Roll up, roll up. It's the latest hit game show and everyone's a winner. Our hosts, John and Kevin, have just three more days to buy your votes and it's neck and neck as they toss out promises and dollars to make your head spin. Tax cuts, childcare and education subsidies, first home owner schemes and help with financial decisions are just some of the sweeteners for voters. But just how do they stack up?

Tax cuts

This is the biggest single election promise spend from both parties and follows successive tax cuts in the past few federal budgets. The Coalition kicked off its campaign with a $34 billion tax package that would see the top marginal tax rate cut to 42 per cent from July 2010 and the second highest rate cut to 37 per cent. In addition, the thresholds at which the 30 per cent rate cuts in would be lifted from the present level of $30,000 to $37,000 and the low-income tax offset would be increased to $1500, lifting the effective tax-free threshold to $16,000. (See tables.)

That would generate a total tax saving by 2010-11 of $33.65 a week for someone on an income of $50,000 (not including this year's tax cuts), a saving of $29.81 a week for someone earning $80,000, and $127.89 for someone earning $200,000, according to the Coalition's figures. The tax cuts for next year (July 2008) have already been legislated, forming part of the last federal budget, but are included in these savings.

Labor has said it will match the Coalition's tax cuts, with one exception. The Coalition will cut the top tax rate to 43 per cent in 2009-10 and 42 per cent in 2010-11 but Labor will maintain the present rate of 45 per cent until at least 2012, instead using that money to finance its education refund (see education subsidies). That means someone on $200,000 would receive a more modest $116.35 in tax cuts over the next three years if Labor wins government but anyone earning less than $180,000 would enjoy the same level of savings.

Both parties also used their tax policies to set out their income tax reform goals for further into the future. By 2012-13, the Coalition says it would like the low income tax offset to be at a level that ensures an effective tax-free threshold of at least $20,000 for lower earners. It wants to cut the top tax rate to 40 per cent, the second rate to 35 per cent and to have 85 per cent of taxpayers on a tax rate of 30 per cent or less.

Labor's goal is to flatten the tax scales by 2013-14. It wants to abolish the second-highest tax rate so that a marginal rate of 30 per cent would apply on earnings between $37,001 and $180,000. It also plans to cut the top tax rate to 40 per cent by this date.

Of course, these longer-dated tax cuts have not been put up as firm promises. "I suppose they're more a statement of intent than a promise," says ANZ's chief economist, Saul Eslake. "You shouldn't take them as literally [as the promised tax cuts] and even those haven't been legislated."

Aside from the fact that another election will be held before then, there's the question of whether future economic conditions will justify further tax cuts.

Education subsides

Labor got the ball rolling here with a education tax refund delivered in lieu of cuts to the top tax rate (see tax cuts). The 50 per cent refund will be available to all families with children at school who receive Family Tax Benefit A and will cover up to $750 a year of eligible education expenses (a refund of $375) for each child attending primary school and up to $1500 of expenses (a maximum refund of $750 a year) for each child in secondary school. The refund will cover expenditure on eligible items such as laptops, home computers, internet connections, software and text books.

Labor says more than two million children will be eligible for the refund and a typical family with one child in primary school and one in high school will be able to claim up to $1125 a year through the tax system to help fund these expenses.

More recently, the Coalition announced its education subsidy via a 40 per cent tax rebate for a broad range of education expenses including school fees, extra-curricular activities, private tuition, uniforms, camps and excursions - as well as costs such as computers and text books. The rebate will cover up to $1000 of expenses for preschool and primary students (a maximum rebate of $400 a child) and $2000 of expenses for high school students (a maximum $800 rebate).

Both subsidies will be able to be claimed in your annual tax return.

Colin Lewis, IPAC Securities' head of technical services, says both will operate as tax rebates rather than tax deductions. This means the benefit will be the same regardless of your tax rate. He says the Coalition's maximum $800 secondary rebate is obviously higher than Labor's maximum $750 but you must spend $2000 to qualify versus $1500. He says Labor's offer is more restrictive, being targeted at specific expenses and means tested, whereas the Coalition's is open to all.

Labor says its refund will be available to any families eligible for Family Tax Benefit A. Lewis says for a family with one child, the current cut-off level for a partial benefit is $97,845 of family income. For a family with two children, the cut-off level for any benefit is $107,797. According to Labor, these cut-offs are likely to be indexed to about $110,000 and $125,000 by the time the refund is introduced.

Child care rebates

Labor announced early in the campaign it would increase the 30 per cent child-care rebate to 50 per cent and lift the maximum rebate per child from $4354 to $7500. A couple with one child in eligible child care would be entitled to a maximum tax rebate of $3750 versus $1306 now. Labor says that, at 50 per cent, the new rebate would be higher than the top marginal tax rate.

