The Guardian June 28, 2000

The Maths of Tax "Reform"

Kerry Ans

Howard's claim of a "more simplified tax system" belies the reality of the 
new tax system. To work it out a high level of numeracy and literacy are 
essential. There are many in the community who have neither. Many small 
shopkeepers are already closing. The task of trying to cope with new 
accounting methods, computer skills, quarterly tax returns, balancing out 
GST taxes charged and GST taxes accrued is turning into a nightmare.

The Howard Government claims that no-one will be worse off under the new 
tax system. However, the modelling used by the government appears to be 
based on fairly simplistic maths. The government claims that nothing will 
go up by more than 10 per cent, and that the prices of many products will 
come down (because of the abolition of wholesale and sales taxes). This 
implies that the average cost of living of people will not increase by 
anything near 10 per cent.

To offset the imposition of the GST, the government has reduced tax rates 
and marginally increased the tax-free threshold for PAYE income tax. It has 
also increased the various social security benefits and allowances by 4 per 
cent, and increased the income and assets tests on these by 2.5 per cent.

Even if the average pricing structure does not increase by more than 10 per 
cent, the increases in take home pay for low income earners, from the tax 
cuts, and in the level of pensions and allowances, are nowhere near the 10 
per cent mark.

Pretty slim

A 4 per cent increase in the maximum benefit or allowance turns out, in 
dollar terms, to be a pretty slim amount, given that the base figure on 
which it is calculated is low to start with. For example, a single person 
or sole parent on the maximum Disability Support Pension (DSP) of $9812 per 
annum and earning no other income, will get an increase of $392 per annum.

The cost of the majority of services will rise by the full 10 per cent, and 
household rents, initially, by about 5 per cent. Five per cent on a weekly 
rent of $200 (which is a low figure in Sydney) is $10 per week or $520 in a 
full year.


Many goods and a lot of food items will rise anywhere between 4-10 per cent 
and this assumes no rorting by retailers. The high cost of many basic white 
goods and basic home appliances means that the increases of the GST are on 
a high base figure (eg on $800 for a medium-size refrigerator and $500 for 
a family-size second hand washing machine). There was previously no sales 
tax on second-hand goods.

Food increases aside, a person on the maximum DSP with no other income 
would use up half their yearly 4 per cent increase just on the three 
examples cited above, which are the sort of normal wear-and-tear 
replacements faced by ordinary people.

It is interesting to compare the net increase in the changes to DSP 
recipients and low income earners, with those of a high salary earner. Many 
people on a DSP are being "encouraged" by the government to move back into 
employment, and many end up in a situation of receiving a partial DSP and 
doing some part-time work.

Every time there is a change in the various eligibility criteria (eg assets 
and income test, age and status of dependent children, applicability of the 
domicillary allowance, rent assistance test, etc) people in receipt of a 
Disability Pension or any other type of pension have to re-do their maths.

Maximise, survive

They need to maximise their income in order to survive. They need to know 
their rights to do battle with the over-worked and stressed Centrelink 
staff. Many people in receipt of the DSP do not have high numeracy skills 
nor are they highly articulate because of the nature of their disability 
(eg mild intellectual disability).

The tax "reforms" are the latest nightmare numeracy test for such people to 
face. As the table indicates, welfare recipients and low income groups get 
much less from the "reforms" than high income earners.

Both groups face identical price increases on goods and services. High 
income earners can afford to employ "creative" accountants and tax agents 
to work out ways to minimise the impact of any tax system. Low income 
earners and pensioners cannot do this. But that's what Howard's "fair" tax 
system is all about!

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