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A GST for all of us?

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A GST for all of us? , ---- lev*

Date: 23 June 99 Author: ACTU - Jennie George, ACTU President

Source: The Sydney Morning Herald

The Sydney Morning Herald is to be congratulated for informing the public debate on the GST with its analysis of the Howard/Costello/Lees tax package. [SMH, 11 June 1999] The detailed distributional tables commissioned from Access Economics will help your readers answer some questions about the package and how it affects their personal circumstances. For most workers, the promised gains will prove illusory.

This is because the analysis presented does not show whether taxpayers are better or worse off in real terms - that is, after allowing for bracket creep since the income tax scales were last set - in 1993. This issue (as it affects the GST deal) has previously been highlighted by several senior journalists. Access Economics knows all about it too; indeed, Access has actually quantified the effect of bracket creep on average tax rates since November 1993 [see Access Economics, 'Five Year Business Outlook' 29 January 99, page 87; 'fiscal drag' and 'bracket creep' are different names for the same thing].

Importantly, when the effect of bracket creep on the equity of the proposed GST package is taken into account, the conclusion that 'all groups are better off is no longer sustainable. In fact, every income earner without dependents who earns less than $40,000 a year is worse off under the proposed package. On the government's own figures, there t are 3.72 million single taxpayers plus 1.28 million taxpayers in dual income couples with no dependent children; applying the rule of thumb that 60% of employees have incomes less than average earnings (presently $37,000 for full-time adults) reveals some 3 million individual taxpayers will be worse off under the Howard/Lees compromise when bracket creep is taken into account.

Of course, there is scope for debate over the size of any adjustment for bracket creep; but its existence is not in dispute. Some might argue that 'the past is past', and that bracket creep should be ignored. To do so is to generate a manifestly unfair result. By 1 July 2000 when the proposed package comes into effect, more than six and a half years will have elapsed with nominal wage rises but no income lax cut. Wage earners deserve an

income tax cut now. Who can remember the last time it was so long between tax cuts?

The effect of bracket creep over six years of wage rises is to raise average income tax rates. This effect is particularly sharp for low paid workers who rely on modest Safety Net wage increases, but the proposed GST income tax cuts are least for the same group and insufficient to offset bracket creep for many of them. In contrast the tax cuts in the

Howard/Lees compromise package for high income earners (whose incomes have grown by much more than Safety Net amounts in the nineties) exceed the amount required to offset bracket creep, and by a hefty amount.

In the charts based on the Access analysis reported by the SMH, the 'missing column' is one which shows what the current tax liability would be if the income tax thresholds were first adjusted for bracket creep. The ACTU has recalculated the Access results, replacing the nominal value of the income tax cuts proposed with their real value after allowing for bracket creep; all other calculations made by Access are unchanged.

The resultant picture of winners and losers under the proposed GST package differs dramatically from the Access results reported by the Age. The real value of the income tax cut fails to compensate for GST price rises for all workers earning between $20,000 and $40,000 per year. Virtually all foil-time workers on award rates are worse off, with

the greatest losses borne by workers earning between $23,000 and $30,000 a year - such as shop assistants, child care workers, factory workers, clerical workers, drivers and storepersons. A tradesperson on award rates is slugged about $12 a week under this


A similarly changed pattern emerges for families with children, with gains much reduced at all income levels.

[In our calculations we have adjusted only the two lowest tax thresholds; the adjustment factor of 20% is based on Living Wage increases from 1993 to July 2000. Adjusting the present $38,000 income tax threshold for bracket creep would show losers under the package up to incomes of $50,000 per year.]

Ordinary Australian workers are not mugs. They correctly doubt the relentless hype which says this package will be good for them. They feel the pinch of bracket creep, of going six years without a tax cut, and will feel the real loss of living standards when the GST becomes law.

What credence can be put on the claim that the Democrats' compromise package has achieved a fairer result than the Howard/Costello original?

With the Democrat/Liberal GST package, the biggest dollar gains go to high income earners; and the losses fall on the battlers - low paid workers. The distributional contours of the Access analysis are right; but by omitting bracket creep from the calculations, the real level of benefits shown is wrong.

Whatever else may be said about this compromise GST deal - about its complexity, its administrative burden, its arbitrariness, and its lack of any macroeconomic dividend - when bracket creep is taken into account this is an unfair package. Ordinary working Australians are no better off under the compromise than the Howard Costello original and no amount of hype will convince them otherwise. The price effects of the GST will be an important consideration for unions in wage bargaining and Living Wage claims over coming years.

Full details of the calculations referred to in the article are below:

Real Value of the GST Tax Package - with adjustment for bracket creep

Private Income ($/yr) Real Value of Tax Cuts ($/wk) What is the package worth to me in real

terms? ($/wk)

What is the package worth to me in real terms? (%)

10000 0.50 1.84 1.1

15000 3.30 2.81 1.1

20000 6.20 -1.49 -0.5

25000 -2.90 -12.03 -3.1

30000 0.90 -9.74 -2.2

35000 4.70 -7.44 -1.5

40000 12.00 -1.65 -0.3

45000 24.50 9.33 1.5

50000 36.90 20.23 3.0

55000 41.70 24.03 3.4

60000 46.50 27.61 3.6

65000 46.50 26.50 3.3

70000 46.50 25.39 3.0

75000 46.50 24.27 2.7

For further information

Contact: Clare Curran Address: 54 Victoria Street Carlton South VIC 3053 Australia Work: +61 (03) 9663 5266 Fax: +61 (03) 9663 4051 Email: WWW:

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