Friday, February 17, 2006

Fact Checking Cullen

Dr Cullen is threatening to cancel the tax cuts due in 2008 due to the rejection of the carbon tax.

This is moronic.

What we need to explain to Dr Cullen is the concept of inflation. What inflation does is devalue currency. If in two years your income is worth two years worth of inflation less - then (assuming there was any reason at all to set tax levels at the level they are at) the tax threshold should rise by that same amount. This is what his "tax cut" did. In fact it was not a tax cut at all it was just a method for keeping the tax rate the same.

Imagine if we retained thresholds designed for 100 years ago - as a result of inflation - even people on the poverty line would be in the top tax bracket!

This means his policy was tax neutral there is NO real cost to it. In fact, NOT raising the tax thresholds according to inflation is a TAX INCREACE!

Furthermore the strategic choice to change thresholds by not adjusting them (or by adjusting them by a number other than inflation) is something that has wider implications than just income. In particular it relates to various things like "fairness" and the distribution of wealth and various levels of incentive to various parts of the economy. You can't just equate it to the carbon tax as money in money out.

AND worse yet Cullen is talking as if the government books balance at a time when they are running a big surplus. Don’t get me wrong, I am happy to have a surplus, and savings are good - but don’t kid me that labor is in some desperate struggle to balance the books at the moment.


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