Fatal flaws in the Labor policy to increase wages

The IPA has produced a short and lucid summary of the false assumptions that underpin the ALP policy and the damage that it will do to employment. h/t Wes Goh.

Still, there are legitimate concerns about stagnating real wages. Real wages in the private sector have grown by just 1 per cent during the past five years.

This is partly because of myriad entitlements and conditions included in employment contracts that raise the cost of employment for businesses and lower nominal wages.

But the single biggest hit to take-home pay is income tax. Any attempt to improve wages must include lowering taxes, which in practice means reducing government spending.

Governments cannot legislate Australia’s way to prosperity, or to higher wages. Higher minimum wages simply boost the wages of some at the expense of others who will lose their jobs or be set fewer hours. The best way to increase the take-home pay of Australians is to cut income taxes and reduce the onerous regulations on business that undermine economic opportunity and wage growth.

On the topic of taxation and employment, is there a more stupid and destructive tax than payroll tax?

This entry was posted in Economics and economy, Rafe, Taxation. Bookmark the permalink.

35 Responses to Fatal flaws in the Labor policy to increase wages

  1. Richardf

    Immigration not a factor? Today I employ experienced developers for less than I earnt in my first year out, early nineties. That’s not adjusted for inflation, my Dover Heights apartment cost <$200k or ~3yrs salary!

  2. kc

    States are adicted to payroll tax and the first one to “break rank” and do what Jo BP did with death duties way back when would be a game changer. I remember doing a bit of homework, comparing the PT thresehold to average wages when it was first introduced and a company needed about 150 staff. It is now less than 20. Talk about “bracket creep”. A fine for creating too many jobs….absurd.

  3. struth

    On the topic of taxation and employment, is there a more stupid and destructive tax than payroll tax?

    No

  4. stackja

    ALP know how to ruin an economy.
    Just ask Kev 07.

  5. Bruce

    Struth:

    On the topic of taxation and employment, is there a more stupid and destructive tax than payroll tax?

    No

    Give the statist mongrels time.

    “Carbon” tax?

    “Congestion”tax?

    “Poll” tax?

    ANY “environmental tax.

  6. Confused Old Misfit

    Political parties, government officials, union officials, all of us, have before us an example of how to turn around the economy and mood of a nation in 24 months.

    The best way to increase the take-home pay of Australians is to cut income taxes and reduce the onerous regulations on business that undermine economic opportunity and wage growth.

    And the best way to rejuvenate Australia is to do precisely that!
    Why will it not get done?

  7. max

    Gary North:

    Biblical principle of taxation: Every higher level of civil government must tax only the next lower level. No tax should be paid directly by residents to any level of civil government above the city or county, whichever local voters have chosen as the originating tax jurisdiction under which they live. All higher levels must tax only the next lower level. The Federal government taxes the states; the states tax the counties; the counties tax cities or county residents.

    One supposed limitation on the central government is the structure of federalism: maintaining local political sovereignties.

  8. bespoke

    South Australia has eliminated pay roll tax on small business.

  9. Confused Old Misfit

    The best way to increase the economic vitality of this country and to increase the take-home pay of Australians is to cut income taxes and reduce the onerous regulations on business that undermine economic opportunity and wage growth.

  10. Atoms for Peace

    And index the taxation rates to CPI.

  11. TBH

    Don’t get me started on payroll tax. It is one of the stupidest taxes ever invented and inhibits employment growth. Problem is the states are addicted to it, like they are stamp duty. I thought all these silly taxes were supposed to go away with the advent of the GST?

  12. Bruce of Newcastle

    New York raised the minimum wage recently. The logical then happened…

    NYC Implemented Minimum Wage Hike For Fast Food Workers. Now They’re Looking For Jobs. (1 Mar)

    In July 2015, New York’s Fast Food Wage Board, appointed by New York governor Andrew Cuomo, agreed with the labor movement and recommended a $15 an hour minimum wage for fast food workers working for companies with at least 30 stores nationwide.

    That plan looks like it was a disaster, because following the implementation of that recommendation, New York City showed the greatest plunge in restaurant jobs in almost 20 years.

    All those poor ex-workers now can’t make ends meet in expensive New York. And restaurant goers can’t get decent service. So everyone leaves.

    Why more people are leaving New York than any other state (19 Jan)

    Socialism in action. I hope Bill Shorten will learn this economic lesson before he lays waste to inner Sydney and Melbourne where people like him like to live.

  13. struth

    Give the statist mongrels time.

    “Carbon” tax?

    “Congestion”tax?

    “Poll” tax?

    ANY “environmental tax.

    The problem with payroll is that it is taken before the dumb or young worker misses it.

  14. struth

    At least they have tax competition between the states.
    How does a state that is prohibited from taxing at all, by the constitution, and must call it a fee or a “rate” etc, have payroll tax that it could eliminate, bespoke?

  15. Ƶĩppʯ (ȊꞪꞨV)

    Socialists won’t be happy till the tax rate is set to 110%

  16. John Constantine

    Cut the income tax posing as the superannuation levy.

    In an economy about to roll over, what is the point of removing the proles rights to spend their own money to drive the economy onwards, just to let labor superfund maaaates lock the wealth up into piles and charge the proles fees for stealing their own money?.

    Comrades.

  17. Big_Nambas

    On the topic of taxation and employment, is there a more stupid and destructive tax than payroll tax?
    NO.
    One of the major reasons I am retired and 40 odd people no longer work for me is payroll tax

    what is the point of removing the proles rights to spend their own money to drive the economy onwards,

    Because you have to save it first so Labor can steal it.

