Pressure on the government to cut taxes

During the next six months the Howard Government will unveil its next and most significant reform agenda.

While the scope and depth of the agenda is still unclear, two areas -- industrial relations and tax -- are set to be the focus.

A focus on industrial relations is no surprise.  This is one area where there is near unanimous agreement among Coalition MPs on the need and direction of reform.  It is also an area where the government has a respectable agenda sitting on the shelf ready to be re-introduced.

Tax reform is more controversial and therefore less certain.

The old guard led by Howard and Costello appear reluctant to cut taxes and reform the income tax system.  I suppose after going through the difficult process of developing, selling and bedding-down the "New Tax System" reforms, they are reluctant to renew the process.

They have also won two elections by spending the proceeds of bracket creep on carefully targeted groups of voters and are likely to wish to do it again.

There is also some uncertainty about the political popularity of cutting taxes as opposed to increasing spending.  As with all opinion polling, the results on this issue are highly dependent upon the type and sequence of questions asked.

Nonetheless, there are a few good, long running surveys which have examined the tax versus spending issue, such as the National Social Science Survey (NSSS).

While the latest NSSS (2001) found that more Australians still prefer tax cuts to increased spending in general, the relative support for tax cuts has declined steadily over the last decade.

Moreover, when spending on health is offered as an alternative for tax cuts, the former wins by a large margin.

On the other hand, the same poll found that when people are asked how the government can help them best personally, tax cuts are by far the most preferred option.

However, there is a growing group of Coalition backbenchers pushing hard for tax reform and specifically for cutting the top marginal income rate to 30 per cent and thereby align it with the company tax rates.

The young Turks are not alone.  The ACCI (the peak employer group), the major think tanks and many economic commentators support a tax reform/ cuts agenda.  Indeed, the push is growing in strength.

The real question, I suspect, is not whether tax cuts, but the extent and whether the process will be caution and piecemeal or bold and comprehensive.  Lets hope for the latter.

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