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Paul Keating slams Labor’s tax gouge

May 13, 2017

Paul Keating slams Labor’s tax gouge

Laura Tingle and Phillip Coorey, The Australian Financial Review, 12 May 2017

Former Prime Minister Paul Keating has attacked Labor’s political and policy position on tax, saying its proposed top marginal rate of 49.5 per cent was “too punitive” and would result in the state “confiscating almost half of people’s income over $180,000”.

The former Labor prime minster and treasurer said the top rate of personal income tax should be 39 per cent “at the most”, and the government’s proposed rate of 47.5 per cent was also too high.

Mr Keating’s intervention came after Labor Leader Bill Shorten announced on Thursday night that the Opposition would limit the Government’s proposed 0.5 percentage increase in the Medicare levy to people earning more than $87,000 and would make permanent the 2 per cent temporary deficit reduction levy on those earning over $180,000 – moves which would entrench the top income rate at 49.5 per cent.

Experts and business warn such an uncompetitive rate, much higher than the 42.6 per cent OECD average, would drive people overseas and make it harder to attract talent to Australia.

“I believe the top rate of tax in Australia should be no higher than 39 per cent at the most,” Mr Keating said in response to questions from AFR Weekend.

“I reduced the top marginal rate from 67 per cent to 47 per cent just on 30 years ago and here we are now having it go to 47.5 per cent, or if Labor had its way to 49.5 per cent.

“This is too punitive a level where the state is confiscating almost half of people income over $180,000.”

Tuesday’s federal budget proposes lifting the Medicare levy, which is applied to all but the lowest paid, from 2 per cent to 2.5 per cent. It would raise more than $4 billion a year, all of which would be used to fully Fund the National Disability Insurance Scheme. NDIS funding will rise from $3 billion a year this year to $20 billion in 2020.

But Labor, despite implementing the same levy increase across the board four years ago to help fund the NDIS, wants to limit the latest increase to the top two marginal tax rates – above $87,000 – and is demanding the government retain the deficit levy, which was introduced three years ago and is legislated to expire on July 1.

The Medicare levy increase will be blocked by the current Senate because the Greens and the Nick Xenophon Team broadly back Labor’s position. As a result, AFR Weekend can reveal the government is likely to take the issue to the next federal election rather than press it on the Senate now.

The Medicare levy increase is not scheduled to start until July 1, 2019, well after the next election, so the government does not need to address the issue now. A senior source said it would also be counterproductive to have another fruitless fight with an uncooperative Senate now and take the gloss of what was a relatively well received budget. Initial research conducted by the government indicates both the Medicare levy increase and the bank tax have been well received.

The government, too, is opposed to such a high top marginal tax rate and will mount a case over coming months.

Visiting a Melbourne business on Friday, Treasurer Scott Morrison said “all of those who are working in this company…face top rates of marginal tax of 49.5 percent”.

“You’re basically saying, ‘slog your guts out, build a company like this and at the end of the day your great reward is you’ve got to work one day for the government and work one day for themselves’,” he said.

“That’s what Bill Shorten said last night. Now, that is an innovation-killer, that is an entrepreneur-killer and it’s a business-killer, which means it is a jobs-killer.”

But Labor believes it is on to a political winner and is contrasting the automatic expiration of the deficit levy with the imposition of the Medicare levy across the board.

“Is it fair to give millionaires a tax cut? It is fair to ask people with a lot of money to pay more?” the Labor leader said.