Who needs tax cuts?

Can anybody tell me what Treasurer Joe Hockey and PM Tony Abbott are thinking?

Here they are confirming that they will take the promise of personal tax cuts to the next election – 15 months are telling everyone the Federal Budget was in terrible shape and everyone would have to tighten their belts for the future.

That went down like a lead balloon and now the tune has changed so that the Budget is not in as bad a shape as they thought and the nation needs tax cuts to stop that terrible fiscal villain – bracket creep – where inflation pushes wage earners in higher and higher tax brackets so they end up worse off.

First of all wages are barely increasing faster than inflation, both of which are subdued because of below-trend economic activity. Secondly as the economy transitions from a resources-led economy to a service-based economy people are more interested in jobs rather than big wage increases . . . or personal tax cuts.

The data shows wages up by 0.6 per cent in the June quarter after a 0.5 per cent gain in the March quarter. Annual wage growth is at a record 18-year low of 2.3 per cent. When you include private sector bonuses it nudging toward 3 per cent, but still low.

Of course it is true that are a large number of average wage earners are starting to push up against the second-highest taxation level of 37 per cent so a large number of them could use a tax break.

But the Federal Government could just as easily adjust or broaden the tax brackets to achieve the same outcome. Of course that wouldn’t carry the same impact at election time of a nice big tax cut.

The Coalition would also seem to be reinforcing it reputation as a great big tax cutter rather than one that increases taxes if it needs to pay for something.

That job is being given over to the State Governments that must now come up with ways to pay for education and health services, hence the push for a bigger GST.

So how does the Federal Government plan to pay for these personal tax cuts? It’s confident that it can find plenty of cost savings within the federal budgetary program.

Isn’t this where we started in the first place with a horror 2014 budget full of cost cuts that the Senate wouldn’t pass.

Sounds a bit like ground hog day to me.

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