Wednesday, February 24, 2016

Turnbull is fumbling his bid for greatness

Malcolm Turnbull is slipping. Not just in the opinion polls, that's merely a symptom of his problem. No, he's slipping in his shot at being one of our great prime ministers.

And if he rushes off to a double dissolution election in July because he fears he may not win if he waits until September, that will be a sign his place in the prime ministerial hall of fame will be up the back with his three immediate predecessors.

When Turnbull displaced Tony Abbott five months ago I, like many others, dared to hope his ascension represented a new beginning for Australian politics.

An end to the spiral of ever-declining standards of political behaviour, the negativity, the broken promises, the short-sightedness, the tit-for-tat mentality, the reciprocal scare-mongering, the unceasing attempts to "wedge" the other side, the blatant appeal to our baser instincts.

The eternal emphasis on attaining and retaining power, rather than on using that power to make Australia a better place to live and work.

To be fair, there was no way any flesh-and-blood politician could have lived up to the unrealistic expectations we had for him. And Turnbull does fit the bill in one important respect: he speaks and looks and acts like a prime minister should. He has gravitas.

But the closer we get to the pointy end of the Coalition government's first term, the more possibilities for improvement are being taken off the table to leave the second-term work program awaiting the voters' approval, the more Turnbull seems to be shrinking to the size of his stunted predecessors.

Just in the past week or so we've Scott Morrison doing Joe Hockey impressions, and Turnbull resorting to the same cheap tactics as the man he overthrew.

I'm not prepared to condemn Turnbull for failing to slash and burn government spending at a time when the economy is still not fully back on its feet.

But when you remember all the Coalition's carry-on over the "budget emergency", the insouciance with which Turnbull and Morrison have consigned the budget deficit to the too-hard basket is breathtaking.

I've been happy to defend Turnbull against the unthinking notion that increasing the goods and services tax and channelling the proceeds to foreign investors and people on the top personal tax rate is the be-all-and-end-all of tax reform.

Fail to deliver for big business and you're utterly lacking in courage.

Nonsense. The four tax subsidies to which the tax reform spotlight has turned – superannuation tax concessions, work-related deductions, negative gearing and the concessional taxing of capital gains – carry plenty of potential for changes that make the tax system both a lot fairer and more economically efficient, that is, less distorting of the choices individuals and businesses make.

One of my fears has been that the success of Abbott's unrelentingly destructive attack on the Rudd-Gillard-Rudd government would leave us with a Labor opposition committed to nothing more than getting its own back.

Bad behaviour breeds bad behaviour. Labor has descended to pay-back. Bill Shorten's scare campaign on increasing the GST has been a match for all the dishonest things Abbott said about "debt and deficit" and the way the carbon tax would destroy the economy.

But in one important respect Labor has risen above negativity and created an opening for Turnbull to be greater than his predecessors. It has announced controversial policies to reform super tax concessions, negative gearing and the half taxation of capital gains that is the mainspring of negative gearing.

This has presented Turnbull with an opportunity to make this election a contest of ideas and plans rather than a slanging match. My plan's better than his for the following reasons.

I hope I'm wrong but, as each day passes, it seems clearer that Turnbull isn't preparing to match Labor's boldness with boldness of his own. He'll do something on each of those four tax subsidies, but not much.

Rather, he's reverting to the Abbott tactic of portraying Labor as high-taxing and the Libs as low taxers. (Only a true believer would believe it's that simple.) He's launched into an Abbott-like scare campaign, claiming Labor's negative gearing plan would knock house prices for six.

Turnbull's confidence seems to have faltered. He's looking behind him at his fractious backbench and at the Liberal heartland, who don't want to give up a cent of the tax subsidies that go mainly to them.

That's the behaviour of a survivor. The behaviour of a future great prime minister is to look out at all those uncommitted and even Labor-leaning voters who would vote for him if they thought he really cared about making the tax system fairer; if he still inspired them.

