I don’t usually read Craig Emerson’s column in the Australian but Gab prevailed on me to do so.
So he makes several misleading statements but one, in particular, is very naughty.
In removing the carbon price and the mining tax, an Abbott government would also remove the government’s small-business tax breaks and reverse the trebling of the tax-free threshold to $18,200 by taking it back to $6000.
The evil (future) Abbott government will tax poor people! If only they would, but no. The rich – and even not so rich – will continue to bear the tax burden.
ALMOST 13 million Australians file a tax return each year, but only the top fifth of households really contribute to Australia’s vast and complex social-security apparatus.
For the other 80 per cent, the value of cash welfare payments and social security in kind – health, education and housing, for instance – typically exceeds their total tax payments, even incorporating indirect taxes like the GST and tobacco excise.
So what is the story?
It is true, the Gillard government increased the tax-free threshold from $6,000 to $18,200. But that ignores the low income tax offset that used to be quite generous. This has always been the source of confusion. Here is former PM Kevin Rudd getting it wrong.
On the question of the tax system, though, let’s just go to how it’s structured. What we have is what we call a tax-free threshold. I think, from memory, it’s about $12,000 or $15,000. That means for that first $12,000 or $15,000 that you earn you’re not taxed.
At the time the tax-free threshold was $6,000 but as then Finance Minister Lindsay Tanner quickly explained
He told The Australian Online that Mr Rudd was really referring to the Low Income Tax Offset (LITO) which allows people on lower incomes a higher tax-free threshold.
He argued that in the context of the question this was the appropriate benchmark to refer to.
“What it means is that for people on low incomes, the effect of the Low Income Tax Offset is that people on low incomes enjoy a much higher tax-free threshold than people like me on high incomes,” Mr Tanner said.
So the argument that Gillard government have increased the tax-free threshold from $6,000 to $18,200 is technically correct – but practically irrelevant. For low-income individuals what they have done is effectively increase the tax-free threshold from $16,000 to $18,200. Nothing to sneeze at, but not really the generous reform that it is made out to be.
Presumably an incoming Abbott government would restore the LITO to its previous generosity if it lowered the tax-free threshold. At the same time it could reduce the marginal tax rates that some low and middle income earners face – these tax rates were increased by the current government. We discussed this issue at the time.
While I hesitate to say it, perhaps he should stick to singing.