SPEECH - HOUSE OF REPRESENTATIVES
TUESDAY, 22 MAY 2018
There's one thing worse than right-wing ideologues, and that's unoriginal right-wing ideologues who have to borrow their tax-cutting strategy from overseas. The story of this government's personal income tax plan originates in United States Republican law, with people like Irving Kristol and Grover Norquist. To see the origins of this, you need to look back to the Bush tax cuts implemented in 2003, which saw 53 per cent of the cuts going to the top one per cent. American taxpayers making $10 million or more pocketed an average of $1 million a year. But, in order to hide from the American people the impact of that tax cut, a short-term stimulus was put in place, and so everybody saw an immediate handout but, over the long run, it was the most affluent who received the most.
We've seen President Trump recently pass through Congress a similar tax plan. According to the non-partisan Tax Policy Center, over the course of the long term, the impact of the Trump tax plan is to give multimillionaires more than $700,000 but those in the bottom fifth absolutely nothing. The middle class, over the long term, receive a smaller dollar amount from the Trump tax cut, and they receive a smaller percentage amount. The income boost for the very top can be as high as 10 per cent. The income boost for the middle is just one per cent.
Again, the Trump tax cuts' long-term impacts are hidden through short-term payments which are due to expire for the middle class. US economist Paul Krugman likens this to going out to dinner with a wealthy acquaintance. The dinner starts with the wealthy acquaintance promising to pay everything, and so you order a hamburger each, and then, as the meal goes on, the acquaintance turns around and orders the most expensive bottle of wine and a filet mignon steak and then says, 'Put it on the poor guy's credit card.'
That's what we've seen from the early 2000s Bush tax cuts and from these most recent Trump tax cuts.
It is a strategy which has its origins going right back to Irving Kristol's ‘starve the beast’ strategy—the notion that if you cut down government revenue enough then you would have a political excuse to slash the politically popular social safety net. Grover Norquist's group, Americans for Tax Reform, required American Republican candidates to sign 'no new taxes' pledges. You saw movements in the early 2000s to shutdown so-called tax harmonisation—effectively, to go soft on tax havens like the Cayman Islands—costing American taxpayers up to $70 billion a year. I commend to the House the piece in Rolling Stone a couple of years ago: ‘How the GOP Became the Party of the Rich’.
We've seen in the Australian context exactly the same playbook. In the 2014 budget we saw permanent cuts to the social safety net but a temporary increase in taxes for the most affluent. The only temporary measure was the one that applied to the most affluent Australians. That debt levy lasted only from July 2014 to June 2017, despite the fact that—as the shadow minister for finance points out—the net debt has doubled under the Liberals. What we see now in this tax plan is something very similar to what we saw from the 2014 budget, from the early Bush tax cuts, from the most recent Trump tax cuts. It is a set of tax cuts whose early effect is to benefit middle Australia but whose later effect is considerably more regressive.
The government has been steadfast in refusing reasonable requests from Labor to provide distributional analysis. We didn't used to have to ask for these things. The budget used to contain a Family Impact Statement, which was omitted with the 2014 budget—not surprising, given how regressive the measures in that budget were. I'll bet, as the Shadow Treasurer said in his speech today, that analysis was done but simply not released. So others have stepped into the breach. Analysis from Ben Phillips at the Australian National University uses the relatively new model, the ANU PolicyMod model of the Australian tax and transfer system. That model estimates that, of the measures due to take effect in 2018-19, the average change in disposable income per household would be fairly similar across the distribution. A middle-quintile household would benefit to the tune of $508, a top-quintile household, $650. In proportionate terms for the middle-quintile household, that would be 0.6 per cent and, for the top-quintile household, that would be 0.3 per cent.
But it is a very different story when you look at the impact by 2024-25. In that year, the average change in disposable income per household for the middle quintile would be $913 but for the top quintile would be $4,925. That means the top would get more in dollar terms but they would also do better in proportionate terms. According to the ANU analysis, middle-income households would receive a one per cent increase in disposable income by 2024-24 while the top would receive a 2.2 per cent benefit in disposable income per household. As the ANU analysis concludes:
Initially these measures are tax cuts targeted at lower and middle income individuals but by the middle of the next decade the measures are weighted towards higher income individuals.
A similar analysis carried out by the Grattan Institute shows that the later measures would be more expensive and further skewed towards the top. Its estimate is that by 2024-25:
The income tax cuts are much larger for higher income earners in absolute terms. People in the top 20 per cent will get an average tax cut of $4,600 a year compared to $700 a year for someone in the second-lowest income quintile.
