Wednesday, October 5, 2011

Tax cut buffet but no appetite for fixes

Seen anything on the tax reform smorgasbord you fancy? How about cuts in the top two rates of income tax? How about abolition of conveyancing duty? Or maybe an end to stamp duty on insurance policies?

For business people there's a special range of goodies on display: a cut in the company tax rate to 25 per cent, special tax breaks for mining and construction companies that use Australian steel, abolition of payroll tax. Or maybe cuts in company tax that are limited to small businesses.

Don't see anything that particularly appeals? That's OK, why not concoct your own, custom-built concession? It's a bit late, but why not email it in as a submission to the tax forum? Be sure to say it will do wonders for the economy - which is why you're proposing it, naturally. I'm sure it will get as much consideration as all the other submissions.

Sorry, but the tax forum reminds me of nothing so much as a bunch of kiddies lining up to sit on Santa's knee and whisper into his ear what they'd like for Christmas. Dream on, kids. The harsh truth is that neither the federal nor the state governments are in any position to simply cut this tax or that. They're all struggling to get their budgets back to surplus.

So one of the ground rules Wayne Swan laid down was that all proposals for tax reform had to be "revenue neutral" - if you cut one tax you have to increase another by the same amount. You'd like to pay less income tax? No probs - we'll just increase the rate of the GST to cover it. Or maybe we could increase the rate and remove the exemptions for food, education and health care. That would make the GST a far more robust revenue-raiser.

Increase GST revenue far enough and we could also afford to abolish the payroll tax business keeps whingeing about. As for conveyancing duty, the ideal way to finance its abolition would be to broaden annual land tax to cover owner-occupied homes. Someone has suggested local government could be paid a fee to collect it along with council rates.

Kind of takes the fun out of tax reform, doesn't it?

Of course, were governments to get serious about reform there are a lot of other worthy but nasty things they could do. Bite the bullet and get rid of negative gearing, for instance. Stop family trusts being such a tax lurk. Crack down on the abuse of work-related deductions (especially by doctors and lawyers jetting off to conferences at exotic resorts).

Then there's superannuation. It's always been taxed heavily in favour of high income-earners, but Peter Costello's decision to make all private pension income tax-free to people 60 and over was the ultimate in favouring wrinklies over workers.

I should tell you the latest fashion among tax-reform aficionados is for income (particularly high incomes) and capital (particularly companies and capital gains) to be taxed more lightly, with consumption and real estate taxed more heavily.

This is because financial capital and high income earners are more mobile internationally - more capable of moving to countries where they're taxed more lightly - whereas wage-slaves and consumers are far less mobile and real estate is utterly immobile.

So, in an era of growing tax competition between countries, you tax those who can't escape more heavily and those who can escape less heavily. That this means the well-off pay less tax while the middle class and the workers pay more is purely coincidental, I assure you.

If you're detecting a touch of cynicism in my reaction to all this, you're not wrong. Economists, business people and professional lobbyists would happily meet in Parliament House once a month to preach to each other about the need for tax reform.

But if ever there was a country that runs a mile at the hint of tax reform, we're it. Most of the rest of the developed world introduced a GST in the 1960s and '70s, but we trembled on the brink for 25 years before taking the plunge in 2000.

The way tax reform works in Australia is that whenever governments are persuaded to introduce some major reform, the opposition automatically opposes it and starts a hugely successful scare campaign, urged on by every adversely affected interest group, the shock jocks and any other media outlets looking for cheap cheers.

Meanwhile, the people who'd benefit from the reform - even those who pressed the government to take it on - fall silent or, like the Business Council, get cold feet and run around saying the time is not yet ripe. All the academic urgers peel off the moment the government introduces a less-than-pure element to its scheme.

The obvious truth is Julia Gillard would need her head examined to take on more tax reform at present. Her plate is already over-full. You'd never know it from all the chat this week, but we're already engaged in two vitally important tax reforms: the carbon tax and the mining tax. The first is complicated but minor in its effect on household budgets; the second is a no-brainer.

Yet Tony Abbott has been hugely successful in his dishonest scaremongering against both taxes. He is campaigning against all tax reform, promising to reverse both measures and pretending taxes only ever need to be cut. Are the Liberal-leaning reform advocates doing anything to set him straight? Hell no - that's Julia's lookout. And the polls say the man with the neanderthal views on tax reform will be swept into office at the first opportunity.

When it comes to tax reform, Australians are utterly lily-livered.