The Guardian 18 May, 2005

Budget 2005-06:
Workers lose out to wealthy
in Costello tax “reform”

Bob Briton

The major selling point of Federal Treasurer Costello’s 10th budget was its pledge of “tax cuts for all”; changes to the income tax rates that will cost the Commonwealth $21 billion in foregone revenue over the next four years. However — as welfare organisations and opposition parties have pointed out — the tax cuts are so skewed in favour of the rich that only the already wealthy and the columnists of the corporate media have shown any real enthusiasm for them.

The Howard government is not bothering to disguise the crudeness of its bias in favour of the well-off with this budget. “You’ve got to have a society that encourages effort and hard work, you’ve got to have a society that rewards success”, the PM told the press last week. “We need a taxation system that will retain the brightest and the best in this country.”

To stop these “aspirational” voters from getting itchy feet, the budget proposes to raise the threshold of the top marginal tax rate of 47 per cent from the current $70,000 per annum to $95,000 next financial year and to $125,000 from July 1, 2006. The move will then save these members of the top three per cent of income earners up to $4252 a year or $81.76 per week.

For the rest of us, the workers and others on low incomes, who Howard obviously considers not too bright and not very hard working, the tax cuts are a joke. A casual or part-time worker on $10,000 will benefit by the grand sum of $80 — that is $80 per annum — less than the weekly tax cut of someone on $125,000 or more! The cuts gradually rise with income, at $20,000 it is $280 per annum ($5.38 per week). (This is due to a reduction in the marginal tax rate of 17 per cent to 15 per cent on incomes between $6001 and $21,600.) This group of taxpayers got no relief whatsoever last year.

Changes to the Family Tax Benefit (A) will see the income cut-off for eligible families (the combined family income it should be noted) rise by just over $4,000 to $37,500. An estimated 400,000 additional cash-strapped families will have access to a munificent $12 a week towards the cost of raising their children as a result of this change. The shame represented by these stats is lost on the government.

The tax cut benefits increase slowly as incomes rise to $60,000 per annum where the saving is $10.61 per week. The serious savings are reserved for those individuals who belong, in the main, to Howard’s constituency — $38.50 per week will be given to those earning $75,000 and above while an individual pulling down $100,000 a year will save $62.53 per week. From July 1, 2006 only those on incomes of over $125,000 p.a. will be expected to pay the top marginal rate of tax of 47 per cent.

The surcharge on the superannuation contributions of wealthier individuals (earning over $99,710 p.a.) was to be reduced in stages from its previous 12.5 per cent to 10 per cent this year and to 7.5 per cent next year. However, in a fit of selective generosity the government is proposing to abolish the surcharge altogether from July 1 this year, claiming (not at all convincingly) that compliance and administrative costs would not be justified by the reduced revenues from the levy. These super changes will cost an estimated $650 million in 2006-07 and $990 million in three years time.

Reaction from the community has been swift and predictable, though downplayed in the corporate media.

Greens Senator Bob Brown spoke for many: “This budget is perverse — it actually forces poverty onto some Australians. Australia is in the bottom half of OECD nations in terms of the percentage of citizens living below the poverty line. This budget will make the situation even worse.” SA Unions secretary Janet Giles pointed out that the tax changes were neglecting the “mass of low-paid workers” created by government policy. Over the past 10 years, 80 per cent of all jobs created have been paid less than $26,000 a year.

The ALP, the Democrats and the Greens have vowed to block the new tax scales and the abolition of the superannuation surcharge in the Senate. In his reply to the treasurer’s budget, ALP leader Kim Beazley proposed raising the income threshold for the marginal tax rate of 30 per cent from $21,600 to $26,400. This would effectively double the tax savings for lower paid workers. However, Mr Beazley is also sensitive to the demands of the “aspirational” voters out there by raising the threshold for the top marginal rate of income tax from $80,000 to $100,000.

Beazley did not suggest any reductions to the $1.8 billion worth of gifts to business proposed by the government including a broader range of deductions under capital gains tax. The idea that the $21 billion being spent on tax cuts — overwhelmingly in the interests of the rich — could be spent instead on the funds-starved health, education and welfare sectors was similarly avoided.

Back to index page