Australian Politics
Wednesday, January 24, 2024
Stage three tax cuts: This was to be a vital reform, it was never populism
The staged income tax cuts legislated by the Coalition government came in three parts. The first two stages were directed at low- and medium-income earners; it was only the third stage that provided any benefits to those earning well above average incomes.
It is a political fact of life that most people have now forgotten the first two stages.
The key to the third stage was meant to be that it represented an important reform to the income tax schedule by introducing a greater degree of simplicity.
A majority of taxpayers would not face any change to their marginal tax rate as they earned more, did overtime or achieved a promotion. Recall here that a key feature was that a 30 per cent tax rate would apply to taxable annual incomes between $45,001 and $200,000.
The stage three tax cuts were meant to be a structural reform. They should not have been considered a cyclical response or a cost-of-living measure per se.
For taxable incomes above $200,000, the top marginal tax rate was to remain at 45 per cent (plus 2 per cent Medicare levy).
This figure was only a slight adjustment from the current top income tax cut-off of $180,000. It’s been $180,000 since 2007, when Peter Costello was treasurer!
Had the top income tax cut-off point been indexed – which is the practice in about half of developed economies – the current figure would be above $250,000 a year.
The reality is that Australia has one of the most progressive income tax schedules in the world, meaning those on higher incomes pay proportionately more tax as their incomes rise.
In fact, we are on a par with the Scandinavian countries. Only in Denmark is income tax revenue higher as a proportion of total tax revenue.
It’s really worth looking at the figures here. According to the most recent ones released by the Australian Taxation Office (for 2020-21), just over 4 per cent of those with incomes in the top bracket paid 35.4 per cent of all income tax revenue.
By any standards, this is extraordinarily progressive.
And here’s a further fact to consider – the proportion of income tax revenue the top income earners have been contributing has been rising year on year.
In 2015-16, for example, just over 3 per cent of income tax earners were in the top tax bracket, contributing 30.3 per cent of total income tax revenue.
Of course, $180,000 a year looks like a very high annual income on the face of it.
Yet if we look at other countries, the incomes at which their top marginal tax rates kick in are proportionately much higher. Think here of the US, Canada, Germany, Britain and others.
When the government talks about the global war for talent, it should be borne in mind that our income tax rates represent a major disincentive for those considering moving here.
There are plenty of countries with much more attractive income tax arrangements.
At this stage, it’s not clear whether the Albanese government will seek to walk back from the final stage of the tax cuts by dumping the $200,000 cut-off and rather retain the $180,000 figure, or make other changes.
It would be a mistake to change the threshold, although there would be extra revenue of some $3bn a year were it to do so. But the notion that the tax cuts “cost” the government is a very strange way of thinking of the issue.
The reality is that real household disposable incomes are being hammered not just by inflation and higher mortgage payments but also the rising income tax take. The government might have higher revenue but it’s at the expense of ordinary taxpayers.
As for the idea of increasing the tax-free threshold (it is currently $18,200), this would have a very slight impact on the disposable incomes of those affected. Bear in mind that those on very low incomes are generally in receipt of welfare payments, which are regularly indexed. It would be a largely symbolic measure.
The fact is that low-income earners contribute very little to overall income tax revenue, with those earning between $18,200 and $45,000 making up nearly 30 per cent of all income tax earners but contributing only 3.2 per cent of total tax revenue. This underlines the progressive nature of our income tax schedule, something altered only slightly after stage three tax cuts come into effect.
Labor voted for the three stages of the tax cuts when in opposition and committed to the final stage during an election campaign. Were the Albanese government to walk back from the stage three cuts, it would be breaking a promise and forgoing structural reform.
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The road to reform in higher education is long and slow
Late next month Education Minister Jason Clare will at last unveil his long-term plan for higher education when he releases the final report of his Universities Accord.
It’s the culmination of something that started 15 months ago and has consumed a huge amount of effort from the Accord panel, education bureaucrats and those who made 800-odd submissions to the review.
The Accord review had broad terms of reference that would have allowed it to be another Bradley Review leading to major reforms. But as it progressed, the heady enthusiasm that marked its beginning gradually waned. It became clear the Universities Accord would be limited in its immediate impact.
