Federal budget 2018: an election battle plan, based on tax returns

The Coalition is targeting Labor’s low-income voters, while leaving some time bombs for a Shorten government.

Treasurer Scott Morrison is aiming to look after low-income earners now, and higher-income earners later. Picture: AAP

The battle plan for an election — whenever it is held — has been laid out and it’s all about tax.

Scott Morrison’s third budget finally provides the Coalition with a tax policy response to Labor that goes beyond its unpopular and stranded $35 billion company tax cut package.

The budget contains immediate, but small, tax relief for low to middle income earners and offers high-income earners bigger relief, but in seven years.

The big incentive for voters on all incomes to vote for the Coalition, not just at the next election but at the two subsequent elections, is the death of bracket creep.

Paradoxically, on a budget built on higher-than-expected tax returns on the back of better corporate performance and record jobs growth fuelling personal income tax receipts, the big offer from the Coalition is the effective end of bracket creep.

By removing an entire tier of taxation in personal income tax brackets between $41,000 and $200,000 a year, the Treasurer is effectively killing off the disincentive to earn more because of the dreaded bracket creep for most Australian workers.

But this structural taxation reform, the abolition of the 37 per cent tax bracket entirely, only takes place in 2024-25 — seven years and probably three elections away.

Federal Budget 2018: Verdict

The immediate tax relief, for those earning less than $37,000, of up to $200 a year in a tax return, and up to $530 year for those earning between $48,000 and $90,000, is aimed at those workers Labor has highlighted as suffering from a loss of penalty rates, no wages growth and rising household costs.

Labor can be expected to match the government’s offer despite Morrison’s claims the Opposition has already “spent” its billions in extra revenue from its proposed new taxes on higher income earners, investors and corporate Australia.

This is the tax battle at the lower end of the pay scale which accounts for most of Australia’s workers and voters.

At the higher end of the scale the Government is offering those on incomes over $90,000, including those few earning over $200,000, who pay most of the tax, relief through the removal of the middle tax tier, but not until 2024-25.

Once again, the Coalition’s voting base of higher income earners, hit hard by Morrison’s earlier superannuation changes, are being asked to wait for personal income tax relief until the government can guarantee budget surpluses and the beginning of the paying down of Australia’s record debt.

The government is appealing to those on higher incomes to hold firm, work hard, have faith in the Coalition as economic managers, understand those on lower incomes need assistance first and expect a Labor government to hit them even harder through new taxes on investment and capital gains tax changes.

The economic and political arguments from the Coalition are that Labor’s new taxes are not a sustainable way to finance new tax cuts or produce a credible budget surplus.

It is also arguing that the ten-year horizon for structural personal income tax reform delivers total benefits for wage earners of $140 billion — more than double the corporate tax cuts which have not proved popular and Labor has been able to block so far in the Senate.

The government will introduce its entire tax package immediately and dare Labor to block the tax relief for low income earners now in the name of heading off cuts for high income earners in seven years.

Morrison, like Paul Keating, wants to go to the next election with “legislated” tax cuts. That is tax cuts that are “L.A.W. Combined with the new budget “rule” of tax revenue being limited to 23.9 per cent of GDP it looks like Morrison wants to challenge Labor on tax and economic management now, as well as leave some time bombs for a Shorten government just in case the death of the bracket creep does deliver a Coalition government at the next election.