Here is my best attempt to explain the current tax debate in a simple and fair way. I emphasise fair because no-one believes a government could get it completely wrong, intentionally or otherwise. It’s about priorities.
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Forget about the tax scales, thresholds, offsets, and the other jargon. All you need to know is that as a result of Malcolm Turnbull’s win in the Parliament last week, someone on $30,000 will soon receive a $200 (or $3.84 each week) tax cut over the course of next year and beyond. Someone on earning between $40,000 to 80,000 will receive a $530 tax cut. The tax cut peaks at earnings of $90,000 ($665), then those on $100,000 receive a tax break of $515 before it tapers down to a tax cut of only $125 for those earning more.
None of the above is unreasonable although Labor argued for a bigger cut for those at the bottom. But we were prepared to vote for what is known as “tranche 1”.
Tranche 2 which costs $80 billion doesn’t come into effect until 2022, possibly two elections away. It is more controversial because it starts to ramp up tax breaks for higher income earners while offering bugger-all for those earning less than $100,000. Those on $100,000 will save $1125 each year and it then gets even better the more you earn. Those on $200,000 will be $2,025 better off.
The argument in favour of tranche 2 is twofold; it offers well deserved (but not necessarily affordable) tax cuts and will put more money in the pockets of spenders. Second, it addresses “bracket creep”. Bracket creep is the effect of higher wages pushing people into higher tax brackets and therefore, paying more tax.
Tranche 3 was the most controversial. Not scheduled to begin until 2044 (I may not be there by then!), it again offers not one cent more for those earning below $80,000 or even $100,000. But those on $120,000 will by then be receiving a tax cut of $2,925 and those on $200,00 a cut of $7,225.
Tranche 3 removes one of the tax rates which means people earning $41,000 will pay the same rate as will someone on $200,000. That undermines one of the key foundations of our tax system, progressivity. That is, the more you earn the higher the tax rate.
After 2024, a two-income family on $67,000 and $33,000 will receive an annual tax cut of $740 while a couple earning $200,000 and $100,000 will receive a tax cut of $8,350. The cost of tranche 3 is $43 billion.
That is a lot of roads, teachers and nurses.
