$510 for an average worker, $6200 for Malcolm Turnbull

There’ll be plenty of post-budget spin around in the next few days, so just a few minor observations:

  • In a neat exercise in bait-and-switch, the increases in family tax benefits that were “leaked” on Monday turn out to be pretty small. I don’t think that’s a bad thing – as I argued this morning, expanding churn is simply inefficient.
  • Some of the investment in the budget (roads, VET, Indigenous health) seems pretty reasonable. It might have been better, however, if the cash had been directed at spurring reform. I don’t get the impression that this is the case, but I haven’t pored over the fine print.
  • The tax cuts are more regressive than I’d expected, worth ten times as much for the richest 1% as for a middle-income earner. Put these tax cuts together with last year’s budget, and it may be that the tax changes in Australia have been as regressive as the Bush tax cuts of 2001.
  • Because most journalists think $80,000 is a middle-income wage, stand by to hear these mis-described again as tax cuts for the middle and the top.
  • Will the budget will cause the RBA to push up rates? Costello’s argument is that continued surpluses make it unlikely. On the other hand, when Keynes wrote about expansionary fiscal policy, I think $9 billion a year in tax cuts is the kind of thing he had in mind.

Update: Andrew Norton reminds us that his eminently sensible proposal to raise the loans cap on FEE-HELP was adopted in the budget. Nice to see bloggers making policy.

Further update: Bruce Chapman in the Age has more to say about how the budget will affect universities. The headline is suprisingly inapt.

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19 Responses to $510 for an average worker, $6200 for Malcolm Turnbull

  1. Guy says:

    Regressive tax cuts? This federal government??

    No way man, that would be too out there to be true. Errr… right?

    As I mentioned over at Catallaxy, I was pretty disappointed with the lack of any new major initiatives in relation to education. There has been a bit of tinkering as Andrew Norton observes, but nothing too much to write home to future generations about.

  2. Sinclair Davidson says:

    I see the government is taking your advice and putting heaps of money into the Roads to Recovery Program ($300 mill before end of June). :)

  3. Ian Holsman says:

    so.. what is a middle income wage according to your research?

    What percentage increase is $510 of a average workers wage compared to $6200 for Malcom Turnbull?

  4. Mork says:

    Regressive tax cuts? This federal government??

    No way man, that would be too out there to be true. Errr… right?

    Would I be right in thinking that if you count payments and allowances, this government’s changes to the tax system had been modestly progressive until the last two budgets?

  5. I worked my tax cut out. I get $660. That’s $12.70 a week on my figures. Three milkshakes!

  6. Mork says:

    By the way, I would bet that Malcom Turnbull’s tax cut is a LOT larger than $6200.

  7. Corin says:

    Looks like another political offering. As usual though it was measured but not bold. I think that is hallmark of Costello – he is boring but solid.

    Tell me about this LITO offset rise and uplift of the Tax Free threshold for those affected – is that similar to a tax credit or not?

    I’m not sure I agree entirely with your view that the 42% did not need an overhaul – though reducing it to 40% is not a great effort. 45% as a top rate seems like an appropriate top rate and a reduction of 2% is small bickies – besides anyone with even a modicum of common sense and the opportunity to do so will be there own boss and become a trust or company – working for people is a mugs game if you ask me. You get pension at the end of an uncertain jobs market spent changing jobs every 3 years ….. yeah great …..

    Only senior associates and partners in law and accountancy firms will pay the top rate – well those who aren’t trusts. Occassionally bankers will, but I’m sure they’ll find a tax shelter too. One of the Libs failures on taxation was to cave into the Nats on the proposed 30% rate on Trusts a few years back – that would have changed the game and that big loophole used by every lawyer in Australia to lower tax paid by the rich.

    I see in the commentary that tax “avoidance” is being cracked down on – what does that mean? Perhaps Malcolm Turnbull ……..

  8. Kim says:

    Mork, all his income above and beyond his parliamentary salary probably goes into a trust.

  9. Patrick says:

    Turnbull had a nearly 50% tax cut a few years ago – the concessional taxation of capital gains. He doesn’t earn diddly in income from services now, not compared to 10% return on his capital.

  10. Andrew Leigh says:

    Ian, in February, I calculated the mean income among workers as $42,000.

    Kim, Mork, you’re right – I was only basing my estimate on MT’s parliamentary salary. He also gets an extra 5% of whatever his income is above that.

    Sinc, nice commentary in Crikey this morning.

  11. Bring Back EP at LP says:

    what worries me is the structural deterioration in the budget.
    As Chris Richardson said although the budget papers says commodity prices will start to come off soon the assumptions for company profits do not bear this out.