It says it also intends to increase the frequency of payments so that parents don't have to wait as long to be compensated. It will make the payments quarterly rather than annually and intends to make the payments fortnightly once a new child-care management system is in place.

The Coalition is maintaining the rebate at present levels but says it will help parents by paying the rebate direct to the child-care provider. It says this will allow parents to pay 30 per cent upfront for child care each week. That won't reduce the price of child care overall but parents won't have to pay the extra from their own pockets and then claim it back.

First home owners

Labor kicked off the giveaways here as well with the promise of a First Home Saver Account. This account could be opened by anyone over 18 who qualifies for the First Home Owners Grant and will be offered through existing super funds.

The account will have a $10,000 (indexed) cap on contributions each year, $5000 of which can be made pre-tax (either through salary sacrifice or by claiming a tax deduction) and $5000 from after-tax income. Earnings within the account will be taxed on the same basis as super (that is, a maximum 15 per cent tax rate which may be lower due to franked dividends and discounted capital gains) and withdrawals after four years will be tax-free if used for an eligible first home purchase. Pre-tax contributions to the fund will be taxed at the super rate of 15 per cent, while after-tax contributions will go in tax-free.

Total contributions will be limited to $50,000 and withdrawals within the first four years will be allowed only in exceptional circumstances. Labor says the four-year time frame will allow savers to benefit from compound interest and to achieve higher returns by investing in longer-term growth investment options - though it expects savers to be offered a range of investment options ranging from conservative to higher growth.

Third parties - such as parents - will be able to contribute to the $5000 of after-tax income allowed each year. And if you don't use the savings to fund a first home, it can either be withdrawn after four years (though the tax savings will be recovered) or rolled over into super.

The Coalition has promised two tax-free home savings accounts - one for children and one for adults aged 18 to 39. Children are not covered by Labor's plan but there is no upper age limit.

Both accounts will allow only tax-deductible contributions of up to $1000 a year - versus Labor's $5000 - but earnings within the accounts will be tax-free.

The accounts will be offered through banks, building societies, credit unions, and super funds and will also offer a range of investment options.

Contributions to the children's accounts will be limited to that tax-deductible $1000 a year, with the deductions being claimed by the contributor. Where the contributor has little or no taxable income (such as a grandparent), the Coalition says they will be able to claim a 15 per cent refundable tax offset. So on a $500 contribution, a grandparent living on the age pension could claim a $75 refundable offset, while a parent on the 31.5 per cent marginal tax rate (including the Medicare levy) could claim the $500 as a tax deduction and receive a $157.50 tax benefit. Once the child turns 18, the account will become an adult account.

The adult accounts will work in much the same way, except that account holders and third parties will be able to contribute up to $10,000 a year (indexed and including the tax-deductible $1000) up to age 40.

Access to the accounts will again be restricted to withdrawals to buy your first home (once you've qualified for the first home owners grant) or exceptional circumstances. If you still have the account when you turn 40, you can withdraw your savings to buy a first home, roll it over into super, or leave it in the account tax-free until 60 when it can be withdrawn or rolled into super.

While it is not a "promise", the Coalition has also indicated it might contribute to these accounts from future budget surpluses to help first home savers - if conditions allow it.

As a further measure to help first home buyers, the Coalition says it would introduce a capital gains tax exemption for family members who enter into shared equity arrangements to help relatives buy their first home. If Mum and Dad bought half of little Jill's first home, they'd get the benefit of the CGT exemption when it was sold so long as it had remained Jill's place of residence.

Seniors

More money is being splashed about here. The Coalition led the charge by announcing a fourfold increase in the utilities allowance for older people, from $107.20 to $500 a year. The allowance will also be extended to people receiving the carer payment and disability support pensions who have not yet qualified for the age pension. (People of pension age receiving these payments already receive the allowance.)

Self-funded retirees will get extra money too, through a doubling of the Seniors Concession Allowance from $214 to $500. This allowance is paid to holders of the Commonwealth Seniors Health Card.

At present age pensions are indexed to grow in line with male total average weekly earnings but the Coalition has said it will go one step further in guaranteeing to compensate pensioners for increased living costs. If the Australian Bureau of Statistics' Living Cost Index for Age Pensioner Households rises faster than the normal rate of indexation, the Coalition says pensions will be topped up accordingly. A further promise is to use some of the proceeds from its promised Climate Change Fund to lessen the impact of higher electricity and other charges on pensioners and low-income households. Labor says it will match the changes to the utilities and seniors concession allowances and pay them quarterly, rather than twice a year. It will match the Coalition on indexing pension payments.

