Carbon tax “compensation”

This is an analysis of the income tax compensation offered under Labor’s proposed carbon tax.

Firstly, lets have a look at the 2010-2011 tax brackets, taking into account the LITO (Low Income Tax Offset):

Bracket 2010-2011 Rate
$0-$16000 0%
$16000-$30000 15%
$30000-$37000 19%
$37000-$67500 34%
$67500-$80000 30%
$80000-$180000 37%
$180000- 45%

Lets have a look at the proposed 2012-2013 rates, again, taking into account the LITO, which has now been reduced from $1500 to $445, and had it’s withdrawal rate reduced from 4% over $30000 to 1.5% over $37000.

Bracket 2012-2013 Rate
$0-$20542 0%
$20542-$37000 19%
$37000-$66667 34%
$66667-$80000 32.5%
$80000-$180000 37%
$180000- 45%

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Liberal party compromise

For political junkies the talk of the last week has been about the Liberal party split on whether or not to support the ALP’s Emissions Trading System (ETS). On one side is Turnbull/Hockey/Pyne and the moderate wing of the party who support an ETS… and on the other side is Abbott/Robb/Minchin and the conservative wing of the party who are desperately trying to stop the legislation from passing.

It’s difficult to see a good outcome for the Liberals.

Abbott has said he will challenge for the leadership on Tuesday. Turnbull responded by throwing a hand grenade into the party, insulting the anti-ETS crowd and insisting that people back him or the Liberals will be destroyed. If Turnbull wins then we are stuck with bad climate policy, angry conservatives deserting the party (which is probably good for the LDP), and a divided parliamentary party with prominent figures on the backbench. But if he loses and quits politics then the Liberals could potentially face a Wentworth by-election (which they may well lose), angry moderates, lots of Turnbull quotes to use in the next election, another unhappy ex-leader, and then we may still get stuck with the ETS anyway.

Delaying the vote until February won’t fix the problem. That just means that the debate goes on for another three months and then the Liberals face the same problem again.

The best compromise might be for the Liberals to consider backing a carbon tax, linked to tax cuts and with a McKitrick clause. This would allow the party to unambiguously oppose all types of ETS, it would be a better policy with a wide range of support from economists and some green groups, the associated tax cuts and McKitrick clause should help to placate some conservatives, and the the moderates can be happy that the party is going to “do something”.

Turnbull and Hockey are unlikely to support this position, but Abbott has shown some interest in the idea of a carbon tax.