The mythical $80,000


Some reading this would be able to remember the days when the urban dream was the quarter acre block in a ‘nice’ suburb, with a Holden, Falcon or, if you were a real radical, a Valiant parked in the driveway. If you’re younger, you’ve probably seen the concept on any one of a number of Australian history television shows over the years.

The reality is that for a lot of Australians, the dream was actuality. A lot of the now ‘middle ring’ suburbs around our larger cities were constructed during a post war housing boom and people didn’t have to be in receipt of a large income to support the lifestyle depicted in what are now grainy black and white images that pop up occasionally, sometimes accompanied by images of ‘that nice Mr Menzies’ giving a fatherly address to the nation from behind an imposing desk probably in Canberra.

In 2016, we substitute the government formed by Tony Abbott — until he was unceremoniously booted by his own colleagues — and Malcolm Turnbull for that of Bob Menzies and if either of them tried to do a fatherly address from behind a desk, the laughter and ridicule would be audible from the moon.

Turnbull really isn’t travelling that well. For a number of years, he has been seen as the moderate face of the Liberal Party in Canberra. In fact, Abbott originally became Opposition Leader after he rolled Turnbull, who was (amongst other things) going to allow Rudd to legislate a carbon pollution reduction strategy.

In September 2015, Turnbull returned the favour as Abbott was seen as being electoral poison. In the words of pollsters, ‘if an election was to be held’ towards the end of 2015 the ALP would have won convincingly. Turnbull became leader and the polls reverted to the Coalition government being streets ahead of the ALP. It didn’t last. At the time of writing, Roy Morgan has the ALP ahead at 51% to 49%.

Traditionally, if a political party isn’t travelling that well, it uses an element of surprise in calling an election and the timeframe for the election is the shortest period possible. The belief is that if the party machine is ready, it can be framing the election debate while the other side is still scrambling to nominate candidates, get the policies together and the advertising booked. Turnbull’s government (with the stratospheric popularity ratings in October last year) is falling to the ground fast. So Turnbull follows Gillard’s strategy of advising when the election is going to be months ahead of the actual timing and chooses to run a long campaign. Good luck with that — it’s worked well in the past!

Shorten and the ALP have also chosen an interesting strategy coming into this election by releasing policy for scrutiny and attempting to steer the political debate away from the 30 second sound bite. The polling numbers would suggest they have been reasonably successful and in a lot of cases the Coalition government has had to play catch up by either attempting to divert the discussion or releasing a ‘me too’ policy to counter the ALP’s demonstrated leadership in the particular area.

Turnbull’s centrepiece is the ‘jobs and growth’ budget. He is claiming that the 2016 budget frames what his government will do for the next 10 years. So let’s look at some of the initiatives included in the Turnbull/Morrison budget.

If we go back to February, Noel Whittaker (an author of personal finance publications) wrote an article for Fairfax discussing ‘Why bracket creep is no big deal’. Whittaker points out that ‘back in the day’, there was a serious issue with the income levels that triggered higher income tax payments; namely the levels were comparatively much lower and closer together and the tax rates were higher. Way back when (all of 15 years ago), the 43% tax rate cut in at $38,000 and the 47% rate cut in at $50,000. If you are fortunate enough in 2016 to earn $80,001 per annum, you have to get to $180,000 per annum to hit the top rate — and if you earn $180,001 or above you are paying the top rate — so how much extra you earn really doesn’t matter. So what would Whittaker know? His name is still used by a personal investment consultancy firm after selling his interest to Bankwest in 2007 and he has sold a considerable number of books on creating personal wealth.

Remember the Coalition discussions over the past few months putting various taxation options on the table and then withdrawing them soon after when some special interest group complained. At the end of the day, all Morrison really did was fiddle with the levels where income tax rate changes applied. The way the income tax system is structured taxpayers only pay a higher rate of tax on the value over the threshold rather than the perceived higher amount on all their income. For example, if you earn $84,000, you are paying the higher (37%) rate of tax on $4000, not the whole lot.

The real issue here is that Turnbull and Morrison are claiming that changing the effective taxation rates of those that earn over $80,000 affects those on average incomes. Well they are wrong. Peter Martin, writing for Fairfax, claims:
The average wage is $60,000. Most Australians don't get close to $80,000 and only around one quarter of them earn more than it. Put another way, the overwhelming majority of Australians, including those on average wages, won't be getting his reported tax cuts.

There's a logic to cutting tax for the highest-earning 25 per cent of Australians and not for the other 75 per cent. It's that $80,000 is where the second highest tax rate comes in.
When The Political Sword discussed negative gearing a month or so ago, the number of $80,000 as the claimed average income popped up again. Mathematically, an average is the ‘central’ value for a set of numbers. Martin points out that only a quarter of wage/salary earners receive over $80,000 per annum so if the full time employee average wage is $80,000 as Morrison suggests, there are some people earning considerably in excess of the chosen value — simply because three quarters of the population live on an income below the average.

Despite the framing, those who earn enough to be taxed at the highest and second highest tax rates are not ‘average’: they earn considerably more than the rest of us. The change to the tax thresholds is purely cosmetic as it really only affects the tax rates on a few thousand dollars around the new threshold points.

The Coalition has also taken the opportunity in the 2016 budget to restore some funding to the Australian Securities and Investments Commission (ASIC) that was ripped from it in the Coalition’s ‘famed’ 2014 budget. In 2014, $120 million was to be cut from the funding over the next five years under the justification of ‘repairing the budget’. Questioners at the time were advised that the government was of the impression that the banks could ‘self-regulate’. Either the restoration of funding demonstrates the government no longer believes the finance industry can regulate itself, or it is window dressing.

