By Allen Myers
Here we go again. For the second time this year, business, media and politicians are bombarding us with propaganda for tax "reform". The word has to be put in inverted commas, because they don't really mean reform — i.e., improvement — but reaction, a big step backward. Yes, it's a renewed push for a goods and services tax (GST).
On Saturday (May 17), there were banner headlines about Treasurer Peter Costello favouring a GST in the Coalition's "next" term of government — he's presuming it will be re-elected. Since the Liberals have been in favour of a GST since at least 1993, this was hardly news, but that didn't keep it off the front pages.
Similarly on the following Monday. "PM's push for tax reform", said the lead headline in the Sydney Morning Herald, "Howard pledges tax reform", the one in the Australian.
Both were rather exaggerated descriptions of John Howard's typically evasive words on a television interview the night before: "I wouldn't yet start getting time specific about that, but there is no doubt that, at some stage, sooner or later, we will have to reform the Australian taxation system. You have to acknowledge that the system is less than perfect ..."
What's new, or even what really happened, has nothing to do with it. The big media are part of big business, and big business wants a GST. So we will continue to be bombarded with beat-ups designed to convince us that there's a growing public support for a GST, that nearly everyone now realises they were mistaken in voting against it in 1993 and that the "national interest" demands this "reform" quick smart.
Then Howard and Costello — or, for that matter, Beazley and Evans — will bring it in, shifting billions more in tax burdens from the wealthy to the rest of us.
"Business, welfare groups call for tax reform" proclaimed the headline on page 6 of the same Sydney Morning Herald that had Howard's "push" on the front page — they don't do things by half measures at Fairfax.
The article that followed began, "Australia's tax system is in dire need of sweeping reform and is costing the nation jobs and export dollars, business and welfare leaders claim".
Where, and on what occasion, did the business and welfare leaders make this claim? Was it to mark the conclusion of a conference which had debated the issues? Did they call a media conference to announce the results of a new study?
The Herald's journalist doesn't tell us. And the little she does reveal only arouses more questions: Mark Paterson, president of the Australian Chamber of Commerce and Industry is cited as speaking "yesterday", i.e., on a Sunday.
Has tax "reform" become so urgent that ACCI officers now work on it through the weekend? Or did the Herald simply solicit comments from Paterson or quote an ACCI press release, without revealing that the only "news" here was that business hadn't changed its views on a GST?
The substance of the argument for business-style "reform" is even less reliable.
The article reports that Paterson "said the tax system relied far too heavily on taxes on income".
"The top marginal income tax rate 25 years ago", Paterson, or his press release, told the Herald, "came in at 15 times average weekly earnings, but now cuts in at 1.3 times AWE".
First, has the government's overall income tax take been increasing, so that it now relies "too heavily" on income taxes? Not at all. In 1993-94 (this is the last year for which the Australian Taxation Office has so far published complete statistics), all taxable individuals paid 23.3% of their total taxable income in income tax and the Medicare levy.
This rate of tax paid has declined over the last decade: in 1984-85, it was 24.4%, and in 1988-89, 25.3%.
And does the ACCI really want to return to the income tax system of 25 years ago? That's hardly likely: despite Paterson's suggestion, income taxes on the wealthy have been falling, not rising.
Paterson neglects to mention why the top marginal rate now cuts in at a lower level than previously. Over the period of the federal Labor government, income tax rates were "flattened" considerably; they became less progressive.
In effect, people on higher rates were moved down to a rate that previously applied to "middle" incomes: in 1985-86, the top marginal rate was 60%; today it is 47%.
If we go further back, to the time frame Paterson mentions, 1972, the comparison is even more revealing. What follows regarding income tax is not 100% accurate, because 1974-75 is the earliest year for which I can find an income tax form, and there were some small changes in taxes on lower incomes contained in the 1974 budget. Nevertheless, the figures are close enough for a rough comparison of income tax then and now.
In 1971-72, average weekly earnings were $4857 per year. The highest marginal income tax rate began at $40,000 — not 15 times AWE, as Paterson claims, but a bit over eight times. This highest rate, however, was not 47% or even 60%, but 67%.
Moreover, the next highest marginal rate, 64%, began at $20,000 per year — only four times average earnings.
There was no marginal rate exactly the same as today's high, 47%, but a 48% marginal rate applied to incomes from $8000 to $9999: that is, it began at around 1.6 times average earnings — higher than the 1.3 times AWE of today, but not astronomically so.
Taken together, what these figures show is that income taxes on the wealthiest have been reduced, and that the lost revenue has been partially recovered by raising the marginal rate on virtually everyone else.
For example, someone on AWE today (around $37,000) is taxed at a marginal rate of 34% and is getting close to a rate of 43%, which starts at $38,000 per year. In 1971-72, the marginal rate for someone on AWE was 26%.
People on the very lowest incomes are also paying more in order to reduce taxes on millionaires. Today, you are taxed when you reach one seventh of AWE, at a marginal rate of 20%. In 1971-72, there was no tax on incomes below about one fifth of AWE, and the marginal rate was 7%. Then, you didn't pay at a marginal rate of 20% until you reached three quarters of AWE.
(The situation today compared to 25 years ago is even worse than appears from the above, because we now also pay a Medicare levy.)
This raising of others' income taxes to save money for the rich has made it easy to create a sentiment that "income taxes are too high". In fact, they are too high for most of us because they are too low for a few.
Now the same forces want to use our fatigue with high income taxes to get us to accept a GST. We should understand that this is just another con trick, another way of shifting even more taxes from the rich to working people and the poor.
But, of course, that won't stop the big media from telling us that we're almost rioting in the streets to demand a GST.