Ideas@TheCentre brings you ammunition for conversations around the table. 3 short articles from CIS researchers emailed every Friday on the issues of the week.
When the re-elected Morrison government’s enlarged personal income tax cuts — as announced in the April budget — come before parliament for approval in July, they are likely to meet resistance in the Senate.
It would help if everyone approached the issue with a broad appreciation of the economic reasons for income tax cuts. Too often, tax cuts are viewed through Keynesian eyes as a form of short-term fiscal stimulus to boost consumer spending and aggregate demand in the economy.
While stronger consumer spending in the months ahead may be welcome, that is not the only reason — or even the main reason — for reducing personal income tax. What Australia needs more than a quick stimulus are structural reforms that will lift investment, productivity and competitiveness and thereby strengthen long-term growth in the economy and living standards.
In the arena of personal income tax, the most effective policies would be to lower marginal rates and increase the thresholds at which higher marginal rates apply. This will improve incentives and increase the reward for effort and self-improvement. Such polices will not produce quick results, but they will pay handsome dividends in the longer term.
In contrast, the first instalment of the government’s tax cuts — and at this stage, the only part certain of receiving broad political support — takes the form of an increase in the Low and Middle Income Tax Offset (LMITO). This reduces the tax-take, but it also creates an illogical mishmash of effective marginal rates through its phase-in and phase-out zones designed to deny any benefit to taxpayers above a certain income.
Under the government’s plan, LMITO will be replaced by reductions in marginal rates and increases in thresholds that will leave everyone at least as well off as under LMITO, but this does not happen in full until 2024. In particular, by then there will be a reduced 30% marginal rate applying across a wide income range of $45,000 to $200,000.
The weakness in the government’s plan is not that it costs too much — after all, it is only returning the proceeds of bracket creep to taxpayers, and revenue continues to grow significantly. Rather, it is that the real reform comes too far into the future.
Ideally, the cuts to marginal rates and increases in thresholds would be brought forward, but if this is a bridge too far, setting future changes in legislation now is the next best thing.
As the shock of the election result recedes, more comparisons are being made between Morrison’s triumph in Australia and Donald Trump’s surprise victory in the 2016 US Presidential election.
However, these comparisons are only valid at the most superficial level. Morrison is not Trump, and Australia is not America.
It is true that both Morrison and Trump came from a seemingly unwinnable position in the polls. And it is also true that Morrison is no ivory tower elite, lecturing the ordinary people on how their betters think they should live. Certainly, Hillary Clinton was perceived this way, and there is little doubt that Queenslanders similarly resented the ‘stop Adani’ convoy of condescension.
Yet here the comparisons end. People voted for Trump because they thought that America had lost its way. The very nature of Trump’s slogan makes this clear: ‘make America great again’ is the call of a group of people who want radical change to the current order.
In contrast, Morrison was a representative of the status quo.
The agent of change in the Australian election was Bill Shorten. And though both would bristle at the comparison, the central economic message of both Shorten and Trump’s campaigns were surprisingly similar — specifically that our current economic approach has failed and we should return to the economics of the past.
Politicians on the left in Australia have borrowed from America and Europe a narrative that market economies have failed and it’s time to substantially reregulate companies, raise taxes and put government at the centre of society.
However, unlike much of the rest of the world, our economic story is overwhelmingly positive. Australia does face real economic challenges but we have seen sustained real income growth across every level of society.
As the Productivity Commission found last year, inequality in Australia has risen only slightly over the past four decades. Data from the HILDA reports show that absolute poverty in Australia has significantly declined over a similar period.
This is why Shorten’s borrowed message failed in Australia, despite having greater support elsewhere in the world. Indeed, when you consider Shorten sought to attack the foundations of much of Australia’s success, that he lost is probably less surprising than many think.
This is an edited excerpt from an opinion piece published in the Canberra Times.
Many pundits have been forced to explain why middle Australia not only rejected Bill Shorten’s class war rhetoric but also spurned Labor’s enthusiastic embrace of identity politics and progressive ideology agendas.
To be fair, if you live in the insider bubble, it was easy to miss this story. All our key culture-shaping institutions — schools, universities, the bureaucracy, the media — have embraced identity politics and progressive ideology.
This also includes corporations; Australia’s big public companies, which have done so under the rubric of so-called Corporate Social Responsibility (CSR).
The long march of the left is increasingly making our key business institutions inhospitable places for those with conservative and traditional views and values.
Understandably, many people stay silent and consent to progressive ‘social responsibility’ agendas to avoid the social and professional consequences that dissenters from the politically correct consensus can face in these increasingly intolerant and polarised times.
No wonder, therefore, that people working in big corporations prefer to stay quiet, especially given what is at stake: careers, mortgages, school fees, and superannuation.
What is missing is the sound and sensible cultural leadership that can convince people to not remain quiet and confidently speak up for traditional values that are genuinely under threat and at stake in the many-fronted culture war.
In Corporate Virtue Signalling: How To Stop Big Business from Meddling in Politics, I outline the apparent take-over of big business by politically correct lefties.
The book also warns companies that by endorsing progressive agendas, they risk politicising their reputations, and alienating from their brands the millions of conservative members of the community who do not subscribe to such agendas.
The problem is that many corporate leaders may not realise how divisive their CSR politicking is, because they live, work, and socialise with like-minded elites deep inside their inner city ‘bubble’.
Hopefully, the election result will burst this bubble and make corporate elites aware where the true centre of mainstream opinion lies in Australia. Surely, the only ones who won’t get it now are the truly tin-eared.
So now is perhaps an opportune time to introduce a new principle — the Community Pluralism Principle — into the management of companies.
This would hold directors and CEOs accountable for making sure CSR activities don’t stray into meddling in contentious political issues, and instead properly respect the pluralism — the different views and values — of the diverse Australian community.
If this principle was supported at shareholder meetings by the ‘mum and dad’ investors fed up with companies indulging in political activism, the Quiet Australians would send a powerful message to penetrate the dense bubbles of corporate boardrooms: business should halt the corporate virtue signalling — and stick to business.
This is an edited excerpt from an opinion piece published earlier this week in the Daily Telegraph.