Further promises include putting $50 million towards a national transport entitlement for state government Seniors Card holder (at present, you're only entitled to transport concessions in your own state) by 2009 and increasing the Telephone Allowance for older Australians, people on disability allowance, and carers from $88 to $132 a year. It says it will also set up a Seniors' Internet Fund to provide one-off grants to seniors groups to fund computers, broadband connections and Internet workshops.

Super and savings

By deadline, little had been released by either party on their policies for helping Australians save more. The Coalition announced continued funding for financial literacy and an extra $12 million for a new scheme which will let younger people - aged 18 to 35 - talk to an independent financial literacy expert about achieving their goals.

The Coalition says it will contract experts in both regional and metropolitan areas to provide this service, which is aimed at helping younger people develop good money habits and plan for the major financial decisions made at this stage in their lives.

Labor is due to launch a policy that is likely to include some protection measures - such as requiring all employers to base their compulsory super on pre-salary sacrifice income - and possibly an expansion of the co-contribution scheme. (See Super & Funds, page 8.)

Previous Labor policy statements have said it wants to provide additional incentives to low and middle income earners to top up their super to achieve a total 15 per cent savings target. The Coalition has not yet indicated whether it sees a need to build on its latest reforms, which came in on July 1.

The big picture

Promises have been flying thick and fast and both parties have announced a range of measures on everything from health care to the best way to provide technical training and whether or not we should save Indonesian orang-utans. But the big question for many voters is: what happens next? Will the economy - and our financial well-being - continue to boom? And can the parties even afford all their promises if conditions take a turn for the worse?

According to Eslake, we can afford all these promises and more. But that doesn't mean spending so much is the right thing to do.

"We can afford the tax cuts and spending without going into deficit because government revenues are so boosted by the commodities boom in particular and economic growth generally," he says. "Thirty cents of every dollar being paid by China to companies like BHP and Rio goes straight into their pockets. What the government and Labor have both been promising is to transfer revenue from companies to households.

"On average, over the past five years, companies have saved about 4 per cent of GDP while households have 'dis-saved' - or had negative savings - of 0.5 per cent. When you transfer wealth from business to households, you boost spending. In some circumstances, that's good but to do it when you're running out of domestic capacity and the Reserve Bank is telling you demand needs to be cut, it's not the right thing to do."

Shane Oliver, AMP Capital Investors' chief economist, says it would take an economic shock - such as a major fall in China's economy - for the next government to run into problems funding its promises and still maintaining a healthy surplus. But as with Eslake, he says spending is putting pressure on interest rates.

"One of the reasons Australian interest rates have kept rising in recent years without having a big impact on the economy is that every year we've been given tax cuts," he says. "Only a third of households have a mortgage but households overall have been given big handouts, which has offset the overall impact of higher interest rates and driven mortgage rates higher than they otherwise would have gone."

Oliver says the big spending by both parties is likely to push interest rates higher but questions whether there is a viable alternative. He says governments can't generate massive surpluses indefinitely. On Treasury's forecasts - which he says are not aggressive - the government would be generating a surplus of about $35 billion - or almost 3 per cent of GDP - by 2010-11, unless it boosted spending. Even if the money was spent on infrastructure, he says, it would still stimulate economic growth.

"The challenge for the [next] government is dealing with prosperity in a way that minimises inflation and interest rate rises without ending up with massive surpluses," he says.

TAX CUTS: WHAT'S ON OFFER                                                               
                THE COALITION AND LABOR                                                 
Current                 %       July 1, 2008    %       July 1, 2009    %       
$0 - 6000               0       $0 - 6000               0       $0 - 6000               0
$6001 - 30,000  15      $6001 - 34,000  15      $6001 - $35,000 15
$30,001 - 75,000        30      $34,001 - 80,000        30      $35,001 - 80,000        30
$75,001 - 150,000       40      $80,001 - 180,000       40      $80,001 - 180,000       38
$150,000+       45      $180,000+       45      $180,000+       43
THE COALITION           LABOR   
July 1, 2010    %       July 1, 2010    %       
$0 - 6000               0       $0 - 6000               0
$6001 - 37,000  15      $6001 - 37,000  15
$37,001 - 80,000        30      $37,001 - 80,000        30
$80,001 - 180,000       37      $80,001 - 180,000       37
$180,000+       42      $180,000+       45
* FIGURES DO NOT INCLUDE THE 1.5% MEDICARE LEVY                                         
CHANGES TO THE LOW INCOME TAX OFFSET                                                    
                        Current July 1, 2008    July 1, 2009    July 1, 2010    
LITO                    $750    $1,200          $1,350          $1,500  
Eff. tax-free threshold $11,000 $14,000         $15,000         $16,000