What's inside Joe Hockey's head?
Do you like paying tax? No, I thought not. Well, I have good
news. The harsh measures in last week’s budget were directed towards one
overwhelming objective: getting the budget back into surplus without
increasing taxes to do it. Indeed, Joe Hockey is working towards the day
when he can start cutting income tax.
If you hadn’t quite realised that, you could be forgiven.
You’ve been unable to see it because of two distractors: the deficit
levy and the resumed indexation of fuel excise.
But the levy is just a temporary pin-prick to the top 3 per
cent of taxpayers who will pay it. And the price of petrol will rise by
only about 1 cent a litre per year. The effect of the excise increase
will be dwarfed by the ups and downs in the world price of oil.
Illustration: Kerrie Leishman.
The catch is this: you may hate paying tax, but don’t be too
sure Hockey’s efforts to avoid tax increases and eventually make room
for income-tax cuts will leave you ahead on the deal.
Why not? Because to avoid increasing taxes - and avoid
cutting the big tax breaks some people enjoy - Hockey has concentrated
on cutting back all manner of government spending. And most people -
maybe all families bar the top 10 per cent or so - have more to lose
from cuts to government spending made, than they have to gain from tax
That’s particularly true when Hockey’s efforts to cut
government spending take the form of tightening means tests, moving to
meaner rates of indexation and introducing or increasing user charges.
Don’t think just because you voted for the Coalition Hockey
is looking after you. It works out that low income-earners – generally
the old, the young and the unemployed - are heavily dependent on
government spending, and genuinely middle income-earners with dependent
kids are significantly reliant on government spending.
Only high income-earners who’ve already been means-tested out
of eligibility for most programs (e.g. me) have little to lose from
Hockey’s cuts. That’s the reason for the deficit levy. Without it, it
would have been too easily seen that high income-earners weren’t doing
any of Hockey’s "heavy lifting".
Indeed, too many people might have twigged that the whole
exercise was designed to have high income-earners as its chief
beneficiaries. The spending cuts are permanent and many of them save
more as each year passes. But the deficit tax is temporary.
Hockey wants us to believe he had no choice but to do what he
did. I accept he had to get on with bringing the two sides of his
budget back into balance, but he had a lot of choice in the measures he
took to bring that about.
He chose to focus on cutting three big classes of government
spending: health, education, and income-support programs (pensions, the
dole and family tax benefits). Not by chance, these are the programs of
least importance to high income-earners.
He carefully avoided cutting the programs of most importance
to the well-off: superannuation tax concessions, the concessional tax
treatment of capital gains and negative gearing, Tony Abbott’s Rolls
Royce paid parental leave scheme, the mining industry’s fuel excise
rebate and other "business welfare" and, of course, the high
income-earners’ favourite charity: defence spending.
And while slashing away at health, education and income
support, he was also busy abolishing the carbon tax, the mining tax paid
largely by three huge foreign mining companies, cutting the rate of
company tax by 1.5 percentage points and exempting federal grants to
private schools from his education cuts.
Hockey will tell you his net cuts to health, schools and age
pensions don’t actually take effect until 2017, after the 2016 election.
This is the basis for his claim not to have broken Abbott’s election
promises. (Remember, all the proceeds from his cuts and charges in
health care will go into the new medical research future fund.) It’s
largely true - though only for Abbott’s “core” promises.
Even so, Hockey’s most objectionable changes are the punitive
treatment of the young jobless and the attack on Medicare’s principle
of universality. The measures that will do most harm to the Liberal
heartland (including the children of high income-earners) are the
changes to HECS and deregulation of university fees.
Some people are referring to Hockey’s $7 patient co-payment
for GP visits, tests and scans as a tax. This is quite wrong. It’s
precisely because it isn’t a tax that it has been introduced. It’s a
user charge: use the service, pay the charge. By contrast, taxes are
amounts you pay the government that bear no direct relationship to what
you get back.
High income-earners want more user-charging (for
pharmaceuticals as well as GP visits) because they’re no great burden to
the highly paid, but they reduce the need for higher taxes. They reduce
the cross-subsidy from the rich to the poor.
I must warn you, however, of the one glaring exception to
high income-earners’ insistence that tax increases be avoided at all
cost (to other people). The one tax increase they lust after is a rise
in the goods and services tax.
Why? Because they believe it will be part of a deal in which
the higher GST paid by everyone is used to pay for another cut in the
rate of company tax plus a cut in the top rate of income tax.
Ross Gittins is economics editor.