Tax cuts: Rein in the visible hand

If we abolished the 42 per cent rate, so the 30 per cent rate applies up to an income of $70,000, that's $2.5 billion per year. On a taxable income of $70,000, that's a respectable tax saving of about $27 a week.

Reducing the 30 per cent rate to 29 per cent could cost about $2 billion a year. Even a taxpayer at the top of the rate range would only save $364 a year. Less than $7 a week. And raising the tax-free threshold from $6000 to $7000 would cost in the order of $2 billion a year. That sounds like a lot, considering the individual taxpayer would pocket about $3 a week.

Grand plans to cut taxes by slashing the top marginal rate - ramping up the tax-free threshold and then adding changes to welfare and perhaps business taxes - do not come cheap. Any realistic plans have to be moderate, require spending restraint, and have to involve savings measures. Projected surpluses are not a never-ending magic pudding.

It's not about large-scale slashing of programs. This is not 1996 when the Coalition government inherited Kim Beazley's budget black hole. There should be plenty of room to cut tax, maintain necessary services and to help our neighbours to the north.

With spending kept in check, the government party room and the community is faced with a choice. The Australian Government can find new programs to fund, or extend, family payments, or leave more money in taxpayers' pockets by cutting tax rates and thresholds.

The scope of government activity is already wide enough, and the size of family payments now works against arguing for additions. The latest round of family payment increases was the largest package of assistance to families ever introduced in this country. The base rate of family assistance has increased from under $600 a child in January 1996 to almost $1,700 a child in July 2004, a real increase of more than 100 per cent.

A good start with regard to tax cuts would be to reduce the top tax rate, currently 47 per cent. I do not necessarily argue for the rate to fall to 30 per cent, in line with the company tax rate. To improve work incentives, any fall is a step in the right direction.

And in any case, the company tax rate is a flat rate, so the top marginal rate could stand to be a little higher without creating significant incentives for tax avoidance.

For my part, I will be arguing that the Australian Government should be cutting tax rates and thresholds to allow taxpayers to keep more of their money. It belongs to them, so let's give it back.