Turnbull's tax cuts for the rich

The Socialist Alliance stands for a steeply progressive taxation system.

The federal Coalition government's so-called "tax reform" package is, overall, a major escalation of the capitalist class war by the rich against the poor and working people.

The initial tranche of income tax measures will reduce tax by a very modest amount for low-income taxpayers, but the long-term effect of the package is to massively reduce tax on the wealthy and attack the elements of a progressive taxation system established in this country over many years.

The tax plan, passed in the Senate on June 21 by 37 votes to 33, with the support of most of the "independent" crossbenchers, is worth $144 billion over seven years. It is by far the biggest tax cut for the well-off in Australian history.

In the end, by 2024, the second highest tax bracket will be eliminated, meaning that in seven years' time someone earning $200,000 a year will be paying tax at the same rate as someone on $41,000.

This is a huge step in the direction of a "flat tax" system favoured by the neoliberal right, and a major blow against a more progressive tax system that would put the main tax burden on the rich.

The much-trumpeted first stage of the cuts, to be implemented from July 1, will give low-income taxpayers earning between the lowest tax threshold of $18,200 and $37,000, a tax refund of a princely $200. Those on incomes between $37,000 and $90,000 (the majority of workers) will get back a maximum of $530, or about $10 a week.

Rich benefit

The second part of the government's tax package concerns "bracket creep." Currently, those on incomes of up to $37,000 a year pay tax at the rate of 19 cents in the dollar. The now-adopted tax plan will raise that threshold to $41,000, meaning an extra $135 a year for low-wage workers.

The next tax bracket of 32.5 cents in the dollar will rise from $90,000 to $120,000. This means average, full-time workers will receive a small benefit.

But the third and last change is the worst. It will totally flatten the tax system by removing the 37 cent threshold altogether and increasing the threshold for 32.5 cents in the dollar to $200,000.

This means that people earning between $41,000 and $200,000 — 94% of the population — will pay the same rate of tax.

But high-income earners could get back more than $11,000 in tax, while a low-income earner on $30,000 could receive only $1400. This is a huge hand-out to the well-off, at the expense of the poor and ordinary workers.

Even Fairfax columnist Jessica Irvine was moved to proclaim, "These are the tax cuts we don't deserve and can't afford. They are not part of a wider tax reform package, leave the budget too vulnerable to future economic shocks and they're unfair to boot.

"Upper income earners will be the biggest winners over the seven year horizon of the tax cuts that passed the Senate yesterday, with the support of One Nation. That's your first clue: when Pauline Hanson backs your tax code, alarm bells should be ringing."

Politically, the passage of the tax package through the Senate, with only one independent senator opposed, is proof once again that the shambolic collection of right-wing misfits that constitute the cross-bench are little more than unruly cheerleaders for the Coalition when push comes to shove.

Loss of services

Now, the $144 billion lost from federal tax revenue over seven years, will mean social welfare and other public spending will be slashed over an extended period to "balance the budget".

Australian Council of Social Service CEO Cassandra Goldie said: "The tax package is gambling with the future of our medical services, aged care services, disability services and social security payments most of us rely upon at some stage of our lives.

"Essential services will lose funding because tax cuts have to be paid for. When that happens, every person in Australia loses. We will all have to pay for services that in Australia have been universally available to us all."

Guardian columnist Greg Jericho wrote on June 26: "While our progressive income tax system does reduce inequality, it is what is done with government revenue that really does the heavy lifting.

"And this is the problem with the government's tax plan. It both reduces the progressive nature of our income tax system, shifts a greater share of revenue to taxes like the GST, and because of the vast cost of the tax cuts, the government will have to reduce the amount it spends on cash benefits and services.

"It adds up to a policy that will almost assuredly make Australia a less equal society, and so obvious is this outcome, you could be forgiven for thinking it was the intention."

Despite the government’s failure to get the numbers in the Senate to force its corporate tax cut bill through in the parliamentary session just concluded, it is still determined to push ahead with its plan to cut the tax rate for big corporations from 30% to 25% as soon as possible.

Responding to the plan, Oxfam Australia's Fair Economies Advocacy Manager Joy Kyriacou warned: "The proposed $65-billion hand-out for big business would make Australia the latest country to join the global race to the bottom on corporate tax rates.

"Slashing the corporate tax rate would undermine attempts to tackle inequality and poverty, both in Australia and around the world. When governments enter a race to the bottom on corporate tax rates, everyday people lose.

"It is utterly inconceivable that the federal government wants to push ahead with slashing the corporate tax rate when Australian Taxation Office data shows that more than one in three large Australian companies paid no tax at all in Australia for the past three years of reporting."

Meanwhile, as wages continue to stagnate, the cuts to weekend penalty rates adopted by the Fair Work Commission earlier this year, come into force on July 1. This will accelerate further the growing inequality in income and wealth introduced by the government's tax plans.

For a progressive tax system

The Socialist Alliance calls for a radical transformation of the tax system that takes aim at big business and the super-rich.

The move to raise the income threshold to $200,000 for the 32.5 cents in the dollar bracket should be reversed and current tax brackets should be subject to regular adjustments for inflation.

The highest tax bracket should be raised from its current 47% to its previous level of 60%, and the GST, which hits ordinary people the hardest, should be abolished.

Far from cutting the corporate tax rate, the Socialist Alliance says it should be immediately returned from its current level of 30% to 49%, as it was until 1988, and serious measures must be taken to eliminate corporate tax-dodging.

The Socialist Alliance stands for a steeply progressive taxation system, in which big companies and the super-rich are made to pay.

[Jim McIlroy is a member of the Socialist Alliance.]