Friday, October 19, 2007

Labor's tax policy: nine parts me-too, one part Robin Hood

Labor’s Tax plan is 90 per cent “me too”, 10 per cent Robin Hood. It will play well electorally. We want money spent on health and education and we don’t want it spent on Australians earning more than $180 per year.

But in terms of actually doing much about health and education, it is barely symbolic.

The $400 million over 4 years that’ll be directed to the states as incentive payments to cut elective surgery waiting lists amounts to nothing much per year, per state and per hospital.

The $2.3 billion Education Tax Refund apparently designed to get books and computers to children will be mostly lost along the way...

It you wanted to spend $2.3 billion ensuring that children without access to computers actually got them you would give it to the schools to provide backup laptops for students in need.

Or you would enter into a volume contract with a commercial provider to buy a ultra-basic ultra-cheap laptops to those children along the lines of the African “one laptop per child” project.
Instead Labor wants to channel the $2.3 billion through all but the richest of Australian parents, most of whom already spend money on computers and broadband and will merely pocket annual $750 or $1,125 payment.

The scheme’s design picks up on the worst aspects of the Coalition’s schemes.

The Coalition says its Private Health Insurance Rebate directs money towards Australia’s private health insurance funds. But it does so poorly. Most of the money goes to Australians who already had private insurance or would have taken it out in any event.

Comparatively little trickles into the funds.

The Coalition says its 30 per cent Child Care Tax Rebate helps out parents struggling with childcare bills.

But because it has been paid annually more than a year later on the presentation of a completed tax form, some of the parents who need the money haven’t been getting it their child is out of care and the need has passed.

In May the government recognised the design flaw and changed its system.
Labor can’t recognise the same problem.

Asked yesterday how a low income family could come up with the $1,000 to buy a computer in the first place, Kevin Rudd talked about “companies who can make particular deals available to folk who don’t have the cash to cough up upfront”.


Labor has trumped the Coalition’s tax policy by matching most of it and also promising a 50 per cent Education Tax Refund worth up to $750 per child.

The $2.3 billion refund would be paid to the parents of every child in primary or high school who is eligible for Family Tax Benefit A.

The Labor leader Kevin Rudd said yesterday that the parents of 2.3 million school children would benefit, around two-thirds of all the children in school.

Expenditure on laptop computers, internet connections and school books of up to $750 per year for each primary school child and $1,500 per year for each secondary school child would be eligible.

The 50 per cent rebate would be paid after the end of each tax year as is the government's Childcare Tax Rebate.

Low income parents, who didn't pay enough tax to offset the refund against would have it paid to them directly.

The Education Tax Refund would be paid for by deferring the tax cuts that the Coalition has promised high income Australians earning more than $180 per year.

Asked at the policy's launch whether he had sympathy for Australians on $200,000 who would be temporarily denied tax relief of $10 a week under his plan Mr Rudd replied, "Politics is about making choices between conflicting priorities, and if you are on $180,000 or more, as people like myself are, I don’t think you really need it, just now."

"What I say instead is that most people in that bracket would not mind an investment going into bridging the digital divide, for the whole country."

The Treasurer Peter Costello derided the plan "me too-ism" He said 91.5 per cent of it was copied from the Coalition’s plan unveiled on Monday.

“Mr Rudd talks about education. If he had brought his exam paper in after copying 91.5 per cent of the answers from the student sitting next to him, he would have got an ‘F’ for fail,” he said.

Mr Rudd said he would aim to cut tax rates for high income earners has the Coalition had promised to, but over six years rather than five.

By 2013-14, he wanted a flatter personal income tax system with three rates instead of four - 15 per cent, 30 per cent and 40 per cent.

However just as the Treasurer could not guarantee that the long term “aspirational” tax goals he proposed could be achieved, neither could Mr Rudd.

“There are conditions. The first relates to the state of national and international economic circumstances. And the second is the maintenance of the general economic discipline of maintaining Budget surpluses of one percent of GDP," he said.

The Business Council welcomed the Labor Tax plan. Its tax director Allesandra Fabro said she was pleased there was a consensus about a reform that would boost workforce participation, particularly at lower to middle income levels.

However she was disappointed at the delay in reducing the top marginal tax rate, which postponed a reform needed to attract and keep highly skilled workers.

Asked why he thought it was more important to direct money to parents who bought computers rather than to provide tax relief for the better paid Mr Rudd said that if children grew up in a household where computers were regarded as normal “you’ve got computers here, computers there, and everything’s wired” they would come to regard 21st century technology as normal.

The Labor announcement was accompanied by a promise to spend an extra $400 million on a previously announced system of incentive payments to states that reduced their waiting lists for hospital elective surgery.