While a somewhat confused performance by the PM on Lateline
last night has got tax talk happening again, there’s an interesting
paper doing the rounds put together by Labor’s Craig Emerson, entitled
New Thinking for a New Century – Getting our priorities right in income tax reform.

“Call me Doctor” Emerson is, of course, a former economic adviser to
Bob Hawke and Peter Walsh, was an economic adviser at the UN, a Dep Sec
in the Department of Prime Minister and Cabinet and, yes, has a PhD in
Economics. It’s not yet online, but the intro should give you an idea
of the drift:

Paul Keating remarked in the early 1990s that every parrot
in the pet shop was squawking micro-economic reform. Now, just five
years after the Howard government gave Australia what it boasted to be
“a new tax system for a new century”, every parrot in the pet shop is
squawking tax reform. But unless the chorus of squawking is accompanied
by verses about where spending should be cut, the call for tax reform
will never be more than a cacophony of sound…

Business groups
failing to identify where the money should come from to finance the
abolition of the top rate would be abrogating their responsibilities as
advocates of sound fiscal policy.

Though the Australian Chamber
of Commerce and Industry (ACCI) is astray in its advocacy of virtually
total labour market deregulation, it has had the courage of its
convictions in arguing for reductions in government benefits and tax
breaks for the better off to pay for reductions in the higher rates of
income tax. Liberal MPs are not so forthcoming, though Malcolm Turnbull
did venture into a bit of base broadening advocacy, before he was
hauled into line by the Treasurer. Mr Turnbull is scheduled to lay out
his plan for abolishing the top marginal rate on 1 September 2005. To
be credible, he must identify the method of financing the abolition of
the higher marginal income tax rates – and not call on the less well
off to foot the bill by making their work-related expenses
non-deductible.

Before we engage in the battle of ideas on how
to fund the abolition of the top marginal rate of income tax we should
objectively assess the arguments that have been put in its favour. In
the remainder of this Progressive Essay I review the evidence and
arguments. That review puts me in the camp: ‘deep sceptic’. I then
propose a much fairer and economically beneficial alternative:
abolishing the 42 cent rate applying over the $70,000-125,000 per annum
income range.