    On Super.
    getting rid of benefits tax whilst maintaining contributions tax is insane.
    With an aging population you will need the benefits tax ( aligned with income tax). you do not want to be reliant on contributions tax when the labour force will decline

  12. derrida derider says:

    The so-called “churn” from family benefits could be dramatically slashed with a few simple administrative measures that would encourage most people to get it through the tax system rather than from Centrelink, if that’s what you want (most people can do this now, but relatively few do because its actually easier to claim through Centrelink). But as I’ve argued elsewhere, “churn” in this sense is not nearly as inefficient as you and Peter Saunders think, at least compared to the alternatives. How much financial help we should be giving those with children and which families we give it to are separate set of issues from how we deliver it.

    And lefties should not be keen on the LITO. Its effect is to create a new tax bracket. Those with income between $25000 and $40000 now face a higher tax rate (34%) than those with income between $40000 and $75000 (30%). And there is the interesting question of whether you put it into the PAYE withholdings scale. Currently we don’t, so it adds to the tax refund at the end of the year. But if you keep it out then those with incomes under $22K get no tax relief at all from the Budget during the year – something they’ll notice on 1 July. If you put it in PAYE, then like any degressive scale (eg FTB) some people with variable earnings are going to end up with a tax debt at the end of the year – and they’ll be low income people too. I

  13. derrida derider says:

    BTW, I agree with Homer on super. Whether you should reduce tax on super to encourage more of it is one thing (I don’t agree, but that’s another argument). But doing it in a way which gives a big windfall gain to existing superannuees is not economicially sensible – you can’t get the same behavioural bang for your buck. But of course the politics runs the other direction – better-off retirees have always been seen by Johnny as a group whose vote is eminently buyable.

  14. Patrick says:

    better-off retirees have always been seen by Johnny as a group whose vote is eminently buyable – let’s rephrase that in a more useful way:

    better-off retirees are a group whose vote is eminently buyable

  15. Pingback: KieranBennett.com » Blog Archive » Australian Federal Budget 2006

  16. Eco Student says:

    On Tax Cuts For The Rich:

    – The rich pay a lot more tax in absolute dollar terms than the poor and middle classes, so of course they should get a higher tax cut, it was their money to start out with.

    On “Average” Incomes:

    – Average individual incomes are misleading. I will earn about $20,000 this year, before tax. But do I consider myself poor? No. Why? The main breadwinner in my household is on a much higher income. The tax and welfare system in my household works to redistribute income from my father (a professional on a six figure income) to my mother and siblings (all of whom are either drawing from the government as students or working on low incomes or both). Out of six household members, my father’s work supports 85% of our expenses. A tax cut to the rich (aka mr Dad) doesn’t hurt the other five of us, in fact, entirely the opposite, it helps us much more than any tax cut to the poor. A tax increase on the rich would jeopardise my father’s ability to pay the mortgage, buy groceries, and pay for all the other things he does which support our entire family.

    Where am I going? Well, what is important to determine the effect of tax cuts is the average income of the breadwinners, whether they be male or female, on whom the rest of us depend for most of our income. And in that context, the suggestion that a middle income is $80,000 probably isn’t that far off, the middle income of a breadwinner is probably about $80,000.

    On the other side of the coin, this is one of the best arguments against the living wage. Why should employers be forced to pay a “living wage” capable of supporting a wife and two children to a 21 year old like myself who still lives at home with my parents, eats their food and drives their car? Most 21 year olds would waste a “living wage” on travel, entertainment or drugs (legal and illegal). Conversely, a “living wage” would make hiring many of us uneconomic and deny us important experience in the workforce.

  17. passerby says:

    Well he was pretty spot on with relations to the “Tax cuts” and the RBA YTD. See date above versus comment.

    These were the tax cuts that were to relieve the burden of increases to costs and the impacts effecting household expenditure in the past year leading up to them.

    Costello used this as his basis for defence of the rising costs and how the “Tax Cuts” on July 1st 2006 were is detracting remedy.

    Once again the effect of these tax cuts are and are $2.00-$6.00/week for the average Australian.

    When applied to a millionaires salary and a businesses ability to decrease his tax liability via cost of sales and expenses, this is significant.

    There is a large contigent of Public Service Labour, assisting our governments both local, state and federally, having a price tag which skew and warp the National average wage, along with a small but profitable and influencial private business sector.

    At least 70% of Australians remain average wage earners, whilst the remainder of 30% with above average wages, stack National figures with an assumption that affordibility in increases of costs can be absorbed.

    Time and time again the average wage earner finds a scurry by business across the board to take a slice of any tax cuts in their wages. Even our own government.

    This normally results in a deficit far greater than the “Tax Cut” itself, eroding standards and quality of life for the majority, pushing individuals and families into low and poor income households.

    Handouts only serve for providing the basic necessities and are only committed to maintaining a below the poverty line society, whilst other handouts are also be enjoyed by high income households who do not need them.

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