The Grattan Institute concludes that 60 per cent of revenue foregone goes to the top 20 per cent of income earners.
The respected economic commentator Ross Gittins sums it up by saying, 'Morrison's tax cuts miss the middle'. He has made the point that over the long term the impact is considerably skewed towards the top.
I hear those opposite saying 'nonsense'. You can change whatever laws you like, but the laws of mathematics are immutable. It is those laws that the coalition would desperately like to change, because they don't want Australians to know how regressive their long-term tax plan is.
NATSEM modelling suggests that the new tax system from 2024-25 is less progressive than the current tax system. This means we'll get higher inequality as a result of these cuts. There is a simple metric for progressivity. It's a measure that looks at how much the tax system reduces inequality. You have a fixed level of inequality that comes from the market, and then you can ask the question, 'How much does the tax system reduce that?' There are a bunch of indices one can use for this—like the Suits index and the Musgrave-Thin index—but the simplest is the Reynolds-Smolensky index, which simply says you've got a Gini coefficient, inequality before the tax system, and another Gini coefficient, inequality after the tax system takes effect. The difference between the two is the Reynolds-Smolensky index.
Danielle Wood from the Grattan Institute has simply calculated how much that index would change under business as usual or under the government's tax plan. Under the government's tax plan, you actually see an increase in that index over the short term. You see an increase in progressivity—the tax system does a little more to reduce income inequality in Australia. That's why Labor has said, on the measures that take effect from 1 July this year, that we will be supporting those. But then, from 2024-25 onwards, you see something very different. The Grattan Institute analysis from that period onwards shows that the redistributive effect of taxation would be much lower—in other words, that we would have a higher level of inequality from 2024 onwards under the government's tax plan than we would get under a baseline measure. In rough terms, we're talking about half a Gini point of difference in inequality in Australia by the late 2020s under the government's tax plan compared to business as usual.
You can also see the difference looking across Australian suburbs. As work by NATSEM has shown, the biggest winners out of these tax proposals by 2024 are those in Sydney's eastern suburbs, inner harbour and north shore, as well as inner Melbourne suburbs. Households in Bellevue Hill gain $9,355. A household in Toorak by 2024-25 gains $9,057 according to NATSEM. Meanwhile, a household in Lakemba sees a disposable income increase of $2,693. A household in St Albans, in Melbourne's west, gains $2,800. The areas that benefit least include the far north of New South Wales and areas in Tasmania. There's also a gendered impact of the tax changes. The Australia Institute's analysis shows that roughly two-thirds of the benefit of the government's proposed income tax cuts flow to men, since men dominate the ranks of high-income earners. For every dollar in tax cuts that goes to women, men get two dollars.
That's why Labor has said very clearly that we see merit in supporting the first stage of this tax plan, the measures due to take effect on 1 July this year. In fact, we don't just support them; we're bettering them. We're offering more-generous tax cuts for 10 million Australians, under a Shorten Labor government. Those earning from $50,000 to $90,000 will see a tax cut under a Labor government nearly twice as generous as that which they would receive under the government's tax plan.
Households earning from $50,000 to $90,000 would be around $400 a year better off.
There are some, notably the Australian Greens, who don't believe that 10 million middle Australians should receive a tax cut. They're wrong because, at a time when we are seeing real wages flatlining, middle Australia is doing it tough. The most recent wage price index is up only 2.1 per cent over the year. The quarterly number is the second lowest since the Australian Bureau of Statistics started calculating the wage price index in 1997. So most workers haven't seen any real growth in pay.
Drivers are also doing it tough as a result of increases in the cost of petrol in Australia. Analysis by economist Shane Oliver calculates that there's been around an $8 a week rise in the average cost of petrol in Australia, with petrol prices going up from around $1.25 a litre to $1.45 a litre and potentially rising another 3c or 4c a litre in the next week or so. Were that to occur, that would consume the entire benefits for a middle-income household of the government's proposed tax increase.
Labor will always be the party of equity. But we are also the party of productivity and growth. The way in which you get growth and productivity is by making sure that you are focused on the effective marginal tax rates of those who are on the margin and moving from welfare into work. That's why Labor make no apologies for focusing our tax cuts on middle Australia. We will not be following the Irving Kristol, Grover Norquist, George W Bush, Donald Trump, Tony Abbott playbook for taxes. We will not be offering middle Australia a short-term bauble and giving long-term, massive handouts to the top end of town.
Authorised by Noah Carroll ALP Canberra