Fair tax cuts would be for all, not just high-income earners

In life, death and taxes are the only certainties. In Australian politics, in an election year, a tax cut is just as certain.

Understandably, as standards in the health and education systems fall dramatically, recent polling indicates that most Australians would prefer the federal government to spend more money on services rather than tax cuts. The Democrats agree.

Last year the underwhelming "sandwich and milkshake" tax cuts cost $2.4 billion but provided the average wage earner with only a $4 a week tax cut.

As the budget draws closer, economists have been guessing that this year's tax cut could be four or five times bigger than last year's. A nice big tax bribe in the pockets of ordinary Australians as they go to cast their votes later in the year.

So should the Senate support a tax cut?

It’s not as simple as arguing for tax cuts or basic services. This government has had eight years to provide high-quality, affordable health and education systems but it has failed. A tired, conservative government can’t fix things it has broken.

The Democrats believe that by cutting government welfare for the wealthy, closing tax loopholes and concessions, an additional $7 billion a year could be used to provide the government services that Australians deserve.

The problem is that the tax system is full of concessions and loopholes that can be exploited by those with the financial ability. The burden for tax is then unfairly placed on average wage earners who can’t avoid their tax obligation and feel overtaxed.

We could put some integrity back into the tax system by abolishing concessions for company cars ($1 billion), negative gearing ($1.5 billion) and capital gains tax ($2 billion). If only the Liberal-National coalition or Labor had the political courage.

Abolishing tax concessions and loopholes to fund government services means that the surplus could be used for tax cuts - but fair tax cuts.

The Democrats believe the best way to provide a fair tax cut is to increase the tax-free threshold. This is the amount of income that is not subject to tax – currently it is only $6,000.

With the anticipated $6 billion for tax cuts, the tax-free threshold could be increased from $6,000 to $10,000. All taxpayers would benefit with an annual $680 tax cut. This is around $13 a week.

There is something intrinsically fair about an equal tax cut.

Despite progressive tax rates, financial inequality in Australia is increasing. Even the Prime Minister admits that although the rich are getting richer, the standard of living for the poor has not improved. Lower-income earners need a helping hand, not just to survive but to be able to improve their situation. Taxation policy is an important contributor to social justice.

The primary aim of the tax system should be to raise money from those with the ability to pay. A system that taxes someone for every dollar they earn over $6,000 fails this basic test.

In addition to income tax applying at ridiculously low levels, the withdrawal of welfare benefits can mean that low-income Australians pay effective tax rates up to 100 per cent. When the cost of transport, childcare, additional food and clothing are included, a person may be worse off entering the work force. By increasing the amount that can be earned without paying tax, the impact of this "poverty trap" is reduced.

We believe that people living well below the poverty line shouldn’t be paying income tax.

By increasing the tax-free threshold from $6,000 to $10,000 the tax system is significantly improved. If the $235 low-income rebate is included, income up to $11,382 would be effectively tax-free. This is still too low an amount to live on but it is a positive first step towards improving equality within Australia and reducing the high effective tax rate faced by low income earners.

Until the government addresses the problem of "poverty traps" and the high effective tax rates faced by low and middle-income Australians, the Democrats are unlikely to support any exclusive tax cut for high income earners.

We will certainly be encouraging Mr Latham’s Labor Party to allow the Senate to do its job and scrutinise the Budget tax cut.