Despite government being the only thief of wages in this country, Bill Shorten has announced an ironic policy to combat “wage theft”, ease the cost of living squeeze and forcibly increase wages for the lowest income earners in Australia. The oh-so-virtuous policy of increasing the minimum wage may sound appealing, but it is nothing other than a bid to grab votes from disillusioned workers.
Aside from the fact that minimum wages have been proven to harm low-income earners, Shorten should be condemned for his utter hypocrisy. Rather than seeking to punish businesses that provide jobs, governments should take a look in the mirror and assess the ways in which they make life harder for low-income earners.
Shorten may not have heard the news, but there’s more than one way to skin a cat. So, here are five tips for him to reduce the cost of living and help ordinary Australians without increasing the job-destroying minimum wage.
1 Increase the tax-free threshold on personal income
If Shorten wants to assist the lowest income earners in Australia, his first priority should be to stop taxing their paycheques so much. The tax-free threshold for personal income is currently $18,200 – there are no plans from either major party to increase this amount in the foreseeable future. Australia has a minimum wage of $18.93, meaning someone employed full time at this rate would earn $37,405.68 in a year and pay around $3,704 in tax. Increasing the tax-free threshold to $40,000 would effectively result in a 10 per cent pay rise for this income earner without putting their job at risk.
2 Reduce fuel excise
Fuel excise is a particularly pernicious tax, with the government gouging consumers at the pump. In February this year, the fuel excise rate was increased to 41.6 cents per dollar. The GST is added at the end, meaning that Australians are lucky enough to pay tax on the tax they pay per litre of fuel.
In 2017-18, the cost to Australian drivers of fuel excise was $17,080,000,000 – not including GST. Without these taxes, we could see fuel cost less than $1 per litre. Taxes on fuel, alcohol and tobacco are extremely high and remain indexed to inflation, so they are constantly increasing. These three in particular fall disproportionately on lower-income earners. Reducing them could go a long way to improving the cost of living crisis Shorten seems intent on fighting.
3 Remove tariffs and barriers to free trade
Australia continues to impose a number of tariffs on goods that often have no local production base to protect; a 5per cent tariff on car imports lingers despite no local car manufacturing to protect. A 5per cent general tariff on most goods, a relic of 1970s policy, drives up the cost of goods that every Australian relies on. A paper from Australian National University estimates Australia’s GDP would increase by 0.4-0.5per cent over time with the removal of these tariffs. That’s $7 billion in national income ripe for the taking. By scrapping trade barriers, Shorten would be putting his money where his mouth is and benefit Australian consumers and businesses.
4 Remove payroll tax and reduce business tax
Tobacco and alcohol taxes are often justified by highlighting that they discourage a behaviour. If this is the case, then the same goes for a tax on jobs. It should be of no shock that when state governments levy payroll taxes, they cause lower pay, less work and higher prices. Abolishing payroll tax would be literally abolishing a tax on jobs. As it was put quite simply in a recent article: “Want to support workers? Stop taxing our jobs”.
Business tax has garnered unnecessary controversy in recent times. Many believe business are somehow ‘undeserving’ of a tax cut, as if to concede that business taxes are nothing more than a punitive measure. Reducing business tax can go a long way to increasing jobs and wages, however. In 2018, an analysis of the small business tax cuts found that 49per cent of the money saved went towards increasing wages, hiring new workers and increasing investment within the company, with the remaining amounts reserved for cash flow. If these cuts were extended to larger companies where cash flow is not as much of an issue, even greater proportions can be expected to flow on to workers through more and higher paying jobs.
5 Index income tax bracket thresholds
As wages rise over time, earners are pushed into higher tax brackets. This ‘bracket creep’ is a sneaky, politically safe, method of increasing tax burdens without having to jump through the hoops of parliament and face scrutiny at elections. Bracket creep could be fixed if bracket thresholds were indexed to inflation. And hey, if alcohol, fuel and tobacco taxes can be indexed, why can’t income taxes?
It’s not only Australian workers who are struggling with a rising cost of living; Australian businesses face the same pressures. Punitive taxes and regulations make it more difficult and expensive to run a business, and increasing costs of operating will destroy industries and jobs. Bill Shorten’s virtue signalling policy of increasing minimum wages will not help Australian workers, it will reduce their hours and destroy many jobs. Shorten might actually care about ordinary Australians, but it’s hard to believe while he pursues punitive taxes. If he really wants to make a difference, our five tips above are sure to have a significant impact.
Got something to add? Join the discussion and comment below.