The passing of the government’s major tax package is good news in a number of different ways. Stage 3 of the package will see a substantial flattening of marginal tax rates, with all taxpayers earning between $45,000 and $200,000 (pretty much all full-time workers) facing the same marginal tax rate of 30 per cent.
The government can no longer be accused of shirking substantive economic reform. And assuming that the tax cuts remain in place to be implemented — which is not a certainty — these reforms will be some of the most substantial since the Golden era of the 80s, 90s and early 2000s.
Morrison has also succeeded where both the previous Labor government (through the 2010 Henry Tax Review) and the current Coalition government (through the abandoned 2015 Tax White Paper) failed.
Though this is not a grand bargain tax reform of old, and despite it being tempered by the fact that most of the tax cuts’ benefit is simply returning accumulated bracket creep, the government has succeeded in passing reforms that will lower the tax burden.
But perhaps more importantly, the government can claim to have changed the narrative in the tax space.
For years, the only measure that seemed to matter in terms of tax reform was ‘can we make each element of the system more progressive?’ Other goals of tax reform — including efficiency and simplicity — were abandoned for the simple goal of trying to soak as much money out of the ‘rich’ as possible.
Advocates for lowering the overall tax burden, or for improving the system for existing tax payers, had a great deal of difficulty in getting political attention. Higher taxes and the so-called rich ‘paying their fair share’ seemed to be all that mattered.
Right up to the end of the debate on these cuts, consistent with this narrative, much of the focus was on how they are supposedly unacceptably regressive. Or how they delivered greater tax cuts than just returning bracket creep — as if that is a bad thing.
Tax cuts should reduce the overall tax burden — anyone who feels they don’t pay enough in tax is always welcome to pay more voluntarily. It never seems to work that way though, does it? It always seems to be about other people paying more. The default assumption that government revenue should only go up is a terrible way to order society.
Poor people may indeed need more help, and government could always do better in prioritising spending, but taxpayers deserve a break every now and again too.
Simon Cowan is Research Director at the Centre for Independent Studies.
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