Tax Reform VI

While a lot of the front page political coverage has been about weasel words on wheat or woes with the workplace laws, the tax reform issue has still been ticking away underneath. It’s now less than a month until the federal budget, and the agitation and lobbying for tax reform is still fairly strong, despite the occasional comment by the Prime Minister which appears to be aimed at hosing down expectations.

I’ve written a number of pieces on taxation previously (click here to read them) and summarising some of the different views. It seems to me that, while there are many different views about what type of tax reform is needed, there is near consensus that significant structural changes are desirable.

I don’t agree with the false choice that is often set up between ‘tax cuts’ versus ‘more spending.’ There is definitely an argument for more spending in some areas, and obviously there is sufficient surplus to enable that to occur responsibly. However, this can occur alongside some structural changes to the tax system, particularly as some changes can be revenue neutral or positive.

Before setting out some of the ongoing commentary in this area, it’s worth noting just what the average earnings of Australians are. This article by Andrew Leigh lists the current median income as $26 000 per year. This means half of all Australians earn less than this amount. It is much lower than the figure often given as the ‘average wage’ in the media. This is usually the mean of full-time earnings – currently standing at $1078 a week, or approx $56 000 per year. This figured is distorted by the extremely high earners and by its exclusion of part-time workers and the unemployed.

To put the current push from some quarters for more cuts to the top tax bracket in some context, while 50 per cent of people earn under $26 000 a year, Leigh says “only 4 per cent of Australian adults have a six figure salary” (of which I am one, in case anyone isn’t aware). He also says that the median income of households is $66 000 a year.

It’s also worth remembering that many employed people are casual workers, so their earnings are not necessarily secure. To take this report in The Mercury as an example, one in five workers in Tasmania are casual, half of whom wanted a permanent job.

Andrew Leigh also makes a suggestion that I’ve been pushing for for a while – scrapping the need for most people to provide annual tax returns:

Like New Zealand, Australia could dramatically simplify the tax filing system, saving many of us the hassle of poring over the Tax Pack for a weekend, and reducing the $3 billion dead-weight cost of the personal income tax system that comes from compliance costs alone.

The conservative Centre for Independent Studies reportedly released a new book today called Taxploitation: The Case for Income Tax Reform, which appears a bit less radical than some of the suggestions in material they’ve released in the past. They’re still pushing big cuts at the top level, but some of their other suggestions are ones which I think many people across the political spectrum would support, such as a winding back of some of the existing $39 billion in tax breaks and a revision of tax brackets every year in line with inflation” (i.e. reducing bracket creep). They also suggest lifting the tax-free threshold – this is the amount people can earn before they’re required to pay income tax.

In other items over the last month or two:

. This piece by Nicholas Gruen on Club Troppo explores whether ‘fiscal churn’ is really as big a problem as people often suggest. Fiscal churn is a term used to describe paying money in tax and then getting it back again through measures like family payments or other government grants. It is one of the common arguments used to highlight inefficiency in the current tax system.

. Tim Colebatch challenges the view that taxes are innately bad for economic growth, quoting research by Monash Uni tax lecturer, Neil Brooks, that disputes this common assumption.

. Ross Gittins reminds us of the long-term dangers in letting public infrastructure run down, which he says has occurred in part from governments at the higher levels shifting costs and responsibilities onto local councils without also providing them with the necessary funds to deal with it.

. Gittins also rails in this column against the suggestion by Nick Minchin and others to remove the tax on employer superannuation contributions.

. George Megalogenis has done another of his detailed pieces taking a longer-term view on the effect of tax changes over the life of the Howard government. It includes the assessment that “the Howard-Costello tax and handout system has, in fact, delivered more money where it counts to dual-income families than to single-income families.”

. In this piece in The Age, Tim Colebatch makes two key statements – firstly that “the most urgent tax reform is not cutting the top rate, but cutting the much higher tax rates and welfare clawbacks that low and middle-income earners face, in part because low-income earners are the only group paying higher average tax rates now than 10 years ago“; and secondly that “Australia is not overtaxed, and future taxes are more likely to rise than fall as a share of our income.”

