Tax-deductible RATs deliver nothing to the lowest-paid. How very Morrison government

by Richard Denniss in The Guardian
Originally published in The Guardian on February 9, 2022

The recent decision to make Rapid Antigen Tests (RATs) tax deductible rather than free will deliver nothing to low paid essential workers and big savings to high income earners. How very Morrison Government.

While a part-time cleaner working in the aged care sector will likely receive zero benefit from tax deductible RATs, someone earning $200,000 per year would get $9.40 back on a $20 test. In short, if someone is below the income tax threshold (as many part time and young workers are) there is literally no benefit in something being made tax deductible. And while ordinary employees will have to prove that their employer required them to buy the tests, the millions of small business owners, sole traders and contractors among us will be spared the red tape.

While it may seem outrageously contradictory for the Prime Minister to make RATs cheaper for those who earn the most and no cheaper for those who earn the least, in reality it’s a defining pattern of his term of office. Take the stage 3 tax cuts due to commence in 2024. Regardless of the result of this year’s election Scott Morrison’s lasting gift to those earning over $200,000 per year will be a windfall of over $9,000 per year. Those earning less than $45,000 will get nothing. Not a cent.

According to Treasury the annual cost of the stage 3 tax cuts will be over $15 billion per year from 2024, rising to more than $30 billion per year by 2031. To put that into perspective, total Commonwealth spending on aged care is around $23 billion this year. And according to the Parliamentary Budget Office around 75%  of that windfall will flow to the top 20% of income earners.

But while giving the biggest discounts on RATs to the same group who get the lion’s share of the stage 3 tax cuts reflects a consistent set of political preferences it also represents a deeply flawed understanding of basic economics.

The whole point of putting a price on something is to ration it, and the whole point of subsidising something is to encourage its use. That’s why we don’t charge people for bowel cancer screening, breast cancer screening or cervical cancer screening. Scott Morrison knows that, and he also knows that the case for providing free RATs, as opposed to tax deductions for high income earners, is even stronger than the case for cancer screening.

While early cancer screening saves lots of lives and lots of money, the benefits of early cancer detection flow mainly to one person, while the benefits of early covid detection flow to all the people who don’t get a contagious, often deadly, disease.

Charging people to detect covid early is like charging firefighters for using water during bushfire season. It’s not equitable to make people who are trying to help others pay a price, and it’s not economically efficient either. Just as increasing the price of cigarettes will lead to a reduction in smoking, charging $15 or more for RATs led to a significant reduction in testing, and in turn a significant increase in the number of cases, hospitalisation and deaths.

While someone earning $4,000 per week can probably meet the cost of a $15 RAT without too much pain, that’s not true for someone earning $400 per week and, in turn paying no income tax. Low income earners are more likely to be young, more likely to work in retail, and, in turn, more likely to spread covid than older and higher income Australians.

The main reason that the Morrison government didn’t provide free RATs over summer was simple: there weren’t enough of them. Due to a catastrophic failure to plan, even with high prices the supply of tests over summer didn’t come close to meeting the demand once the Prime Minister got his wish and covid was free to rip. Making them free would have only made the lines longer and his failure to plan clearer.

The recent announcement that RATs would be tax deductible is as inequitable as it is inefficient. The gap between those with the most and those with the least isn’t growing due to a scientific law of economics –  it’s being driven wider by a decade of policy choices.

It’s wasn’t ‘market forces’ that decided to cut the after-tax price of RATs for high income earners, while doing nothing to help low-wage workers, just as it wasn’t ‘market forces’ that decided to give a $9,000 per year tax cut to those earning over $200,000. These were political choices made by our government.

Are these the choices we want our government to keep making? That final decision will be made by voters in a few months’ time.

Richard Denniss is the chief economist at independent thinktank the Australia Institute and the recent author of ‘Big: The Role of the State in the Modern Economy’. Twitter: @RDNS_TAI

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