Peter Costello was out talking tax on
Insiders yesterday.
Tax rates are “always under review,” he said. Really? In which way?

This morning we learn fromThe Australian‘s
intrepid Michael McKinnon, writing with David Uren,
that “Peter Costello has commissioned a secret Treasury analysis to help
deflect escalating calls for tax reforms to tackle the effects of “bracket
creep.”

“For more than a year, the Treasurer has
been gathering information to prove that raising tax brackets by the rate of
inflation would have cost taxpayers’ money rather than stopping the erosion of
incomes through bracket creep. And he has suppressed information that would
show the weight of tax is actually increasing.”

And it’s hard to stop thinking about that item
by John Stone in the Council for the National Interest’s journal National
Observer on the Treasurer and his achievements – and ambitions.

Everyone knows where Christopher Pearson’s
preferences lies, but he was admirably fair when talking Treasurer in The Australian
on the weekend:
“Costello is a great asset to the Government and a matchless parliamentary
performer. His frustration during the course of a long apprenticeship is
understandable and Howard has sometimes been needlessly provocative, as for
example when he told some journalists he thought he could beat Kim Beazley at
the next election, the so-called ‘Athens declaration’.” But…

McKinnon has been chasing up the bracket
creep issue for a long, long time. We linked to Democrat Senator Andrew
Murray’s paper on the absurdity of our tax threshold that cuts in way below poverty level last
week. And there are Stone’s comments on surging revenues and how this year’s
Budget “betrays no evidence whatsoever that the Treasurer has even contemplated
a program of genuine tax reform.”

One parliamentary observer has these
comments to make: “A big issue arising from Stone’s article is also Treasury’s
credibility. Parliamentarians, journos, academics etc have long relied on
Treasury being credible, reliable, informed, intelligent, professional and considered.
Partisan and deceitful are not words easily associated with a great Australian
institution like Treasury, and I don’t like to even think that could be the
case. Yet Stone and the table Crikey has been running effectively alleges the
Treasurer (and therefore Treasury) deliberately and knowingly understated
expected surpluses. Former NSW Auditor-General Tony Harris has been very
critical on their estimating failures in this respect.”

Treasury has been questioned on this matter
at some length in Senate Estimates, and the risk of damage to the Department’s
reputation by knowingly underestimating expected surpluses has been raised by Murray.

Reserve Bank director and outgoing Business
Council of Australia boss Hugh Morgan pops up in some of the News Limited
tabloids
today describing Peter Costello’s tax reform proposals as “lacking.”

There’s an inescapable conclusion from
Stone’s item – that the huge amount of money needed for really significant
structural tax change was available at the time of the last Budget and is still
there.

PS Why aren’t we seeing more coverage of
the Senate Economics Committee report from last week
into household debt, demand for imported goods and Australia’s
current account deficit?

Recommendation 4 is particularly
interesting: “The Committee recommends that the Government reassess its
decision to reject the recommendation of the Productivity Commission for a
review of those aspects of the personal tax regime that have recently
contributed to excessive investment in rental housing.” Throw Access Economics’
five year forecasts and their comments on the twin housing and commodity booms make it even more relevant.