Opinion & Commentary
No real value in tax changes
Real tax reform requires lower, fewer and flatter tax rates
Now the dust has settled, what are we to make of Treasurer Peter Costello's 12th Budget?
The income tax cuts, of course, are welcome, although a $16 a week saving for the average worker is not a lot to get excited about.
Four years ago, an income tax cut of $6 was dismissed as "a sandwich and a milkshake". This week's $16 cut might elevate that to a beer and a pizza, but it's still not huge, and it will be eroded over time by inflation.
Tax brackets should be indexed just as welfare payments are automatically adjusted every year, but Costello refuses to do it.
He also persists in fiddling with thresholds rather than slashing marginal rates. Real tax reform requires lower, fewer and flatter tax rates to improve rewards for those who choose to work harder or increase their skills.
After this Budget, workers on only $30,000 a year will still lose 35.5 from the next dollar they earn, and families with children commonly lose more than 50 in the dollar.
The long-term aim should be a tax and benefits system where no one faces effective tax rates higher than 30 per cent, but this week's Budget took us no closer to that objective.
The Treasurer's promise to simplify on-line tax returns was welcome, but it does little to overcome the complexity of our current system.
All those offsets, rebates, allowances, credits, benefits and payments lead 70 per cent of Australians to use tax accountants, yet most of us still end up making involuntary, interest-free loans to the Government which do not get repaid until we submit our annual tax returns.
We should learn from overseas and simplify the system so most people never have to fill in a tax return.
What of the help the Treasurer offered to parents faced with high childcare costs?
Can't we at least applaud that? Not really. In his last election Budget three years ago, Costello complicated things by introducing a new childcare rebate on top of the existing childcare benefit.
This week, these two payments became even more entangled when the rebate was extended and turned into a Centrelink welfare payment. So now we have two different subsidies doing essentially the same job.
Not only is this wasteful, but we should ask whether the Government should be subsidising institutional child care at all.
Take two families where the husbands earn the same income. Mrs Smith decides to stay at home to look after her young children, but Mrs Jones prefers to return to work and put her children into child care for 50 hours a week.
Why should the Smiths, on their one income, subsidise the cost of child care incurred by the Joneses on their two incomes?
A more sensible policy would ensure that both families received the same financial support to help with the cost of raising their children, and would then leave parents themselves to decide how it should be spent.
And what about the centrepiece of this year's Budget - the $5 billion endowment for the universities?
Wasn't this a positive innovation?
First, let's be clear why it was done.
It was partly to spike Opposition Leader Kevin Rudd's guns and seize the high ground in the education debate.
And it was partly to find a repository for a big chunk of the surplus created by taking more in tax than the Government knew what to do with.
We might argue this money should never have been collected in the first place. If anyone should be saving our money, it is us, not the Government.
Second, think about the possible unintended consequences of this new fund. One is that it will erode the independence of the universities, for as the Prime Minister has made clear "the Government will make the final decision" when it comes to dispensing the cash.
Academics who say they are concerned about academic freedom should be worried about this, but most are already queuing up with their hands outstretched.
Another concern is that this fund could dissuade many private philanthropists from giving to universities in the future.
The Treasurer boasted that his $5 billion matched all the endowments made to Australian universities in the past 150 years.
Put another way, the Government has swamped this market.
If you were thinking of leaving $10,000 in your will to your local university, would you now bother knowing that Costello has trumped you 500,000-fold?
Professor Peter Saunders is The Centre for Independent Studies social research director.
