Posted by John, June 16th, 2010 - under Tax.

Tags: Henry tax review

The debate about the resource super profits tax is not just a fight over whether successful mining companies should pay a little more tax.

It is a battle for the future direction of tax reform in Australia. It is a struggle between a social democratic view of the world warped by 30 years of disguising cuts as reforms and a neoliberal vision warped by 30 years of proclaiming the need to attack workers and their salaries and social spending.

The Henry Review has a 40 year social democratic vision for our revenue system. It has at its heart what Henry describes as protecting ‘the things [Australians] most value — including improving living standards, support for the needy, fairness, social advancement, security and protection of the environment.’

Such improvements can only be built on the continued growth of the economy. And therein lies the contradiction for social democrats.

Benefits for ordinary working people can only be built on the success of the exploitative relationship between capital and labour.

It is the classic dilemma for all tax policy designers – equity or efficiency.

Of course social democrats hide the contradiction with talk about Nordic models and the view that the exploitation of labour is enhanced by having a healthy and well educated workforce confident of its present and future well being, i.e. social spending on areas like health, education and retirement incomes.

These social gains can only exist if the economy prospers. And taxes constrain the capital accumulation process (even efficient ones).

But the real issue here is the decades’ long decline of global profit rates, what Marx called the tendency of the rate of profit to fall.

This arises from the very way production under capitalism is structured, with increasing investment in capital at the expense of labour meaning that, as labour creates value, the long term trend asserts itself despite countervailing tendencies like the destruction of capital and its value, the lengthening of the working week, increased productivity and reduced wages.

The best indicator of the response of capital to the declining profit rate has been in labour’s share of national income. According to the ACTU “Profits are at record levels of 26.9% of national income, while the wages share is close to a record low of 53.6%.”

Despite this historic shift, profit rates are still stagnating in Australia. In the hands of social democrats, policy, including tax policy, becomes an instrument to help address the tendency of profit rates to fall but is disguised in talk about equity.

For example the Resource Super Profits Tax is a redistributive measure, shifting the value we workers create from one section of the capitalist class – mining companies – to the whole of that class through tax cuts and infrastructure spending.

Only 3 percent of the anticipated $9 billion will go to top up the superannuation accounts of low paid workers.

Given an aging population, the environmental degradation underway, the need of capital for an educated workforce, an expectation by most Australians of adequate healthcare during their life and especially in old age and with enough to live on then, Henry foresees increased taxation in future years – but not on companies or those well off enough to save.

The burden, if Henry Review’s long term plans to move tax gathering from highly mobile to immobile property like minerals and land, and consumption and labour, come to fruition, will fall more and more on Rudd’s clichéd working families.

This is because, although Henry proposes a massive increase in the tax free threshold to $25,000, that will come at the expense of various benefits within the system.

In any event without a claw back, the benefits of increasing the threshold go overwhelmingly to those on high incomes.

In addition Henry proposes flattening the progressive income scales to make Australia effectively a flat rate tax country with only two rates once the threshold is reached.

Indeed his vision is for most Australians to pay tax on one set tax rate.

This makes the system even more inequitable than it is at the moment.

The Review noted ominously that Australia’s GST rate was low by international standards and was not broad based.

This means Henry would like to see the GST rate increased and exemptions on food, health and education abolished. It won’t happen tomorrow but it will be tempting to Governments in the future who are short of cash and not wanting to tax capital.

Now taxing fixed assets, especially non-renewable ones like minerals, has appeal. But the other immobile property Henry has concentrated on is land. He recommended a land value tax. But as he said: ‘[L]and tax is not a good tool for achieving vertical equity objectives.’

A land value tax of 1% would hit most working class people.

Even when Henry suggests progressive pro-capitalist measures like a bequest duty, the current Labor government has rejected such proposals.

The intention is clear.

Increase the tax burden on workers through regressive measures like land tax, consumption tax and flatter income tax rates and provide the benefits of that shift to business income through tax cuts and further state assistance.

If that doesn’t work, cut back spending on school, hospitals and pensions.

It’s the rich what gets the gravy, it’s the poor what gets the blame. That just about sums up Henry’s long term tax vision for Australian capitalism.