Virtually
no one’s bothered to ask them for a comment, but one of the most interesting
responses to the Budget has come from the Australian Democrats.

Their
tax spokesman, Andrew Murray, has set the Treasurer a task that could keep him
usefully occupied between now and the pre-election Budget next year –
particularly since the Treasurer says more tax cuts are on the way.

“Our income tax system is
complex, inequitable and inefficient. It is widely criticised for its churning
effect, but the Treasurer has no plan to fix it,” Murray says.

We
knew that already – but Murray really spells out why
the emperor (or the man who would be PM, anyway) has no clothes:

Mr Costello has become the no plan
man. Contrast the well argued, fully documented and comprehensive indirect tax
reform plan which resulted in the GST and New Tax System to income tax, where
there is just no plan.

Murray’s right. As he says,
the Treasurer has adjusted rates and thresholds within the existing system, but
needs to change the system to be simpler, broader based and more equitable:

Effective marginal tax rates up to
70% apply to low income Australians when the removal of welfare and
income tax are combined when moving from welfare to work. These high rates are
untenable. No Australian should experience an effective marginal tax rate
greater than the new top rate of 46.5%.

Right
again. So what needs to be done? More Murray:

A structural income tax reform plan
should include raising the tax free threshold significantly to take millions of
Australians out of the income tax system; indexing the rates to account for
bracket creep; broadening the base by cutting out tax concessions that are
inequitable, inefficient, outdated, unnecessary, or distortionary; reforming
the tax welfare intersects to encourage welfare to work and remove inequities;
and ensuring nominal tax rates remain fair and competitive.

Can
that be done? Academics Peter van Onselen and Wayne
Errington took a look at the politics of reform in The Canberra Times on Budget day. Their
conclusions were gloomy:

The
Hawke and Keating governments embraced micro-economic reforms much to the
chagrin of many of their union supporters. And, as they discovered, the
political benefits of economic reform don’t flow to the decision-makers but to
the next generation. The
current Federal Government is attempting to do the same with industrial
relations reforms…

Not
until after the IR reforms are embedded with an election win will the Coalition
look to introduce large-scale tax reform.

Look
at the history of the Howard Government. It’s been one major reform per term –
balancing the budget in 1996-98; the GST in 1998-2001; work on national
security from 2001 to 2004 and now they’re bedding down IR and preparing for
the 2007 poll.

Last
year we had a brief “Hundred Flowers”
moment when the Government became its own opposition – but that was just to
generate ideas. Now the usual Howard Government discipline is firmly back in
place. It will stay there until the election.

And
so, it appears, will the absurdities in our tax system – like the way in which
our ridiculously low tax free threshold actually means it is cost negative for
the Government to demand tax returns from some of Australia’s lowest income
earners.

They seem
set to remain, even though there’s money in the surplus to ease any
transitional pain. Even though
the Labor Party seems to be able only to nod along on tax. And even
though grasping the nettle would – for the first time ever – make Peter
Costello look like a real leader.

Something,
you’d think, would be in his own interest come Budget time next year.