Australia cuts taxes - again

While it's great news that, in Britain, tax cuts have become fashionable to talk about again, we don't yet have a plan from any of the main political parties to reduce the overall burden of tax. The Conservative conference announcement was very welcome, but on paper at least, it was revenue-neutral. Last week Alistair Darling used the language of tax cuts, but increased taxes overall.


So it's refreshing to see that the Australian government is cutting income tax again. Over the next three years, A$34 billion of tax cuts will be enacted by 2010, in three ways:


1. Rate cuts: the top rate will be cut from 45 per cent to 42 per cent, while the second highest rate will be cut from 40 per cent to 37 per cent.


2. Threshold increases: the 30 per cent rate will kick in at A$37,000, up from the current  A$30,000; the  40 per cent rate will kick in at A$80,000, up from A$75,000; and the 45 per cent rate will begin at A$180,000, up from A$150,000 at present.


3. Low income tax offsets:  the low income tax offset will increase from A$750 to A$1,500, increasing the effective tax free threshold for people on low incomes from A$11,000 to A$16,000.


These tax cuts come on top of a phased reduction in income tax year-on-year since 2000. Between 2000 and 2006 the four income tax rates were reduced from 17, 30, 42 and 47 per cent to 15, 30, 40 and 45 per cent. At the same time the 30 per cent threshold was raised by a quarter, the 40 per cent threshold was raised by a half and the top rate threshold was tripled.


These tax reduuctions, coming after a reduction in the main corporation tax rate from 36 per cent to 30 per cent, have stengthened the Australian economy. Growth has averaged 3.6 per cent over the past decade, the national debt has been paid off, tax receipts and public spending have grown consistently, and unemployment has fallen to a 30-year low.


It's no coincidence that an election is coming up - John Howard clearly sees tax cuts as a way to reverse his standing in the polls. Hopefully because John Howard has a consistent record of cutting taxes, this latest announcement won't be seen as too little, too late. As his election guru, Lynton Crosby, who worked for the Conservative Party in 2005, said: "You can't fatten a pig on market day." Tax reductions need to be explained to the electorate well in advance of an election.

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