John Howard has launched his election campaign with a bang. $34 billion worth of tax cuts is going to get anybody’s attention. But will it get their vote? It’s almost a tradition in this country to announce tax cuts in an election year, made possible by the inevitable effects of bracket creep. Without indexation of the tax thresholds, wages growth over time propels people into higher tax brackets and erodes their disposable income in real terms. This makes it possible for a government to make itself appear generous from time to time by giving back some of what it has taken. With a massive and growing budget surplus, the government is clearly collecting more tax than it needs, and it’s only right that the excess is given back. But it would be more honest to index the thresholds so that too much tax isn’t collected in the first place. Then there is the question of whether the money could be better spent on improving other things, for example highways and hospitals. Despite the fact that these are primarily state government responsibilities there is a widely held expectation that whoever the federal government might be after the election, they should do something to fix the perceived problems. And with so much money in the federal budget surplus surely that is a reasonable expectation for taxpayers to have.
So how would you spend the money? Taxcuts? Or highways and hospitals?