While the ALP is promising a Royal Commission into the banking and finance industry if it gains power, the government claims that ASIC already has the powers to investigate and prosecute to a greater level than any royal commission. While this is probably correct, the ability of ASIC to investigate and prosecute is largely determined by funding. As the Coalition government has made perfectly clear up until now, they are of the opinion that the banks can self-regulate and ASIC can exist on a significant funding reduction.

Turnbull was recently interviewed by the ABC’s Jon Faine on Melbourne Local Radio. Faine was attempting to discuss the real issue of young people trying to get sufficient funds to pay rent while saving for a deposit to enter the housing market — the point being the housing market is distorted by the number of investors taking advantage of the current negative gearing/capital gains taxation rules. Faine was using his own kids as an example.
“Well, are your kids locked out of the housing market, Jon?” the Prime Minister responded.
“Yes,” Mr Faine said.
“Well, you should shell out for them. You should support them, a wealthy man like you,” Mr Turnbull said.
While it was initially seen as a joke, the ALP argued that Turnbull was out of touch and the Coalition accused the ALP of a lack of aspiration for ‘hardworking Australians’, the reality is that Turnbull’s comment seems to suggest that he sees nothing wrong with people whose parents can afford to ‘contribute’ to a house for their kids doing so. It begs the question of how those kids whose parents can’t contribute achieve the same aim in what is supposed to be an egalitarian society. Disregarding the worth of the parents and the talk of aspiration, this is creating a class system within our society.

So we start the election campaign with the Turnbull/Morrison ‘jobs and growth’ budget which; in their words; promises to power Australia out of the mining economy into one that produces services the world wants. In reality, it helps those who could probably afford to give a bit to make our society as equitable as it seemed to be in the 1950’s, while those that have no chance of earning the average wage (regardless of the value being $60,000 or $80,000) get diddly squat. Greg Jericho, writing for The Guardian” discusses the issues around ‘average’ here using a wonderful interactive map that shows the percentage of people in each federal electorate that actually earn in excess of Morrison’s mythical $80,000 average. Probably not surprisingly, the value is almost always below 50%.

Helping the better off, reducing regulation in the finance industry and a host of other measures we don’t have room to go into here, such as changing the definition of a small business for taxation purposes, reducing funding to education, and freezing the rebate for a doctor’s visit, certainly isn’t helping our society become equal, let alone one where equality is the overarching principal. In fact, it all has a familiar ring to it. Some would call it the rich looking after themselves, others call it Reaganomics and some would suggest that in reality, it is the discredited ‘trickle-down effect’ writ large.

The Saturday Paper on 7 May 2016 reported a sponsored visit to Australia during 2015 by Arthur Laffer, the ‘genius’ who gave the world Reaganomics (the deregulation of large financial institutions under the Reagan Administration almost single-handedly caused the Global Financial Crisis of 2007). While in Australia, Laffer addressed the Australian Chamber of Commerce, IPA and Sydney Institute as well as ‘doing the rounds of government’. A cynic could suggest there is a connection.

What do you think?
Why the government’s obsession with the number 80,000?

How out of touch IS Malcolm Turnbull?

Let us know in comments below.

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Comments (4) -

  • DisablednDesperate

    5/15/2016 3:25:43 PM |

    This budget has Laffer all over it. Not good at all.

  • totaram

    5/15/2016 7:47:41 PM |

    I am glad you have pointed out who are the people being helped by this budget. They are actually a very small fraction of the population, with the biggest gains going to an even smaller small fraction of the population.

    There is no need to figure out what is going on here. It is neo-liberal macro-economics: tax breaks to the wealthiest lead to more investment and economic growth and therefore "jobs and growth". That is the sum  total of the understanding of these people and they are really hoping this will lead to "jobs and growth", when the evidence from all historical data is against that. But then for these kinds of people, evidence has never counted for anything - it is all ideology based on what they believe to be "immutable truths which are god-given"  etc.

    Organisations like ASIC  are seen as "red-tape" which prevents the "go-getters" of the economy (which we know to be crony capitalists and outright crooks) to "growing the pie". Unfortunately, when the pie grows only their share of it grows.  And sometimes, while it looks as if it grows, there are hidden costs like health effects, environmental degradation, etc. all brushed under the carpet.

    As for Laffer: his logic  is based on the idea that here is only one single flat income tax rate. Try extending that to the situation where the tax rates are progressive, and indeed different for industry and incomes and see what you come up with. This man and his acolytes are simply paid shills, who depend on clever tricks and sleight-of-hand logic to fool the gullible.

  • 2353NM

    5/16/2016 7:33:51 AM |

    DIsablednDesperate - thanks for your comment and welcome to TPS.  I hope you comment again.  Laffer is attempting to use countries as an economic experiment as well as being the perfect example of the modern travelling medicine salesman.  the difference being that while the salesman could only affect small groups at a time, Laffer is making entire countries sick.

    Totaram - its a mindset.  There is stacks of evidence to suggest that the 'trickle-down' theory doesn't work yet it is continually trotted out by conservatives. It's clear to see who benefits (and who really cares about the communities they live in).  It's sort of like those that regularly attend church on a Sunday for an hour and then pillage and hate for the rest of the week (while proclaiming their respectability - they attend church you know!)

  • 2353NM

    5/16/2016 11:27:14 AM |

    Regarding Laffer - the ABC has an article on his influence today as well -> www.abc.net.au/.../7416608

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