Looking For Tax Circuit-breaker

Sydney Morning Herald

Wednesday September 8, 2004

The stakes do not get higher in Australian politics. Mark Latham's $11 billion tax package will propel him to frontrunner in the race for the prime ministership or bog Labor's wobbling chassis. If ever Mr Latham needed a circuit breaker, it is now. Labor began official campaigning wanting to highlight the issues of the Prime Minister's credibility and rats within Coalition ranks. But John Howard has lifted the Government to its best polling of the year, mainly by provoking voter concerns about whether Mr Latham is flaky on economics and, in particular, interest rates. Labor's tax package should turn around some of those perceptions because it avoids the temptation to play to populism alone (although tainted by it) and attempts, with some boldness but not recklessness, to re-engineer the way Australians regard the mix of work and family.

The $8 weekly tax break promised to workers earning up to $52,000 a year is not a pittance to families struggling to make ends meet. And it would be of stimulatory benefit to the economy. But it is in the same ballpark as the $4 tax cut delivered two budgets ago and derided by the Opposition and others. The quantum of the $8 may dominate headlines but it needs to be measured in the context of the whole package. What matters more is the effect on workforce participation and productivity of this and other initiatives. As it stands, workers earning up to $21,000 a year get a $235 tax credit - a bonus from the Government - at the end of the tax year. Labor promises to extend this to incomes up to $52,000.

It is one of the measures to reward the working poor and to lure others from welfare by making work more financially worthwhile. In doing so, it eases the public burden of welfare payments and - more importantly, in terms of social cohesion and individual opportunity - encourages families to break from welfare dependency, sometimes stretching generations. Other measures are aimed at boosting workplace participation of potential high-income earners, often young women with sought-after skills who need tax incentives to return to work from child rearing and so on. This is the key group targeted by raising the top tax rate threshold to $85,000.

But the big reform is in wrapping together Family Tax Benefits A and B (the latter, an incentive for mothers to stay at home) and the $600 family payment into Labor's Better Family Payment Plan. The Opposition boast that its plan is superior depends on individual circumstances. On a weekly basis, Labor says nine out of 10 recipients would be better off but does not disclose the effect on an annual basis, where more would be disadvantaged. Losers would include high-income earners with dependent wives and children. Families under $50,000 a year will get the maximum payment, erasing room for error, overpayment and the debt trap.

The package tackles nagging deficiencies in public policy but is likely to trigger another election auction. Public coffers are overflowing and Mr Howard undoubtedly is keen to up the tax ante on Labor, just as he did with Medicare. Mr Latham, however, has cleared an obstacle from the path to Sunday's leaders' debate. To stay in contention, he must seize electoral opportunity from the tax package release. It contains enough to build interest in the contest.

© 2004 Sydney Morning Herald

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