By Sue Boland
When the Coalition government announced that it was introducing the "Timor tax" in November, Â鶹´«Ã½ Weekly warned that it could be used as a precedent for introducing other "special purpose" levies.
It was quite likely, we argued, that the federal government would attempt to extend the Timor tax to the other projects if, for instance, discontent with the public hospital funding crisis or the lack of funding for public education turned into outrage.
If the government is thinking along this line, it would have been pleased with the comments by the Australian Democrats' leader, Meg Lees, to Channel 9's March 5 Sunday program. "The letters coming across my desk when we put on the Timor tax indicated that people would actually be happy to see that carry on indefinitely if ... we could prove it went to hospitals", she said.
Although the Democrats haven't officially discussed a proposal to extend the Timor tax, Lees indicated that she would be supportive of the idea, if the tax raised was spent on health. "About $500 million is needed to improve the standard of nursing homes", she said.
The Timor tax is a one-off levy to be collected in the coming financial year by increasing the 1.5% Medicare levy. When the Timor tax levy comes into effect, people with incomes of more than $50,000 a year will have to pay an extra 0.5% on all of their income and people with incomes over $100,000 a year will pay an extra 1%.
When Prime Minister Howard announced the Timor tax, he argued that it was fair because it only affected rich people. This argument was also used by the Democrats and the ALP when they sought to justify their support for it.
However, the Timor tax does not tax the rich. This argument was always a furphy.
The very rich, people like Kerry Packer, don't pay income tax. They receive their income in the form of franked dividends which aren't subject to income tax. This form of income used to be subject to income tax until the laws were changed in the 1980s by a federal Labor government.
The Timor tax mainly hits professionals and better-paid working-class people. Owners of businesses, even small businesses, can artificially reduce their income by splitting income amongst family members and channelling personal expenditure through the business. A worker doesn't have any of these tricks up their sleeve.
While an income of $50,000 is higher than the median income, it isn't so high if you have to support several other people. The Timor tax doesn't differentiate between someone on $50,000 who is just supporting themselves, and someone on $50,000 who has several dependents.
What most people don't realise is that the Timor tax can also cut in at much lower income levels, if you receive a one-off payment which temporarily bumps your income above the $50,000 mark for the next financial year.
For example, you could be on an income of $30,000 a year and receive a redundancy payout, retirement payout, worker's compensation or accident compensation payout of more than $20,000. This would lift your income above $50,000 and make you subject to the Timor tax.
There is nothing fair about the Timor tax or any other "special" levies, such as the Medicare levy. All such levies should be abolished. A fairer tax system would be one combining progressive income tax (and tax brackets adjusted to take account of wage rises) with the abolition of the GST and the Medicare levy and increased company taxes and the capital gains tax.
The government is expecting a drop in taxation revenue this coming year once the GST, income tax cuts and the corporate tax cuts kick in. The treasurer Peter Costello has already used this as an argument against extra funding projects for rural areas. He was reported in the Sydney Morning Herald on March 16 as saying that "there's an overall net reduction in tax of the order of [between $5 billion and $6 billion] coming on July 1".
This contradicts Costello's sales pitch in favour of the GST during the 1998 election campaign. Then, he said that the GST was necessary to ensure adequate funds for health, education and welfare. The Democrats used the same argument to justify their support for it.
It is now clear that the GST was introduced to pay for the corporate tax cuts for the super-wealthy. The government's solution to funding welfare, health and education is to force people off welfare and privatise the health and education systems.
If we protest, the remedy that the government is likely to propose will be a "special" health levy or education levy. And the toadying Democrats, and perhaps the ALP, would be likely supporters.