Monday, May 3, 2010

In time we will get the nasties - but not just yet

If history is any guide, pretty much all the nasty changes proposed in the Henry tax review will be implemented.

We'll end up with a congestion tax on cars, much higher tax on wine, land tax on the family home, higher tax on capital gains, cutbacks in negative gearing, a tax on bequests and annual increases in petrol tax.

But it will take up to 25 years to happen. And few of the nasties will be taken up by the government that originally received the report.

That's what happened to the Asprey tax review of 1975, which recommended a host of things the Whitlam government wouldn't touch with a barge pole: a tax on capital gains, taxes on fringe benefits and entertainment expenses, something weird called dividend imputation, and a value-added tax (which John Howard delivered in 2000, exactly 25 years later).

Ken Henry's objective was to lay out another blueprint for long-term tax reform. So though Kevin Rudd has sworn not to touch most of Henry's nasties, don't imagine you've heard the last of them.

Rudd has sorted Henry's many recommendations into three boxes labelled Yes now, Maybe later and No never.

In the Yes-now box are all the nice ideas Rudd hopes will win him votes at the election this year, includ-

ing a great big new tax on mining companies and cuts in company tax, particularly for small business, and bigger superannuation concessions for low-income earners.

To these Rudd has added some good ideas of his own, such as higher super contributions by employers and a big new infrastructure fund.

In the Maybe-later box are various reforms Rudd has failed to specify but which, presumably, wouldn't worry most voters and would seriously antagonise only interest groups for whom the public doesn't have much sympathy.

If you can find anything there that you and enough others don't like, make a fuss and Rudd will quickly rule it out.

Rudd needs these reforms to justify his bid for re-election, to demonstrate all the wonderful improvements he needs to be allowed to get on with doing for us in his second term.

In the No-never box are all the nasties Rudd knows would cause him grief and cost him votes, no matter how much in the nation's interests they might be. These include all the nasties I listed at the start, plus higher tax on company cars, tougher tax rules for single-income families, anything a charity wouldn't like, ending dividend imputation and much else.

In other words, Rudd's response to Henry's recommendations has been determined by his top priority - political survival. For such a timid man, his willingness to commission such a potentially controversial review, timed to report on the eve of an election, was always a puzzle.

His dawning realisation that he'd be unveiling 1000 pages of trouble may do much to explain his decision last week to ignore "the great moral challenge of our time" and abandon his commitment to his emissions trading scheme because Tony Abbott had labelled it "a great big new tax".

Now Abbott will be trying to convince us Rudd has half a dozen big new taxes up his sleeve, waiting to be sprung on us. All the proposals Rudd says are in the No-never box are secretly in his Once-I'm-re-elected box.

But that's the bitter beauty of last week's political cowardice and failure of leadership. We needn't fear Rudd has any tax nasties up his sleeve because we now know he doesn't have the courage.