The release of the intergenerational report in February and the tax discussion paper last month was the budgetary equivalent of serving an entrée as main at your dinner party.
Not only was the intergenerational report unfashionably late, it was also unlawfully delayed. Politically, both papers should have been out long ago, and certainly before Abbott and Hockey tried to spring on the electorate their budget full of bad solutions to a set of problems no one had actually defined.
In January, I wrote that the Abbott government had no overarching direction or coherent narrative on its budgetary policy. Nothing has changed. Neither the appointment of a new salesman in assistant treasurer Josh Frydenberg, nor the release of the two reports, has prompted the government to develop consistent, credible economic messaging and a sound budgetary platform.
If anything, the government’s messages grow more muddled (and weird) each week. Witness Hockey’s claim that public confidence in the tax system would be undercut if the public actually knew which mining companies were avoiding tax by transferring billions offshore. The treasurer’s casuistry asserts that transparency is best served when the ATO keeps things non-transparent.
Frydenberg joined in the absurdity when he told his caucus colleagues (with a straight face, I assume) that ATO confidentiality for private companies with $100m or more annual turnover is the thin line keeping business owners safe from kidnapping and ransom demands. Apparently, without the ATO’s help, would-be kidnappers are unable to work out that big companies have access to lots of money.
Lately, Tony Abbott thinks a debt-to-GDP ratio of 50%-60% is a “pretty good result”, and never mind that he once argued that a ratio of 13% was “disastrous.” Remember the “budget emergency” of a $30bn deficit?
The December Myefo confirmed it has worsened under Hockey and Abbott to a $47bn deficit. No worries, mate! In these circumstances, the prime minister says, it’s time for the government to produce a “dull and routine” budget.
Now that Abbott has declared victory on the budget – 50% of his work is already done, he says – what can we expect from the tax white paper?
Possibly very little. Joe Hockey says the tax white paper consultation – kicked off with the Re:think tax discussion paper – will culminate in a set of proposals that will shape policy settings for the 2016 election. Hands up everyone who thinks that timing will result in bold policy changes. (Actually, hands up everyone who thinks Hockey and Abbott will still be in a position to shape policy in 2016.)
That doesn’t mean these debates aren’t worth having. Tax policy and taxation settings have been managed in an underwhelming manner by all governments since the Hawke-Keating years. The Abbott government is correct when it says our 1950s tax system is not well designed for the 2050s. Given our now well-understood revenue problem it is necessary to consider how Australia’s tax system could better serve us.
The Re:think tax discussion papers draws heavily on the Henry tax review of 2010. That document promised so much but landed in the hands of Kevin Rudd, a prime minister who delivered so little by way of tax reform.
Abbott, ever the fan of the three-word slogan, says he wants “lower, simpler, fairer” taxes. Let’s take him at his word. Here are three ideas he might consider:
- Abolish tax breaks for those with more than $2m in super. These Howard government concessions give a helping hand to 100,000 Australians who need it the least, and are paid for in part by those who are at the bottom end of the income scales. Hockey and Arthur Sinodinos are starting to see sense here, meaning a rare moment of bi-partisanship might result in policy success.
- Get serious on corporate tax avoidance. Hockey says he’s asked about this every day. Perhaps there is something in the wisdom of crowds, treasurer. Opposition leader Bill Shorten has put a proposal on the table. The discussion paper calls for a cut to the corporate tax rate, which Wayne Swan has previously supported and the Business Council of Australia is certainly backing.
- Fix the mess of how we tax savings, as it creates incentives for certain types of investment and delivers perverse community consequences. Real estate is highly tax-advantaged over other forms of savings: the result is inflated housing prices. Superannuation is advantaged too: working people over the age of 65 can put $35,000 of pre-tax income into super, pay 15% tax and immediately withdraw it with no further tax payable. Both the tax discussion paper and the Henry tax review recommend one standard rate for all forms of savings. It’s an idea whose time has likely come.
Finally, the GST. Yes, it is low by world standards. Yes, raising it would deliver billions in revenue. No, it is not going to happen. It is regressive, which means in the current debate about unfairness, a proposal to raise the GST will not succeed. Further, we shouldn’t even be talking about the GST – which sends money to the states but with plenty of federal strings attached – until we’ve talked about federation reform. Hopefully the Abbott government gets the white paper on reform of the federation out before coffee and dessert.