And finally, just for an example from elsewhere, this report details a change New Zealand has just announced:

new investment tax breaks aimed at boosting savings among lower income earners. The changes will come at the expense of those directly investing large sums offshore in countries including Australia.
Finance Minister Michael Cullen says the overhaul was aimed at making investment tax rules fairer for smaller investors.

They will see the tax on earnings from managed funds drop from 33 per cent to 19.5 per cent.
The tax on capital gains from Australian and New Zealand shares has been removed altogether, but those investing more than $40,000 directly in Australia will pay more tax.

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77 Comments

  1. Oh Andrew…..

    Where’s your comment re this? I looked and couldn’t find it anywhere in #45.

    “Personally I’d like to see reform ideas submitted to government, properly modelled, then put to the public in a referendum after an appropriate period of education on the options available.”

    Hmmm. Nope
    para1/2 lies and abuse.
    para 3/4 on topic
    para 5 dismissive strawman

  2. For goodness sake Geoff, settle yourself and calm down – your previous comment gives the impression your throthing at the mouth and this one is just silly. Just because you don’t like the response, or Andrew is not saying what you think he should, doesn’t mean he hasn’t answered you.

    You always accuse him of abuse yet seem to think its fine to be abusive, in your own comments … still people can and will judge for themselves.

    Regardless, it’s crystal clear what your thoughts on multiculturalism are (so there isn’t any need to debate Donna or anyone else on that here, your opinions are already on various postings for all to see). It’s also pretty clear from your comments that you dislike Andrew intensely. Given your strong One Nation allegiance those things are not surprising. But it does tend to make trying to get sense out of what you say more difficult.

    Having said all that I’m not sure about the concept of putting proposals for tax reform to the people in a referendum, though I wouldn’t dismiss it out of hand.

    I’m just not sure how you would go about ensuring everyone who is eligible to vote in a referendum is fully aware of and across the various proposals that would be put forward before they make a choice.

  3. No frothing… I just think Andrew is incredibly smug arrogant and rude.

    I think you’ll find I only ever started off calling him Andrew. I still do mostly, until he drops in the crap.

    As for ON… yes I agree with many of their policies. Are you aware that there was an incredibly large overlap with Democrat policy. In fact the main difference was the acceptance of Multiculuralism.

    As for the referendum or pleb… you’d go to the next election with the proposal.
    You’d then have the whole term to work out 3 or 4 options and educate the public.
    If you can’t do that in 3-4 years you shouldn’t be in politics.

  4. Your opinions about Andrew are clear from your comments Geoff – I disagree with you totally.

    I am aware that while it will always be possible to find some overlap in policies between ALL political parties – even the Greens and ON would have some similarities – your suggestion that the Democrats are similar to One Nation is just plain wrong.

    Back to tax:

    So you are suggesting that the government of the day would select the options from proposals submitted, and then decide on the wording and the method of educating the public on those options.

    Doesn’t that leave it wide open for the government to push the option they favour while downplaying the ones they don’t want?

  5. You could be wrong yulia.

    Ah actually I am 100 % correct Yulia.
    Perhaps you just don’t know what policies ON had.
    (I make it my duty to check all party’s policies especially in the lead up to an election).

    If I find the disc with all the stuff on it I’ll post it for you.

    Ah Yulia the only way a single policy could be favoured is if the opposition and minor parties all agreed on the one.

    My suggestion is that a committee be formed from all parties and even members of the public. That they vet the policies based on the modelling and all results be made public. That after that several be chosen and put to the public at the next election.

  6. You could be wrong Geoff.

    I’m reasonably across ON policies – and the Democrats policies. Matter of interpretation I guess, but I disagree with you – 100%

    Back to tax:

    You say everyone would have to agree if there was only a single policy – or on the three or four for that matter – but how could you ensure that – especially if the government of the day has control of both houses as is the case now?

    They can pretty much do as they please – and they do. I very much doubt a government like the current one would agree to make all results public – accountability and transparency are not exactly their forte.

  7. If the government policy was to put forward 3-4 options to pleb or ref… they’d do that yulia.

    No more strawmen please.

