Tuesday, July 12, 2011
Why is it that single working Australians on the same income will receive virtually no benefit from the tax cuts Labor proposes to ease the cost of the carbon tax?
And what is it about having a combined income of more than $150,000 that seems to disqualify households from receiving any benefit from Labor government programs - whether it's tax cuts, family benefits, paid parental leave - or now, relief from the carbon tax?
A close look at the detailed costs and benefits for households of 18 different types and 28 levels of private income might well leave one puzzled as to why the package was designed this way.
Treasury estimates that, of the 504 different households modelled:
. The biggest winners are (mostly) self-funded retiree couples with no dependants and a combined income of $80,000, split 70/30 between them. Thanks to a combination of tax cuts, pension rises and increased Medicare levy thresholds,they will get $2289 more from the government, yet they face a carbon tax bill of only $501. They will end up ahead by $1788 a year.
. In sharp contrast, a couple with three young children and a single income of $150,000 will get only $77 back from the government to help them pay an effective carbon tax bill of $785. They will end up behind by $708 a year.
. And single individuals will be net losers from the tax package if they earn more than $50,000. A single earning $80,000 will receive just $16 in benefits but pay $441 from businesses passing on the carbon tax.
This outcome seems to make no sense, but there are reasons why it happened.
Firstly, Labor wanted to ensure no one at the bottom was worse off. So it decided to lift benefits by 1.7 per cent, even though the modelling estimated the carbon tax would cost people on benefits just 1.1 per cent (which is more than the 0.7 per cent average for all households, because people on benefits spend more than they earn).
But in a futile bid to avoid complaints from the seniors lobby (which complained anyway), Labor passed on this benefit to anyone with a seniors health card. So self-funded retirees won on every count: pension rises, tax cuts, and for those in the sweet spot, exemption from the Medicare levy.
Secondly, the tax cuts. Since 2008, to boost work incentives, Labor has doubled the low-income tax rebate for millions of workers, from $750 to $1500. But people didn't see it as a real tax cut. So this time Labor will strip back the rebate and lift the tax-free threshold for all to $18,200 - and then claw back most of it by raising marginal tax rates. That means the tax cuts erode as your income rises, and cut out at $80,000.
While one aim was to lure more women and older people into part-time work by making it tax-free (to $18,200), inevitably, the main gains will go to people who did not get the low-income tax rebate: retirees whose incomes are from investments.
Family benefits will also rise, but they start cutting out at about $100,000, depending on how many children you have. By $150,000 they are gone, so families earning above that will get no help paying their carbon tax.
They also missed out on family handouts during the global financial crisis, on paid parental leave, on the baby bonus - and if Labor can get the legislation through, on tax breaks for private health insurance.
But bear in mind that individuals on $150,000 were the big winners from the Coalition's tax cuts. From 2003 on, they gained a massive $14,430 rise in take-home pay. Both sides protect their own.