Friday, May 11, 2018

Suddenly, the tax choice is clear

Labor’s decision to back only the first stage of the Coalition's budget tax cuts and then build on it offers voters a clear choice.

The Coalition is offering a tax cut that most benefits middle earners on between $37,000 and $90,000, delivered in the form of a rebate after the end of each tax year, followed years later by a second and third stage of more expensive tax cuts that would most benefit very high earners on $160,000 and above.

Labor is the offering the same tax cut aimed at middle earners, bulked up by 75 per cent a year later in 2019.

Labor’s plan cheaper over time. The eventual cost of the Coalition’s plan, not yet revealed in Parliament despite requests, is probably $18 billion per year, which is more than the Commonwealth spends on the Pharmaceutical Benefits Scheme, and half what it spends on Medicare.

Labor’s plan is more expensive than the Coalition’s in the early years; a total of $19.2 billion over four years compared $13.4 billion, but it will cost much less over the longer term, because there will be no stage two and stage three targeting high earners, unless Labor later decides to offer one.

It thinks it can find the extra $5.8 billion pretty easily. It is cracking down on negative gearing and capital gains tax concessions, it won’t proceed with the rest of the company tax cuts (at least until the budget is in a better position) and it won’t hand out as many dividend imputation cheques.

The savings mean it will be able to offer a low earner on $40,000 an extra tax credit of $218, which when added to the Coalition’s $290 will amount to $508. A middle earner on $60,000 would get an extra $398, taking the total to $928.

Beyond the $90,000 mark both tax credits would shrink, falling to zero after $125,000. Very low earners beneath the $18,200 tax-free threshold would get nothing under either scheme.

But high earners won’t completely miss out under the scheme unveiled by Opposition Leader Bill Shorten on Thursday night. He says Labor will support a separate Coalition measure that will lift the $87,000 tax threshold to $90,000 from July this year, giving a small benefit of $135 per year to all high earners, even to millionaires.

But that’s all high earners will get from Labor, at least all that it is taking to the election and to the byelections due next month. It is firmly focused on the middle earners Treasurer Scott Morrison says he is is focused on, and nothing else down the track.

In The Age and Sydney Morning Herald