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We're not even having the correct tax debate

by Ross Womersley, Executive Director, SACOSS

Ross Womersley

Tax reform is the big political story, but are we really having the tax debate we were promised? 

Last year the tax reform process was gutted by then Prime Minister Abbott and Treasurer Hockey ruling out almost every change proposed. When Malcolm Turnbull was appointed Prime Minister we were told that all options were again on the table. 

Premier Weatherill, and NSW Premier Baird subsequently put up proposals aimed at increasing revenue to fund vital services, particularly health. But at the Treasurers meeting last year, the Commonwealth imposed a parameter that overall tax levels shouldn’t increase. This in itself is a closure of an important debate around the level of community services required and therefore taxation we need to fund them.

Prime Minister Turnbull has now explicitly ruled out supporting the Weatherill GST plan and “Jay’s agenda of raising more tax to spend more”. He did not however rule out increasing the GST to pay for other tax cuts. In response, Premier Weatherill ruled out supporting a GST increase unless “there is a revenue fix that covers the $80 billion in health and education cuts”.

The Premier is absolutely right to focus on the need to raise sufficient revenue to pay for public infrastructure and services – even if this is somewhat undermined by his government’s advertising that “we are creating the lowest taxing state in Australia for business”. The Commonwealth’s refusal to recognise the revenue problem – despite all the expert commentary and its own ongoing budget deficits – is disappointing and short-sighted.

However, that does not mean a GST increase is the answer. The GST is an inherently unfair tax because it hits low income households the hardest. There may be compensation, but it is hard to target and can be eroded over time – and any compensation payments directly undermine the revenue that can be raised. There are better places to look for revenue – most obviously by closing the holes in our progressive income tax system: things like unfair superannuation concessions and negative gearing rorts.

But those are just tweaks to taxes which were developed, frankly, when the world was a different place. If everything really was on the table and we were looking at substantial tax reform that created greater fairness and efficiency, we would also be talking about:

  • Wealth taxes – such as capital gains taxes, land taxes, and inheritance taxes which could help address growing inequality
  • “Buffett Rule” taxation – effectively capping income tax deductions to stop unfair tax minimisation
  • Transport Taxes – which at the state level are fixed rate and regressive and send mixed or wrong price signals about transport usage and infrastructure.
  • Financial Transaction Taxes – the so-called “Tobin taxes” which could be levied at micro rates but still raise significant revenue and discourage currency and other speculative investment.
  • Environment Taxes – not just a carbon tax, but potentially a range of pollution or environment impact taxes 

Many of these ideas were covered by the last big tax review, the Henry Review which reported in 2010, but ironically the GST was off-limits then. Now the debate is too centred on the GST. 

We are still yet to have a tax debate where everything really is on the table – including the first-principle question of “What level of services we want from our governments, and therefore how much revenue is required?”.

That is a tough debate in an election year, but if we get to an election where all we are talking about is the GST – or it is about cutting personal taxes and ignoring the cost that will have on the provision of public infrastructure and services (the “social wage”), then we will have already failed the challenge of achieving long lasting and nation building tax reform.

First published on Adelaidenow.com.au on Feb 8, 2016 We're not even having the correct tax debate

Published Date: 
Tuesday, 9 February 2016