Thursday, May 10, 2018

Meet the weirdest collection of tax cuts on record

Has there ever been a more weird collection of tax cuts?

Ahead of the budget we were promised simple cuts. What we got was a collection of changes so eccentric they are almost impossible to explain quickly and even harder to make sense of quickly. Here goes.

Instead of concentrating tax cuts on low- and middle-earners as promised, Scott Morrison has changed a tax threshold, one faced by only the top 20 per cent of earners, and overlaid a new and bizarrely-shaped so-called tax offset on top of an existing offset to give Australians earning between $48,000 and $90,000 a year an extra $530 a year and Australians below $37,000 a lower sum of $200, and those earning something in between, something in between.

But they won’t get it in their pay packets as extra pay. In fact they won’t get it at all during the next financial year, even though it is due to come in on July 1.

Instead they’ll have to wait until beyond the end of that financial year to put in tax returns and get back with their refund cheque something between $200 and $530.

In his post-budget address to the National Press Club Morrison said it would help them with “bills to be paid”, but it won’t, unless those bills are annual and come in at the same time as their tax return.

Most of us face quarterly bills and make weekly visits to the supermarket. It’s why the pay-as-you-earn system takes tax from us evenly; in order to help with our bills.

The weirdness in what Morrison has designed makes his demand that the Senate approve his changes by July 1 redundant. They could be leglislated up to three quarters of a year later and still take effect on time, as previous late changes to tax laws have made clear.

The only people who would suffer if the Senate declined to abide by the Treasurer's near-immediate deadline are the high earners on more than $87,000 (millionaires included) who would miss out on $2.60 per week for the change in the second-highest threshold.

But, just as how the Hitchhiker's Guide to the Galaxy said that if anyone discovered exactly what the universe was for and why it was here, it would instantly disappear and be replaced by something even more inexplicable, the complicated changes Morrison wants to bed down would disappear in 2022 and be replaced by something much more expensive, that by 2024 morphed into an even more expensive fairly flat tax structure with zero rate up to $18,000, a 19 per cent rate to $41,000, then a 32.55 per cent rate all the way to $200,000 followed by a top rate of 45 per cent.

Morrison wants the parliament to vote for it straight away, even though the final stage of the transformation wouldn’t take place until 2024. And, unfathomably, he doesn’t want to tell it how much each stage would cost.

Asked repeatedly in parliament on Wednesday to outline the year-by-year cost of what he was asking the parliament to vote for Morrison refused and accused his questioner of being “tricky”.

“The cost of the measure is $140 billion over the next 10 years,” he said. “The bill is on the table, vote for it or oppose it. Whichever way you do it, the Australian people know where you sit on tax and where they sit on tax: higher tax on Labor, low under the Liberal and National Party."

Which didn’t answer the question. But it suggested answers. The Treasurer is required to publish in the budget papers the cost of the first four years of the tax changes (the years that encompass the bizarre tax offset). It’s $13.4 billion, which works out at $3.35 billion a year.

Simple maths suggests the cost of the remaining six of those 10 years would be a very large $126.6 billion, which works out at $21.1 billion a year. So large is $21.1 billion per year (six times the size of the tax cut in the first four years) that it is almost impossible to find a tax cut to compare it with. None of them, not since the ones that brought in the goods and services tax at the turn of the century, has been anything like as big.

It’s almost as if Morrison has deliberately made his scheme complicated and of unknown long-term cost in order to have the Senate reject it.

A simple cut, of the kind we thought we were promised, would have sailed through. Morrison could have cut the 19 per cent rate to 17 per cent or the 32.5 per cent rate to 30.5 per cent at a cost of $4 billion or $6 billion a year. Taxpayers would have understood it and enjoyed the benefits from day one.

Labor could have understood it and topped it as well, perhaps as soon as Thursday night in the budget reply speech, which might be another reason why Morrison has opted for something so complex and ungainly that no-one would want to top, let alone replicate.

Or it could be that he just likes tinkering. Whatever the reason, he served us poorly on budget night. We could have had a tax cut we understood and could spend. We might have thought we deserved one.

In The Age and Sydney Morning Herald