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| Martin Parkinson gets serious with bracket creeps and fiscal drags | Martin Parkinson gets serious with bracket creeps and fiscal drags |
| (5 months later) | |
| When I was a much younger woman out on the town in Canberra, we used to joke that some of the blokes from treasury and finance were bracket creeps or fiscal drags, mostly the ones who thought such terms were scintillating social conversation. | When I was a much younger woman out on the town in Canberra, we used to joke that some of the blokes from treasury and finance were bracket creeps or fiscal drags, mostly the ones who thought such terms were scintillating social conversation. |
| But what treasury secretary Martin Parkinson had to say about fiscal drag in his speech on Wednesday night was no laughing matter and should absolutely be part of the national conversation, except that both sides of politics are too scared to talk about it. | But what treasury secretary Martin Parkinson had to say about fiscal drag in his speech on Wednesday night was no laughing matter and should absolutely be part of the national conversation, except that both sides of politics are too scared to talk about it. |
| Parkinson set out, in his direct factual way, that, even with very significant savings, the budget will only return to surplus within ten years if we get no personal tax cuts for that whole decade. | Parkinson set out, in his direct factual way, that, even with very significant savings, the budget will only return to surplus within ten years if we get no personal tax cuts for that whole decade. |
| And, since wages increase over time in line with inflation, not getting a tax cut is in effect the same as suffering a tax increase; “fiscal drag” pulls people into higher tax brackets (bracket creep) as their wages rise. | And, since wages increase over time in line with inflation, not getting a tax cut is in effect the same as suffering a tax increase; “fiscal drag” pulls people into higher tax brackets (bracket creep) as their wages rise. |
| According to Parkinson, in ten years time it would mean the average tax rate for someone on the average wage would increase from 23% to 28%, something he observed was “unlikely to be politically feasible” and would certainly be economically undesirable. | According to Parkinson, in ten years time it would mean the average tax rate for someone on the average wage would increase from 23% to 28%, something he observed was “unlikely to be politically feasible” and would certainly be economically undesirable. |
| This is because rising average and marginal tax rates discourage people from working and – given the ageing population – we need everyone working even harder. | This is because rising average and marginal tax rates discourage people from working and – given the ageing population – we need everyone working even harder. |
| Raising the overall rate of company tax is also not really feasible. As my colleague Greg Jericho has outlined, we already have one of the highest company tax rates in the OECD. | Raising the overall rate of company tax is also not really feasible. As my colleague Greg Jericho has outlined, we already have one of the highest company tax rates in the OECD. |
| (The Greens have advanced plans to raise revenue by fixing the mining resource rent tax, abolishing the diesel fuel rebate and levying the big banks, which would go some way to meeting the gap between the services we want and the money we have to pay for them, but they are as politically poisonous as increasing the GST.) | (The Greens have advanced plans to raise revenue by fixing the mining resource rent tax, abolishing the diesel fuel rebate and levying the big banks, which would go some way to meeting the gap between the services we want and the money we have to pay for them, but they are as politically poisonous as increasing the GST.) |
| And even so, the argument leads inexorably to exactly where Parkinson landed. Australia needs to consider raising more from indirect taxes, such as a fuel excise – the indexation of which John Howard froze in 2001 in an act of economically ill-considered political panic – and the GST, which was not levied on health, education or fresh food in order to get it through the Senate. | And even so, the argument leads inexorably to exactly where Parkinson landed. Australia needs to consider raising more from indirect taxes, such as a fuel excise – the indexation of which John Howard froze in 2001 in an act of economically ill-considered political panic – and the GST, which was not levied on health, education or fresh food in order to get it through the Senate. |
| Yes, the GST is a regressive tax but there are ways to address that, such as targeted personal income tax cuts. Is it administratively possible, for example, to levy it on health services, but exempt concession card holders? | Yes, the GST is a regressive tax but there are ways to address that, such as targeted personal income tax cuts. Is it administratively possible, for example, to levy it on health services, but exempt concession card holders? |
| And it’s not like Parkinson’s advice is whacky or radical. The government has received exactly the same counsel from the Business Council of Australia and the OECD. | And it’s not like Parkinson’s advice is whacky or radical. The government has received exactly the same counsel from the Business Council of Australia and the OECD. |
| But, to avoid a Labor attack during the last election, the prime minister, Tony Abbott, ruled out a GST change, apparently not just for this term but for good. The GST will be part of the government’s tax review but, even so, Abbott said during the election: "The GST will not change. Full stop. End of story." | |
| But it really can’t be the end of it. Because, as we face the reality of the coming spending cuts, and as our personal tax rates rise over time, those bracket creeps and fiscal drags are actually going to be telling a very pressing story. | But it really can’t be the end of it. Because, as we face the reality of the coming spending cuts, and as our personal tax rates rise over time, those bracket creeps and fiscal drags are actually going to be telling a very pressing story. |