Sunday, October 21, 2007

Coalition & Labor tax reforms

Andrew Leigh has provided us with an empirical picture of the effects of the alternative income tax reform packages by 2010/11. We can all thank Andrew for this.

As expected there is not a great deal of difference. Except at high incomes there is almost no difference in effects on income with or without the education. The Labor Party's policy is 'me-tooism' with a bit of temporary 'hit-the-rich' populism - a useful way of discouraging high income talent from working in Australia.

Labor's tax scales are flatter than those proposed by the Coalition which is interesting in itself. Labor also offers the prospect for even more favourable treatment of the very rich but only after 2013.

A principled policy stance for both parties would be to agree to legislate to index all tax scales for the effects of inflation. An earned income tax credit at lower incomes would have encouraged more work among the low paid.

In addition, there should be a serious targeting of the compliance costs associated with paying personal income tax, payroll tax, company tax and the GST.

The Tax Act in Australia has grown from 3000 pages in 1996 to more than 10000 pages today.


Andrew Leigh said...

Harry, thanks for the link. Agreed on bracket-indexing. I once heard that Malcolm Fraser (with John Howard as Treasurer, presumably) indexed the brackets in the late-1970s, but un-indexed them shortly afterwards, when he realised he wasn't getting any political credit for it. I've never looked it up, but presumably we could learn something from the last attempt.

Bring Back CL's blog said...

I can confirm that Andrew and as our Arry is lsighlty older than I so can he.

No olitical [points so no indexation