Book review 'Vital Signs Vibrant Society': Labor can lead reform

Yet I would argue that the ageing of society could see grey power extend the very handout mentality in health that Emerson is so concerned with, undermining his arguments for the health sector reform of more patient payments from wealthier people. Yet this possibility is missed in Emerson’s analysis.

Whereas the economics of ageing could be an argument for implementing his policy to protect the welfare state from being overburdened, political pressure from aged people at the ballot box could see a burdensome welfare state on coming generations.

The economics and politics of ageing seem to be pulling in different directions and the reception of the Medicare Gold package is a case in point on this.

Therefore the debate must start on health care affordability in earnest before the handout mentality increases. Emerson’s position is an appropriate starting point for this debate.

Tax reform

On tax, Emerson writes:

The 2006-07 Budget presents(ed) the opportunity of making a substantial down payment on an ultimate tax reform package. This [down payment] could consist of reducing the 42-cent rate to 36 cents - half way to its complete abolition in subsequent budgets, as well as increasing the Lower Income Tax Offset (LITO) from $235 to $625, and converting it to a weekly or fortnightly working bonus, increasing the phase out of the LITO from $21,600 to $70,000.

When compared with the Costello budget, Emerson’s priorities are marked clearly. They are for people who work and earn in middle Australia. Emerson claims the Forgotten People (those earning between $21,600 and $70,000) would be given a tax cut of between $7.50 and $12.00 under his tax-free-threshold uplift.

Emerson sets a high bar for long-term tax reform as well. His vision is to reduce the current 40-cent rate to 30c and to reduce the top rate to 39c.

Emerson does not, in my view, establish why the 40-cent rate should fall further from his proposed 36c and (in my view)the effective marginal tax rates faced by those moving off welfare require more attention than those earning over $70,000 a year.

The benefits of reducing the top rate of tax have been over-estimated and pushing out the current 45-cent rate threshold is more cost-effective and provides greater relief for more people than reducing the rate itself.

Yet Emerson is most persuasive in linking reductions in upper-class welfare to falling top rates of tax. Emerson cites candidates such as the family tax benefits being in need of tightening, as well as income-tax base broadening which are appropriate prior to reducing top tax rates.

Work incentives - passive welfare to workforce participation

To me, welfare-to-work policies should be the main goal of any Labor government and are vital to increase labour force participation and productivity. Yet Labor - especially on the Left - is often seen as the party of passive welfare and this will need to change to obtain the favour of middle Australia. Emerson marks this perception out as a problem and proposes some solutions.