  18. South Australia has eliminated pay roll tax on small business.

    What is SA’s definition of a “small business”?

    Payroll tax is a significant cost for me.
    (That a country pub is paying payroll tax is a sick joke)

    I’m particularly aggrieved to see major corporations often get an exemption from payroll tax – a standout example; Citibank got a 5 year holiday from it, then left the state the day it was due to kick in.

  19. Fisky

    Labor’s going to find it hard to raise wages unless it scraps the population ponzi policy. But instead they want to import another 10,000 “refugees” every year.

  20. Tel

    Don’t get me started on payroll tax. It is one of the stupidest taxes ever invented and inhibits employment growth.

    Payroll tax is very similar to income tax from an accounting perspective, and an economic perspective.

    All taxes have their problems, the theory is that income & payroll taxes are at least broad and “neutral” in the sense that they don’t pick winners. On the other hand they make everyone a loser by discouraging the will to work at all.

  21. Income tax is at least applied to profits. (disallowing of significant business costs notwithstanding)
    Payroll tax on the other hand, is a tax on the input effort.

  22. jo

    I hope Bill Shorten will learn

    Bruce, Short Willie wouldn’t learn where his arse was if his head was on backwards. The bruvvers would have to tell where it was.

  23. MPH

    Higher minimum wages simply boost the wages of some at the expense of others who will lose their jobs or be set fewer hours.

    Did anyone think that there was any game other than the inside game? That’s what it has always been about on the left, over the last couple of decades the LINO brigade have fallen into it as well.

  24. Dr Fred Lenin

    Has anyone in the alp workers party ever had a job outside of taxpayer funded ones or union ones bludging on the wukkas. Are there any alp politicians who dont have a mickey mouse uni “degree” .
    If f the answers are No what the hell woukd they know about workers ?
    The left is full of frauds ,rotten with them .

  25. Peter Greagg

    Tel
    #2968651, posted on March 24, 2019 at 2:30 pm
    Don’t get me started on payroll tax. It is one of the stupidest taxes ever invented and inhibits employment growth.
    Payroll tax is very similar to income tax from an accounting perspective, and an economic perspective.

    Tel is exactly correct. The reason people are confused about payroll tax is that it is levied on the employer, while income tax is levied on the employee. But they have the same economic incidence.

    So if you want to argue against payroll taxes, in general, you are also arguing against income taxes.

    That said, payroll taxes could be much better designed than they are. Get rid of thresholds, and lower the rates to lower the efficiency costs. BTW, the same arguments apply to reforming income taxes.

  26. Yohan

    Its not just payroll tax. There is the workcover fee, which is just another misnamed payroll tax.

  27. Iva Right

    There are a whole raft of taxes planned for self funded retirees to fund labor’s promises. dividend imputation was just the first of such measures. Next we will see anything above the old age pension as taxable which will also effectively get self funded retirees back into the Medicare levy system. Tax those who did and give it to those who don’t and won’t – their base!

  28. Kneel

    “…is there a more stupid and destructive tax than payroll tax?”

    Growth tax – that’s the ticket!
    Keeps everything “sustainable”, see ’cause “just ticking over” is better, tax wise, than rampant, environment destroying growth. And the very greedy will take advantage of the tax off-sets to shrink their assets, reducing pointless consumerism and reducing income inequalities at the same time.

    Hey, if MMT is mainstream, this can’t be far away…

  29. Squirrel

    Labor, and all the others calling for an increase in real wages, seem to overlook the fact that we have an economy with some sectors which are open to the full blast of international competition, others which are still highly protected (notably the middle and upper ranks of our burgeoning public sector), and some which are mid-way between the two – that’s the fatal flaw in calls for across-the-board wage increases (if you actually care about people in the first group).

    As to payroll tax, it would be a much better target for the attentions of the parrot chorus which is constantly blathering on about the evils of property conveyancing taxes (by no means “good” taxes, but the sort of necessary evil we have to live with in a nation which keeps voting for big government).

  30. Tim Neilson

    Tel is exactly correct. The reason people are confused about payroll tax is that it is levied on the employer, while income tax is levied on the employee. But they have the same economic incidence.

    Not entirely under our current system.

    An enterprising Australian can at present invest in, e.g., a property, lease it out and negatively gear it against the assessable income from wages. That is, income tax is in a broad sense a tax on overall profit. As SatP pointed out, payroll tax isn’t taxed by reference to profit, either the employer’s profit or the employee’s.

    Of course when Peanut Head abolishes negative gearing in order to punish any rank and file citizen with the temerity to try to work, save, invest and become self-reliant, the system will be shifted much more into conformity with Tel’s analysis.

  31. Percy Popinjay

    Perfesser, this needs to stop.

  32. BorisG

    Any attempt to improve wages must include lowering taxes, which in practice means reducing government spending.

    No it doesn’t. You can also increase the deficit. It may not be prudent but you can. Many countries have shown it.

  33. Nob

    Dr Fred Lenin
    #2968712, posted on March 24, 2019 at 3:55 pm
    Has anyone in the alp workers party ever had a job outside of taxpayer funded ones or union ones bludging on the wukkas?

    Fred there aren’t many in any party.

    Problem with politics worldwide.
    Why The Blob especially hates and fears Trump.

    Even the ineffectual Abbott put the shits up them.
    Deep down they know they’re probably unemployable outside The Swamp.

  34. flyingduk

    Higher wages can only be paid for by higher productivity. Higher productivity comes from efficiency improvements paid for by savings. With interest rates at near zero, there are no savings. Next question?

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