news, latest-news

I fear I will not live long enough to see genuine, broad-based tax reform in this country. We have had a number of exhaustive tax reviews – from Asprey in 1975 through to Henry in 2010 – and a number of partial attempts at fixing the system, but despite the fact governments know what needs to be done, there has never been the political will or leadership to do it. Indeed, in attempting partial reform, governments have generally further complicated the system, and further undermined its “fairness”, making ultimate reform even more difficult. In the last budget, for example, the Turnbull government - desperate for revenue but also wanting to maintain the fiction they were committed to being a “low taxing government” - introduced three new taxes: an increase in the Medicare levy, the bank tax, and the 457 Visa tax, as a notional “training levy”. Yet, they removed the “budget repair levy” on high-income earners, and had previously removed the mining and carbon taxes. The Howard government effectively neutered the GST. It is now only levied on less than 50 per cent of spending, and spending that attracts the GST is not rising as quickly as the spending that doesn't. Also, in what was heralded as a clever political move at the time, John Howard created a policy nightmare when he committed all the GST revenue to the states. It is now a major restraint on reform that three potentially efficient tax bases - land, payroll, and the GST - are all effectively under state control. Genuine tax reform needs bipartisan agreement, as it would probably need to be implemented over several parliaments and possibly under different governments. But it also needs state and federal governments to work together. In a world dominated by short-term, populist, opportunistic and mostly negative politics, manifested as point scoring and blame shifting, the necessary bipartisanship and co-operation required for reform seems a remote, if not inconceivable, possibility. In this respect, I was encouraged when Tony Abbott committed his government to a genuine process of “root and branch” review of both the tax system and our federation, but unfortunately this amounted to nought. From his backbench pulpit, but not “undermining” of course, Abbott has more recently attempted to destroy any reform agenda by proposing the reform benchmark that “no one should be worse off”. To the extent that the Turnbull government has addressed tax, they remain committed to their expensive corporate tax cuts, although they are yet to demonstrate a compelling case beyond “sloganeering”. They have more recently promised to cut personal taxes first, especially for low- and middle- income earners, and claim this will extend their earlier effort, when to address bracket creep they adjusted just one tax threshold, for middle-income earners. The Opposition is promising a few tax increases, reforms of negative gearing and capital gains tax concessions and a tax on trusts, while opposing the corporate tax cuts and also hinting at personal tax cuts. Neither the government nor the opposition have given much detail, nor demonstrated funding. However, while the politics has become increasingly hopeless, the imperatives for both tax and transfer reform have intensified. The promised budget repair is unsustainably dependent on “bracket creep"; the corporate tax base is eroding; housing and superannuation concessions are excessive and blatantly “unfair”; the GST has failed as a "growth tax”, and the distribution of GST revenue needs to be adjusted; base erosion and profit shifting, particularly by multinationals, is excessive; and key welfare benefits, such as Newstart and the base pension, are now well short of an acceptable “poverty line”. Overall, the system is complex, inequitable, inefficient, and unsustainable. It is fundamentally important to recognise that, as far as budget repair is concerned, the promised “surplus” for 2020/21 has just been “assumed” (mostly a very significant improvement in wages) not predicted, and the big expenditure items to hit into the 2020s – health, education, the NDIS, defence and infrastructure – are all unfunded. Barring an unexpected, substantial, growth surge, the budgetary challenges moving into the 2020s will be significant spending cuts, and increased taxation. Even with a fundamental reform of our federation that achieved a once-and-for-all reduction in the size of overall government, by allocating responsibilities and eliminating duplication, it will still be essential to increase taxation, so the focus must then be on the most efficient and fair means of funding our federation. Malcolm Turnbull seized his job from Abbott on a promise of improved, policy-driven, government. He created enormous expectations. On tax he wanted “all options on the table”. The collapse in his personal poll standing, and that of his government, simply reflects his lack of leadership, his failure to deliver “good government” and his failure to deliver against those expectations. However, if he were to embrace a genuine reform agenda, to lead on say tax reform, to be seen to “fight" by educating the electorate, explaining and “selling” the benefits of his agenda, and challenging the opposition to provide bipartisan agreement, I believe the electorate would cut him a lot of slack. As tough as he might find it to do this, it is probably his only hope of surviving in government, where his modus operandi to date has been mostly to “kick the major challenges and issues down the road”. If our politicians can’t step up, perhaps it’s time to take an issue such as tax reform out of their hands, passing it on to a truly independent, appropriately funded tax and transfer commission, as was done with the Reserve Bank in terms of managing our monetary system. John Hewson is a professor at the ANU Crawford School of Public Policy and a former Liberal opposition leader.

https://nnimgt-a.akamaihd.net/transform/v1/crop/frm/silverstone-ct-migration/ec371249-f948-4294-acd6-df7a7a735510/r0_91_1728_1067_w1200_h678_fmax.jpg