By Sue Boland
"Get ready for class war", wrote Sydney Morning Herald columnist Paul Sheehan in response to the release of the Labor Party's tax package.
This theme was continued by other columnists and by Prime Minister John Howard. Howard told the August 30 60 Minutes program that Kim Beazley's policy had "opened up" a "new class division in Australia".
Since the Coalition's tax package was exposed as favouring people on higher incomes, the Coalition has scrambled to find new arguments. Since Labor's package proposed income tax cuts for workers on low to middle wages, Howard has resorted to criticising it as "anti-incentive" and favouring "a society based on envy"
Newspaper headlines have consistently portrayed the ALP's tax package as one that "hits the rich" to help the poor. Is this an accurate portrayal?
The ALP package is unquestionably fairer than the Coalition's. It opposes a goods and services tax, proposes to abolish fees for nursing homes and gives tax cuts to workers on lower and middle incomes. Sixty-three per cent of full-time workers earn less than $39,000, the level at which the ALP's tax credit for families and tax rebate for people with no children starts to phase out.
However, it certainly doesn't "hit the rich", or advocate any kind of redirection of wealth into the pockets of workers and people on pensions and benefits.
Shared framework
In fact, the ALP shares much of the framework of the Coalition's tax package by proposing:
- no increase in the rate of company tax;
- no increase in the top marginal income tax rate;
- no serious crackdown on corporate tax avoidance;
- a review of business tax with a view to lowering company tax;
- retention of indirect taxes;
- retention of the budget surplus;
- no income tax indexation.
The ALP does not propose any measure to increase the proportion of taxes that come from the rich. It describes the dropping of the top personal tax rate from 60% to 47% and the slashing of the company tax rate from 46% to 36% by the former Labor government as "fairness" and "efficiency".
On business taxation, the package promises a review after the elections. It says, "While we certainly believe the corporate [tax] rate should be set as low as possible, and will work toward that goal, we do not accept that it should be cut at any cost."
Concessions
The only real difference between the ALP plan for business and that of the Coalition is that the ALP advocates tax concessions for business, to encourage research and development, investment in regional areas and investment in particular infrastructure projects.
Concessions simply increase the profits of the companies which receive them and have little or no effect on industry development. Companies will invest wherever they can make the highest profit, including in non-productive areas such as speculation.
A major problem with the ALP plan is its attitude to the budget surplus. Retaining the surplus which resulted, as the ALP package notes, from the slashing of government services, indicates that a future ALP government has no intention of reversing the Coalition's cuts to services.
Combined with the ALP's intention not to increase tax on company profits or the top marginal income tax rates, it is clear that a future ALP government will continue the Coalition's cuts to government services by using the same justification — that the government "can't afford" to provide them.
The ALP is proposing to solve the problem of heavy taxation on low to middle income workers with a system of credits and rebates. Kim Beazley describes the ALP's package as one which "rewards work". Howard makes a similar claim.
If either party was seriously concerned about "rewarding work", they would be advocating that workers receive significant wage increases to cover the losses over the last 15-16 years.
In reality, both plans amount to a subsidy for employers, because the tax cuts will substitute for wage increases. Wage increases are the only genuine reward for work — the only means by which workers can claim back some of the wealth they create.
Melbourne University economist Peter Dawkins regards the ALP's tax credit/rebate scheme as beneficial because it would take "pressure off the Industrial Relations Commission to raise the wages safety net".
If the two major parties were genuinely concerned about workers on average incomes being pushed into higher income tax brackets, they would adopt a system of automatically indexing tax brackets. Neither party is advocating this.
There is another danger with the ALP's tax credit/rebate proposal. With its emphasis on "rewarding people for work", it could be used as a method of undermining the social security system.
The United States government has used a tax credit scheme as the prime method of assisting people on low incomes while systematically withdrawing welfare from people who can't find work or aren't in a position to work. It is being used to "get people off welfare" and undermine the consciousness that you have a right to receive welfare if you are not able to work. The Blair government in Britain is following a similar course.
ACOSS
The Australian Council of Social Service has made some sharp criticisms of the ALP's tax package.
While acknowledging that the package is fairer than the Coalition's, ACOSS condemns the ALP for failing "to address the weaknesses in the consumption tax system — especially the erosion of revenue due to the non-taxation of services", which it calls "the fastest growing part of the economy".
ACOSS argues that the "structural problem could be addressed either by rationalising the Wholesale Sales Tax (WST) and introducing taxes on specific services, or by introducing a GST".
In its attempt to be seen as economically responsible, ACOSS criticises the ALP package for its fairest aspect — that it doesn't propose a GST — while neglecting to call for a tax on the fastest growth area — not services, but profits.
ACOSS joins the Coalition, the ALP, the Democrats, One Nation and the Greens in quarantining company profits from increased taxation.
GST
If the ALP does not advocate an increase in tax on business, hy is big business not supporting the ALP tax plan?
The answer is that big business is desperate for a GST. While the ALP is proposing some very lucrative tax concessions to business, none are as great as what business will get from a GST.
As the Coalition acknowledges in its package, the introduction of a GST will cut business taxes by $10 billion.
Business and the Coalition are not proposing a GST as a method for improving the economy or cracking down on tax cheats. OECD economists Willi Leibfritz, John Thornton and Alexandra Bibbee concluded that the economic "benefits" of an increased reliance on a consumption tax were small, when they surveyed the OECD countries, most of which have a GST.
The purpose of a GST is to transfer the burden of taxation from corporations to workers, people on government benefits and those with low incomes.
Big business doesn't want to jeopardise its chance of getting a GST by supporting the ALP package.
There is a class position being taken in the debate about tax reform and a GST. Overwhelmingly, the position reflected in the media has been the capitalist class position of supporting a GST, or at least not taxing profits.
What has been absent in the big business media is a working-class position: an end to indirect taxes (except on luxuries) and increased taxation on those who can afford to pay — above all, big business.