Why Morrison is wrong on tax rates

Following up on last night’s post, let’s look at tonight’s budget. First off, that tax cut.

What a load of bollocks. The cuts for this year are basically petty cash – a sweetener that is nice but unnecessary. But the cuts coming five years down the line are just insane! On top of a $40bn worth of company tax cuts, we’re now going to see $140 billion in income tax cuts, all aimed at the top 10% and higher income earners, with the bulk of the benefits going to less than 3%. These are people who already pay far less tax, as a % of their income, than they did 10 years ago. They (we – I fall into the $100,000-$200,000 salary range) do not need these cuts.

The Howard/Costello government, in their death throes, decided to drop income tax massively. They looked at a temporary windfall of revenue and said “That will last forever – let’s cut taxes”. Yes, they’d used the extra revenue – as well as massive asset sales – to reduce government debt until it was net positive (not eliminated), but they squandered the opportunity to build up any sort of buffer. Thus we sailed into the GFC, and saw a massive drop in government revenue that we never recovered from. Federal revenue dropped from being consistently in the 25%-26% range between 2000 and 2007, down to only 22% before recovering to just shy of 24% (Morrison’s magic 23.9% target).

Treasury is forecasting extra revenue next year and the year after. They’ve done that before, as well – usually with poor results. Morrison is using these forecasts of riches tomorrow to lock in tax cuts now. That’s a huge mistake, especially with the “debt-and-deficit disaster” we supposedly had (after all, if $250bn debt 5 years ago was a disaster, more than twice that now is worse). How about we actually see the extra revenue come in, run a few years of $10bn+ surpluses, and pay that debt down first?

Author: Robert Watkins

My name is Robert Watkins. I am a software developer and have been for over 20 years now. I currently work for people, but my opinions here are in no way endorsed by them (which is cool; their opinions aren’t endorsed by me either). My main professional interests are in Java development, using Agile methods, with a historical focus on building web based applications. I’m also a Mac-fan and love my iPhone, which I’m currently learning how to code for. I live and work in Brisbane, Australia, but I grew up in the Northern Territory, and still find Brisbane too cold (after 22 years here). I’m married, with two children and one cat. My politics are socialist in tendency, my religious affiliation is atheist (aka “none of the above”), my attitude is condescending and my moral standing is lying down. View all posts by Robert Watkins