We wouldn't be onto our fifth prime minister in five years if federal politics wasn't dominated by moral pygmies – people lacking in courage, who see tactics but not strategy, whose only vision is of their survival in their seat and their progression up the party pecking order.

What the pygmies don't see is that the public can smell politicians and parties who put their careers ahead of serving the nation. What few people in Canberra remember is that Bob Hawke and Paul Keating achieved greatness by making changes they believed the nation needed, but their own supporters hated.

Turnbull will never be great if he takes his political advice from pygmies.
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Monday, February 22, 2016

Tax reform to bring greater fairness, efficiency

The Abbott-Turnbull government may be doing a good impression of a government going round in circles, but don't let big business and its cheer squad convince you we'll be getting little in the way of tax reform.

We look like getting quite a bit of reform, just not the type of reform the big end of town was hoping for. And this will require quite a bit of courage on Malcolm Turnbull's part.

To be fair, however, much of Turnbull's courage will be coming courtesy of his Labor opponents, who've broken the Abbott mould on short-sighted, destructive politicking.

Big business defines "reform" as cuts to the rate of company tax and the top personal tax rate – that is, rejigging the system in favour of foreign investors and high domestic income-earners. There'll be little of that.

What we do look like getting in the way of reform is greater fairness ("equity") in income tax via the removal or reduction of various "tax expenditures" – or tax subsidies as Labor calls them – used mainly by high income-earners.

Turnbull seems to be planning to use savings from the reform of superannuation tax concessions, work-related deductions, negative gearing and maybe even the concessional taxing of capital gains to pay for a modest round of tax cuts.

All four of those tax subsidies have been crying out for reform for years. The fact that they're yet to be fixed despite various attempts and quick retreats is a sign of how controversial they'll be.

Last year, when Joe Hockey was exploring superannuation reforms and Labor said it would definitely be proposing its own reforms, Tony Abbott immediately swore not to touch super so he could portray Labor as high taxing.

Fortunately, Turnbull isn't so destructive. He's more inclined to regard Labor's policies as providing cover for him to act – or maybe even pinch.

The government's super reform may involve limiting the amount of annual contributions able to be made at the concessional tax rate of 15 per cent. It may also tighten the limits on after-tax contributions.

Many workers exaggerate the size of their work-related deductions, but the real rorting is done by wealthy doctors and lawyers claiming for professional development seminars at that renowned hall of learning, Hawaii.

Last week Labor announced good policies to reform negative gearing and the capital gains tax. It proposes to limit negative gearing to new housing from July 2017, with existing investments unaffected.

It would halve the capital gains tax discount to 25 per cent for assets purchased after the same date, with previous purchases unaffected.

Labor's willingness to propose changes that the well-off won't like will encourage Turnbull to do something in this area, though he's unlikely to be as brave.

It sounds like he's planning to put a limit on the number of homes you're allowed to negatively gear, which would affect only a relative handful of investors.

But removing or reducing those four inequitable tax subsidies is only half the story; the other half being what will be done with the tax savings?

If the government had any guilt over its claims of a "budget emergency" to get itself elected, it would use those savings to reduce the deficit.

Instead, it will cut income tax at a time when that's the last thing the budget can afford. Why? Because it's raised expectations of a tax cut that it dares not disappoint.

It's spent its whole term exaggerating the problem of bracket creep to justify a tax cut. If it stuck to that rationale, people near the bottom of the tax scale would get proportionately bigger tax cuts – measured by the fall in their average tax rate – than people near the top.

But I bet they won't.

While all four reform areas would make the tax system fairer, there would also be economic efficiency benefits.

To tax some forms of investment income more lightly than others distorts behaviour.
We've got an investment tax regime that encourages borrowing over saving, speculation over hard work, and passivity over enterprise. A nation already too in love with bricks and mortar has a distorted tax system that makes it worse.

We have a negative gearing loophole no other country tolerates, which is forcing house prices far higher than they need to be and, in the process, locking much of the younger generation out of home ownership.

Don't try to tell me fixing those allocative​ inefficiencies isn't reform.
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