Two cheers for Treasurer - The Centre for Independent Studies
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Two cheers for Treasurer

hockeyOn Monday, the Treasurer, Joe Hockey, made a speech arguing that personal taxes should be cut, particularly to address bracket creep (when taxpayers pay a greater proportion of their income in tax as a result of inflation and wage increases).

He argued that bracket creep is reducing Australian’s income and employment, cutting incentives to work harder and invest, and reducing financial security.

These are all welcome sentiments.

But the speech was merely an announcement that the government is going to make an announcement about tax options; then announce which option it will choose, then (probably) take this option to the election, and then present legislation to implement this option to Parliament. There are many steps between the speech and addressing the actual problem.

There are more problems with messaging. Treasurer has stated he want to reduce income tax before, and this message has been greatly confused by the Government’s actions to increase the top marginal tax rate, broaden the tax base and continue discussions on increasing the Medicare Levy.

This all stands in contrast with the Treasurer’s arguments in the speech. He rightly argues that bracket creep is a stealth tax increase. He also notes that, if nothing is done, the number of taxpayers in the top two marginal tax brackets will increase from 27% today to 43% in 10 years’ time. Mr Hockey also states that bracket creep hits low and middle income earners the hardest and that the lack of personal tax reform is making Australia less competitive with other countries in our region. Separately, the Commonwealth Treasury has argued that bracket creep will result in a tax increase of $25 billion over the next four to five years.

But all these sentiments argue for action now. Not Monday’s announcement of a plan for a plan for a plan for a plan for a plan.

Michael Potter is a Research Fellow at the Centre for Independent Studies