It’s main idea for visionary change is to expand university access for students from disadvantaged backgrounds – something to which Clare has a deep personal commitment.
But other goals that are priorities of universities look like being pushed toward the horizon.
For example, as a legacy of the Morrison government, HECS fees are now four times higher for students doing humanities, law and business degrees compared to those doing teaching and nursing degrees. The goal of this Morrison policy, to persuade more students to become nurses and teachers, is not being achieved but we are left with this inequitable fee structure. Fee reform is essential but it does not look likely to happen quickly under the Universities Accord.
Similarly the urgent pleas of research-intensive universities for more research funding are unlikely to be fulfilled in the short term.
The Accord will almost certainly recommend the creation of a new Tertiary Education Commission to oversee universities, and it seems likely that many things universities want, such as fee restructuring and a research funding review, are likely to be shunted to the commission for consideration down the track.
But Clare must find money for any new initiatives – including extra funding for disadvantaged students – from within his portfolio, which is why a tax on international student revenue is expected to be recommended by the Accord review, to the chagrin of nearly all universities.
The upshot is a reform plan that will extend over several terms of government, and, as any observer of politics knows, such plans rarely retain the support they need for that lengthy period.
We all know government works under constraints but, at this stage, it looks like a lot of work has been done to create something that is weighted toward aspiration rather than action.
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Muslims lobby to axe ‘sinful’ university HECS-HELP debts
Islamic clerics are lobbying the federal government to axe the “sinful’’ indexation of university loans for Muslim students, forbidden under Sharia law.
The Australian National Imams Council has told the government’s Universities Accord review that HELP (Higher Education Loan Program) and HECS (Higher Education Contribution Scheme) debts are discouraging Muslims from studying at university.
The imams are pushing for a “culturally and religiously compatible” new funding model for Islamic students.
“The current HELP system, while designed to defer university fees through a loan arrangement, may conflict with the religious beliefs of Muslims,’’ the council told the Accord panel, whose final recommendations will be made public by the government in February.
“According to Islamic laws, the HELP loan is considered riba (usury) and is generally prohibited,” the council said.
“This leaves Muslim students with the difficult choice of either disregarding their religious principles or forgoing higher education.’’
The imams said the Koran and the prophetic traditions of hadiths “explicitly condemn and prohibit riba, stressing that it harms society and promises inequality’’.
Under Islamic law, “loans must be repaid in the exact same loan principal as acquired, even after many years and inflation’’.
“Riba is a major sin in Islam,’’ they told the panel.
Nearly three million Australian university graduates face a combined $4bn increase to their HECS and HELP debts on June 30 if inflation stays at 5 per cent over the next six months.
Under the HECS-HELP scheme, university students take out interest-free loans from the federal government to pay for their tuition fees.
The debt is paid back through the taxation system once graduates begin earning about $52,000 a year.
Graduates need to pay back $78.2bn in outstanding debt, which rises in line with inflation every year to maintain the real value of the loan.
If the annual inflation rate lands at 5 per cent in June, indexation would add roughly $1325 to the average $26,500 debt.
The Canberra Islamic Centre has also complained that the current structure of HECS-HELP loans “inadvertently creates a barrier for Muslim students who seek to abide by their religious convictions’’.
“The issue is not merely theoretical; it has practical implications that discourage, prevent and disadvantage Muslim students from going to university,’’ the Islamic Centre told the panel.
“They face the unfair choice of compromising religious beliefs or foregoing higher education opportunities.’’
The Islamic Centre wants the government to “explore alternative indexing methods’’ for student loans.
Islamic Co-operative Finance Australia – which offers “Sharia-compliant investments’’ – has told the panel that Islamic teachings forbid the charging of interest on loans.
It said the “ideal scenario’’ would be to waive indexation fees for Muslim students. “A no indexation and no interest on debt approach will clear any spiritual doubts amongst Muslim students that the HECS debt is not Sharia compliant,’’ it says.
“Under Islamic law, the imposition of an additional charge on a debt, commonly referred to as ‘riba’, is unequivocally deemed as usurious and unjust.
