The PM and his Bush snr moment

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Australian Financial Review 9th May, 2014

The parallel with Tony Abbott's deficit tax on high-income earners is not Julia Gillard and her broken promise on the carbon tax - it's George Bush snr and his "Read my lips: no new taxes" pledge.

Gillard broke an election promise so a centre-left government could implement a centre-left policy. Abbott is at risk of breaking an election promise so his conservative government can implement a centre-left policy, which is exactly what Bush did.

Bush uttered his "Read my lips" promise in a speech accepting his party's nomination for president at the Republican National Convention in August 1988. He went on to easily win that year's election against Michael Dukakis. In 1990 Bush raised taxes (including lifting the top rate of income tax to 31 per cent). In 1992 Bush was easily defeated by Bill Clinton. Clinton's campaign advertising featured Bush's speech at the Republican National Convention. As Gillard saw it, she broke a bad promise for the right reasons to get a good policy outcome.

That's not the case with the deficit tax. The Coalition is breaking a good promise for the wrong reasons to get a bad policy outcome. At least Gillard was breaking a promise to achieve something she'd always wanted. Abbott is breaking his promise of new taxes so Australia can have among the world's highest marginal tax rates.

The pity is that if Abbott is going to spend his political capital breaking promises, he should at least break those he should never have promised in the first place - like his promise not to make any changes to the industrial relations system before the next election.

What the deficit tax reveals is that when the budgetary going gets tough, the Coalition is just as willing as Labor to soak the rich.

In 2011, to pay for the Queensland floods clean-up, the Labor government instituted a "flood levy" that increased the top marginal tax rate for those earning $100,000 or more by 1 per cent.


The idea that an additional tax on high-income earners is needed so the burden of fixing the budget is "shared" across the community ignores a key point. High-income earners already bear more than their fair share of the burden of providing for the rest of the community.

In 2011-12 (the most recent year for which such information is available), the 293,540 Australians who earned more than $180,000 a year paid a total of $37.8 billion in income tax. The wealthiest 2.3 per cent of taxpayers paid 26.2 per cent of all income tax. It would be interesting to know how much more of the tax burden Coalition MPs think these people should bear. At the other end, the 5,850,595 Australians who earned less than $37,000 a year paid a total of $5.3 billion in tax, which was 3.7 per cent of all the income tax collected.

Professor Sinclair Davidson of RMIT University, on the Catallaxy Files blog, has charted the changing share of income tax paid by classes of taxpayers over time. In 2011-12, the top 25 per cent of taxpayers paid 67.4 per cent of all income tax; 15 years earlier the figure was 60.8 per cent. In 2011-12 the middle 50 per cent of taxpayers paid 29.9 per cent of all income tax; 15 years before, it was 36 per cent.

There's been lots of talk about seemingly alarming future trends produced by things such as an ageing population, but no one wants to talk about the trend of an ever-diminishing share of Australians paying an ever-growing proportion of tax.

Just last Sunday, on May 4 in Boston, George Bush snr was awarded the 2014 Profile in Courage Award by the John F Kennedy Presidential Library and Museum for the "bravery" he displayed by raising taxes. The citation from the library reads:

"He [George Bush] had promised Americans no new taxes during the presidential campaign two years earlier and he was voted into office with that promise. But he had also promised to serve his country, and he decided that was the promise he would keep ..."

Whether in 24 years' time Tony Abbott's deficit tax will result in him winning a "Profile in Courage Award" from the Julia Gillard (or Kevin Rudd) Memorial Prime Ministerial Library remains to be seen.

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