that have had their benefits cut – particularly the young unemployed and the disabled – and is curious in light of the cuts to health and welfare spending.

Wanting to ameliorate the impacts of bracket creep is a worthwhile goal, but only if it is accompanied by a crackdown on egregious tax lurks (e.g. overly generous superannuation concessions and negative gearing), and is accompanied by tax rises in other areas, preferably with the goal of widening the tax base and improving efficiency and equity.

Otherwise, it is just another case of slashing benefits to the poor to redistribute to the well-off, and is undesirable from a social perspective,

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