“Interest-bearing debts are prohibited, and no form of interest or financial gain can be charged on debt.
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Will the crash in critical minerals derail the clean energy transition?
Just as stock markets are surging to new records and property is shrugging aside the impact of more than a dozen rate hikes on the hop, those betting on a bold, new carbon free future are nursing huge losses.
Two years ago, the race began in earnest to nail down global supplies of critical minerals as the world embraced emissions reduction targets that eventually would see the phase out of fossil fuels and a shift towards the electrification of the global economy.
It was a race turbo-charged by an increasingly polarised geo-political environment that pitted America against China, the biggest producer and processor of critical minerals and a domination of battery production.
Lithium prices soared as the US embarked upon a hurried program to shore up supplies of the key battery production component in an effort to reduce reliance upon China. And it wasn't just lithium.
Rare earth prices also shot for the moon along with more traditional metals such as nickel, which also is crucial to manufacturing electric vehicle battery components.
Even rival technologies, particularly hydrogen, found themselves in hot demand as big investors threw billions of dollars into what they believed would be the dominant green energy technology by the next decade.
Can Australia straddle the East-West divide?
The dust has barely settled after Australia and China reached an uneasy truce last month, but our abundance of critical minerals and China's stranglehold on them has us in the middle of a geopolitical tug of war, writes Ian Verrender.
It was a boom that promised fabulous riches for countries with large deposits of these raw materials. It just so happened that Australia found itself, once again, the lucky country with bountiful supplies.
But the recent boom looks to have been something of a bubble, yet another example where enthusiasm and expectations overrode reality. Suddenly, the prices for each of these materials has unravelled in spectacular style.
While the long-term future for some of these materials remains solid, there could well be some high profile casualties from the recent madness.
It's been a common story in resources for centuries. A sudden price hike based upon forecasts of huge demand feeds through to a massive lift in exploration and production until suddenly, everyone realises there's a glut.
It seemed like a sure bet at the time
The dire announcements have been coming thick and fast.
Nickel projects that only recently were given the green light have been put on hold while the value of existing mines are being written down.
Lithium miners, meanwhile, are in a world of pain with many explorers and junior operators facing the prospect either of collapse or the task of looking for something else.
Even established, large scale operators like Liontown and Azure — both of which now are within the orbit of Gina Rinehart — are feeling the heat. Both have been beaten up by investors who have been spooked by the sudden collapse in the price of the raw material as the chart below for lithium carbonate prices graphically illustrates.
Mrs Rinehart late last year built a 19.9 per cent stake in Liontown which she used to thwart a $6.6 billion takeover bid from American giant Albermarle.
While that left Liontown scrambling to raise cash to independently fund development of its massive Kathleen Valley lithium deposit, a banking syndicate including Australia's big four quickly rode to the rescue with a $760 million finance package.
On Monday, however, that financing was pulled, sending Liontown's share price tumbling 21 per cent. At just 94c, it is way below the $3 a share Mrs Rinehart paid last year for the stock, leaving the company's fate and its future in her hands.
Meanwhile, nickel prices this week hit their lowest levels in three years, having halved in the past 12 months, prompting a wave of shutdowns and curtailed expansion plans.
In response to the forecasts of higher demand, Indonesia – with the help of Chinese investment –dramatically increased production, sending prices crashing.
One of the most prominent victims is another iron ore magnate, Andrew Forrest. Just six months ago, his private company Wyloo splashed out $760 million for three mines near Kambalda in Western Australia. This week, he decided to shut them.
The nickel collapse has threatened the viability of BHP's Western Australian nickel operations and just a month ago another producer, Panoramic Resources, was put into the hands of administrators.
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Also see my other blogs. Main ones below:
http://dissectleft.blogspot.com (DISSECTING LEFTISM -- daily)
http://antigreen.blogspot.com (GREENIE WATCH)
http://pcwatch.blogspot.com (POLITICAL CORRECTNESS WATCH)
http://edwatch.blogspot.com (EDUCATION WATCH)
http://snorphty.blogspot.com/ (TONGUE-TIED)
http://jonjayray.com/blogall.html More blogs
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