Electioneering Down Under

The incumbent (Liberal) party started off the six week election campaign with a bang, announcing that the mid-year budget review had revealed a bigger than expected surplus, which allowed them to promise massive income tax cuts over the next three years - if they retain office. Currently my taxable income is around $50K, which means at current 2007-8 tax rates I'd pay $9,600 federal tax (19.2% of taxable income). The proposed tax cuts would reduce the tax on $50K income by $1000 in 08-09, by $1300 in 09-10, and $1750 by 2010-11. This would mean that the federal income tax bite out of a $50,000 pa income would decrease from 19.2% to only 15.7% (a reduction in the amount of tax paid of 18.2%) over three years.

This announcement seems to have caught the Labour opposition somewhat unprepared. Although they didn't have the same advance access to the mid-year budget review figures as the government, they should have been able to prepare a range of tax policy positions to suit the likely range of outcomes. It seems that they want to announce their tax policy as close to the election date as possible, probably to minimise the chance of the Liberals finding fiscal holes in their funding figures.

One funny thing is that a lot of the "public" interviewed for sound-bites on the six o'clock news were unimpressed by the size of the announced tax cuts, and preferred the budget surplus be spent on public health and education. It seems that swinging voters are more generally more comfortable with higher taxation being used to fund public services, than with reducing taxes and moving to a more "user pays" system with increased reliance on private hospitals, schools and universities. Personally I prefer lower taxes, but I'm also not convinced that privatisation of education and health is as beneficial as the conservative end of the political spectrum believes. Although public spending is prone to inefficiencies, bloat and waste, privatised services tend to cost the consumer just as much, via excessive profit margins. The reality is that competition doesn't work terribly well for education or health services, as they require large fixed investments of capital (in a university or hospital) and thereby become a local monopoly with considerable pricing power.

Anyhow, it will be interesting to see what, if any, the tax policy announcement has on the opinion polls. And it will be interesting to see if the Labour party eventually endorses the proposed tax cuts ("me too"!) or proposes smaller tax cuts (predictably at the top end) and redirects more of the projected budget surpluses on health and education.

Copyright Enough Wealth 2007