Tax Cuts But Taxes Still Increase
The Turnbull government has succeeded in obtaining a welcome reduction in personal income taxes. But the estimated reduction in total tax levels is less than might be imagined from the media exchanges. This is important because, as stated in Budget Paper No.1 for 2018-19, “it is important that the personal income tax system does not act as a disincentive for those taking on additional work or seeking advancement”. Also that the “cap on the overall tax burden… “is consistent with the long term average of 23.9 per cent of GDP” which the government has set.
The estimates show that over the four years 2018-19 to 2021-22 the cuts personal income tax (and other more minor policy changes) would reduce total taxes by $13.9 bn. But over those years total taxes would still increase by an estimated $103bn and even personal income taxes would be slightly higher in 2021-22 than in the current year. A feature of the cuts is that they start with a miniscule amount in 2019-20 and it is not until the following two years that they will be of substance, assuming that the government then in office accepts them.
As for the so called “cap”, the overall tax burden would increase by over 1 per cent of GDP over the four years and is estimated to actually reach that cap in 2021-22.
In sum, if the Coalition is returned to office before the start of 2018-19 it will not directly benefit from the reduced tax levels until the following year other than through any anticipatory effects on taxpayers who will then be paying higher taxes .
Energy Policy in Crisis
In my Commentary last Thursday I suggested that both major parties’ energy policies are centred on reducing emissions of CO2 and that, inter alia, the implementation of the National Energy Guarantee (NEG) would further reduce Australia’s international competitiveness because of the further increase in electricity prices. I also drew attention to public comments by Abbott that a number of Coalition MPs may cross the floor and vote against the National Energy Guarantee (NEG) proposal by Turnbull and his soul mate Josh Frydenberg.
Such opposition may be increased by two articles published yesterday.
In an article titled “This energy hex we place on ourselves, it’s madness”, Chris Kenny argues “we are in a self-imposed energy crisis” which through various measures has dramatically increased electricity prices as a means of reducing emissions of CO2 (see Kenny on CChange). Kenny offers a variety of reasons as to why “there is bound to be a reckoning” if the Turnbull government proceeds with NEG.
In a Quadrant article, climate expert Alan Moran provides a not dissimilar analysis (see Moran on NEG) but adds that
“It is easy to see why this economy-wrecking policy has been put into place. The original carbon tax was introduced by Julia Gillard and devised by the then-Secretary of the Climate Change Department Martin Parkinson. Malcolm Turnbull, as leader of the Opposition, supported that policy and after refusing to reconsider, was defeated on the issue by Tony Abbott. Parkinson was promoted to the Secretary of Treasury.
On becoming Prime Minister, Tony Abbott, in line with his commitment, repealed the carbon tax. After a decent interval he also fired Martin Parkinson. On his return to The Lodge, Turnbull appointed Parkinson to head up his own department, from which position he has dictated energy and climate policy”(see attached Moran on NEG”.
In short, views adopted by Liberals Turnbull/Frydenberg, based on advice from supposed experts on the Energy Security Board and the head of Turnbull’s department, have been the main influence on energy policy and those with a different view have scarcely been heard. This now means that Australia will have an energy policy determined by a socialist regulatory body whose main aim is to ensure the reduced emissions target is reached by 2030 and which will manipulate prices and supply to accord with what the market normally does, viz meet demand. That will not only entrench high prices but add to them as cheaper coal-fired generators are replaced by more expensive renewable and gas.
Such a policy is already dated. The Liberals in Monash Forum have now shown that a large number of coal-fired power stations are under construction or being planned in other countries; the EU body CAN Europe has acknowledged that, three years after the Paris Agreement set targets, not a single EU state is reducing their greenhouse gas emissions at a rate sufficient to meet those targets; and the USA has withdrawn from that agreement. In effect the targets have been moved many years out in time, if at all.
More generally, this is a test of the Turnbull government: is it to go ahead with a demonstrably faulty scheme or to adopt the more sensible schemes being increasingly used overseas, viz in practice move Paris and provide scope for increased coal-fired productions?