The announcement today by the government of lowered direct tax rates stymies any more “Howard lite”pitches by Kevin Rudd. By locking increased revenue into tax cuts the government makes it a clear choice for Labor – you can either back us on tax cuts and give up some of your positions on health, education and infrastructure, or you can admit you’ll need to increased the tax take. Suddenly being a “fiscal conservative” has hooks in it.
This was a reasonably predictable move by the government, but it’s taken Rudd Labor by surprise. I more or less predicted something like this in this blog post when I said:

But it makes you wonder whether some dramatic tax announcements from Howard as he announces the poll couldn’t similarly change the dynamic here. Voters are volatile. It’s still possible (although unlikely) for Howard to do well.””

My good friend Henry Thornton was saying similar things.
One of the aspects of the faux campaign that has puzzled me is that the government has not trumpeted its achievements in lowering direct tax. I can remember when the average tradesman who did overtime gave more than half of it back in tax to the Treasury. Now for most it is no more than 30%. That’s a hell of an inducement to do overtime, and it takes a lot of the inflationary pressure out of notionally full employment.
Putting most Australians in reach of a 30% flat rate of tax has been a longterm goal of the government and was an implicit reason for the introduction of the GST. No doubt Labor will be saying this is another back of the envelope, spur of the moment decision, but in fact it’s been 11 years in gestation.
In fact, longer than that. I remember in the early 80s reading the results of the Asprey committee of inquiry into flat taxation. From memory they recommended a scheme where there was negative tax at the lower levels and positive tax at the higher levels, but the nominal rate was set around 30%. That’s now virtually the situation, 30 years later, that we are seeing under Howard. He’s followed it through all this time.
Kevin Rudd says this election is about the future. What’s his vision for where Australia will be in 30 years?
Other criticism has also been fairly predictable. Some of the same market economists who could be virtually relied upon to say that government make no difference to interest rates are now saying that this policy is inflationary and hence will put upward pressure on interest rates. Of course they’re wrong on both counts. It’s excess credit creation that puts pressure on interest rates. Shifting spending from government to private sector won’t necessarily change the balance at all, but individuals will get to choose whether their money gets spent on education, health, infrastructure, rent or food – surely a laudable policy aim.