Friday, January 28, 2011

Knock me down with a feather - the levy that'll tickle, not hurt

Julia Gillard's much-hyped levy won't do much harm and won't raise much money. Boosting the nations coffers by a mere fraction of one per cent, it'll set back an Australian on $80,000 one cup of coffee a week. A sandwich isn't at risk until your income hits $100,000. You would need $200,000 to lose a taxi fare.

More than half of Australia's workers (60 per cent according the ACTU) will pay nothing because their earnings won't reach the $50,000 threshold. Even someone on $55,000 will pay next to nothing because the levy will be only be applied to the $5000 of their income above the threshold.

The effect is a sliding scale of commitments quite different to the brutal and at times deeply regressive levies imposed by the Howard government. Its 11 cents per litre levy on milk, in force for almost a decade, hurt battlers but not their bosses, as did the sugar levy. Even the guns buyback levy was tacked on to the Medicare levy ensuring that Australians earning less than $50,000 paid up as well as those earning far more.

In an ideal world you wouldn't impose a levy at a time when the economy's reeling in the wake of a natural disaster. But this one is little and late...
The economy will be hammered in the first few months of the year. Westpac is talking about negative economic growth in the March quarter. But the levy won't come into force until July, months after a massive construction effort is underway lifting economic growth well into positive territory (or that's the plan).

And we will scarcely feel it because it will be taken out of our pay packets fortnight by fortnight rather than in a lump sum. Around $1.6 billion of the $1.8 billion will be collected through the PAYE system rather than at tax time.

It's almost as the Treasury implored the Treasurer and Prime Minister to go ahead with the levy if they must, but to make sure it wouldn't damage a damaged economy.

The downside is it'll won't raise enough to make much difference to whether or not Swan and Gillard hit their target of 2012-13 budget surplus. It would need to be awfully thin surplus for $1.8 billion to matter.

That's why they are finding most of the money elsewhere. Some of the schemes they are cutting are so embarrassing they must be glad of the excuse. As a greenhouse gas reduction measure, Cash for Clunkers would have made us a global joke. The Green Start program was a hasty fix for a very poorly implemented Green Loans program. There's always value in spring cleaning.

Published in today's SMH and Age

Prime Minister Gillard has taken an axe to billions of spending championed by her predecessor Kevin Rudd, cutting funding to sensitive areas such as housing, solar power, better cities and green cars in order to part fund a multi-billion dollar budget shortfall that will be left even after the flood tax levy.


$2.8 billion in savings

"Cash for Clunkers' grants of $2000 per car from mid 2011 SCRAPPED Saving: $429 million

Priority Regional Infrastructure Program RAIDED Saving: $350 million

Higher Education Capital Development Pool WOUND UP Saving: $299 million

Green Car Innovation Fund WOUND UP Saving: $234 million

National Rental Affordability Scheme cut from 50,000 to 35,000 houses HACKED Saving: $264 million

Carbon Capture and Storage Flagship grants 'REPROFILED' Saving: $250 million

Solar Flagships program 'REPROFILED' Saving: $250 million

Solar Hot Water Rebate spending CAPPED Saving: $160 million

Green Start home assessment program WOUND UP Saving: $129 million

Building Better Cities grants to local government RAIDED Saving: $100 million

LPG Conversion grants scheme CAPPED Saving: $96 million

Australian Teaching and Learning Fund AXED Saving: $88 million

Solar Homes and Communities grants CAPPED Saving: $85 million

Global Capture and Storage Institute Funding 'REPROFILED' Saving: $55 million

O-Bahn Adeladie busway extension AXED Saving: $56 million

The temporary income tax levy is set to raise $1.8 billion during its one year lifetime. The budget shortfall left by the floods will exceed $5 billion in direct costs plus an unknown amount in lost revenue as lower export earnings cut the company tax take.

The Prime Minister will meet $2.8 billion of the shortfall by scrapping, raiding or "re-profiling" a dozen of the former Prime Minister's pet programs, as well as her own poorly-received "Cash for Clunkers" election promise.

Promised as part of the affordable housing push that helped bring Kevin Rudd to power in 2007, the National Rental Affordability Scheme gives developers of low cost housing a ten year tax break and their tenants a 25 per cent rent rebate. Well behind schedule it has delivered very few of the 50,000 new homes promised, a total that will now be cut to 35,000 slicing one quarter off its billion dollar budget.

The Green Start home energy assessment program that replaced Labor's Green Loans program will itself be axed and payments of the solar hot water rebate, solar homes and communities rebate and LPG car conversion grants will be capped.

Funding to the Carbon Capture and Storage and Solar Flagships programs and the Global Capture and Storage Institute will be "reprofiled" meaning some will be deferred and some will be trimmed cutting spending during the government's four year forward estimates period.

"There is complete consensus that the most efficient way to reduce carbon is to price carbon," said Ms Gillard. "Some of these policies are less efficient than a carbon price and will no longer be necessary - others will be better delayed until a carbon price's full effects are felt," she said.

The "Cash for Clunkers" 2010 election promise - one of Ms Gillard's own - put a price on cutting carbon emissions of around $400 per tonne, so ineffective would it have been in reducing pollution. Now scrapped, from the middle of this year it was to pay $2000 to each motorist who traded in a pre-1995 car for a more fuel efficient one.

The Green Car Innovation Fund, also scrapped, was an industry support scheme that directed grants to manufacturers such as Holden and Toyota that tooled up to produce lower emission models.

The Prime Minister hinted at further spending cutbacks after promising not in any circumstances to increase the planned tax levy and saying the full budgetary impact of the floods was not yet known.

Later today Treasurer Wayne Swan will update Queensland company directors on the Treasury's best estimate of the hit to revenues. Late yesterday Treasury was still working on the numbers.

Published in today's SMH and Age

Complete Flood Package Documents

Related Posts

. The package as summarised by Gillard

. Flood response documents and speech

. Might this be the wrong time for a levy?