The Dark Lord chats to the Parrot
The engine room of Australian economic reform has always been the quality of our bureaucrats. Now John Howard is trotting out the logic that has driven Australia’s welfare system to be the most economically efficient in the world. Where targeting is everything, and where we even have our very own tax credit, the Low Income Tax Offset (LITO), though we can’t call it a tax credit because that’s what Labor has been calling it for several elections now. The LITO is a very small scale affair, but could be cranked up into a working tax credit of real benefit to low and middle income families. Here is the PM in his interview with Alan Jones yesterday.
JONES:. . . [L]et me just ask, I promised a listener this morning I’d ask you this, because one listener rang up to talk about the tax free threshold and said the 6000 figure had not been changed for a long, long time and would there be any chance that the Government would consider a tax free threshold, not for everybody being increased but say for those people on $100,000 or less. What would be wrong with raising that threshold from say $6000 to $10,000 to give relief at that bottom end?
PRIME MINISTER: Well it was last increased in 2000 when we brought in tax reform, if you lifted it for everybody under $100,000 that is about 90 per cent of taxpayers. So that is not just, that is virtually giving it to everybody. The problem Alan with lifting the tax free threshold is that a lot of the people who earn small amounts of money are not poor, it is just that they are either part-time workers or alternatively their income is from investments. The other problem with lifting the tax-free threshold is that it is not a good way of targeting assistance to low income earners because everybody gets it. If you’re earning $500,000 a year and the tax free threshold is increased by $5000, you get the same dollar benefit.
JONES: Oh no, I’m saying it shouldn’t be available to anyone with an income over $100,000.
PRIME MINISTER: Over $100,000 alright. But even if it’s for somebody on $98,000 a year, he gets the same benefit as a bloke on $10,000 a year. There are better ways of delivering help to people right at the bottom. Paying people what’s called a low income tax offset that we have done for quite a number of years now; it cuts out at a certain level of income, that is a far better way of delivering assistance to very low income earners. I’m not speculating about that, I’m just giving an illustration of how you better deliver that”¦
Immediately following this the PM is asked about the absence of a means test on Family Tax Benefit B (actually there is a means test, but unlike other benefits its means tested against the income of the individual receiving the benefit, not the household) and the PM changes the argument. I think he’s got a reasonable point though because the Family Tax Benefit B seeks to introduce horizontal equity between two families one of which has a single earner and the other which has two earners. Its a more constrained and targeted way of doing it than full income splitting.