  8. Andrew

    The option of getting rid of annual tax returns for people whose main source of income is wages or government benefits has merit. I bet accountants and tax planners won’t be supporting that option though!

    It would take a rethink in the tax scales and how they are applied at the time when PAYE tax is taken out particularly to deal with the Medicare levies and things like that. Would also take a fair bit of re-education of all those Australians who live in hope of a refund and might think they are missing out.

  9. Sorry this is an off-topic reply to Yulia…
    found this on the Net Yulia.

    You might like to rethink your 100% re One Nation policy.

    ***
    Australian politics today – what you know and what you think you know about party policies are two entirely different things.

    Are Greenies really just loony-left tree- huggers? Do Democrats play with fairies at the bottom of the garden? Is One Nation really extreme-right-wing? Are Liberal and Labor so different? Do the Nationals really care about country Australia? Most parties receive and pass preferences to parties with similar beliefs. Does this mean Liberal and Labor have much in common? All parties are urged to put One Nation last. The Greens want to legalise drugs – does Labor?

    In 2001 the Democrats ran a campaign directly against One Nation.

    Well of course they did you say… one is evil, one is good. Really? Let’s look at some of the policies and issues they shared.

    Did you know, in Transport for example on the “Major Airports in New South Wales” issue. The Democrats did not support the development of a new airport within the Sydney basin. They believed, that integration with fast rail and rail freight transport along with other planned infrastructure development was also necessary.

    As did One Nation.

    In regards to the Environment and Water, the Democrats called for immediate action to halt the continuing degradation of our river systems. Actions must ensure adequate environmental flows and maintain (where it is now adequate) or improve water quality.

    One Nation has always linked the problem of Water with infrastructure development, or to be more precise the lack of it. It has “endorsed” the Watering Australia Foundation and infrastructure development ideas in line with it. One Nation realises that increased population is dependent on the management and development of this precious resource.

    In regards to Aboriginal and Torres Strait Islanders the Democrats stated they will act to address disadvantage faced by Aboriginal and Torres Strait Island people in the areas of health, housing, education and the legal system.

    One Nation has always stated that all Australians should be treated fairly and equally on a needs basis.

    The Democrats opposed the privatisation of Australia Post. As the provider of essential mail services – particularly services for rural and regional Australia – it is vital that Australia Post’s direction and decisions remain in government hands and that profits continue to be returned to all Australians. It also has a similar stance on Telstra – putting important public assets into select private hands is not in Australia’s long term interest. For that reason, they opposed the partial sale of Telstra.

    Sounds exactly like One Nation policy. One Nation has always opposed selling off assets and parts of Australia. If a company or utility is; essential, profitable, providing a proper service. It sees no reason to sell it off.

    In regards to the Constitution and Citizens’ Initiated Referenda (CIR), the Democrats state. There is a widespread feeling in the community that politicians do not genuinely listen to their concerns and ideas. This has led to an unacceptable level of disenchantment with the political process. Instead of being proud of a political system that is one of the most stable and least restrictive in the world, Australians are angry at what they see as the powerlessness of ordinary citizens. CIR is one way of giving people at the grassroots access to real political power.

    More One Nation rhetoric? CIR is and always has been a One Nation policy. The above states the primary reason that One Nation came about. Ordinary people, having a say, (a direct say) in Government.

    In regards to Finance and Taxation, the Democrats support economic independence for Australia, but with so much of our economy either owned or mortgaged to foreigners, our economic independence is under threat.

    This is something One Nation has always fought for. The Democrats also state; “For unless we regain our economic independence, our independence as a nation will soon slip away.” Something else One Nation has been saying all along.

    As for Fairer Banking, the Democrats supposedly defended the rights of consumers to safe and inexpensive banking. They stated that the interests of bank customers must not be traded off in the interest of bank profitability.

    Something else One Nation has been saying. It’s policy was to create a new people’s bank as has recently been done in NZ.

    The Democrats believed in reform of the income tax system. They said too much of the tax burden falls on the shoulders of low and middle income earners. At the same time, tax has become virtually optional for high income earners by use of trust or corporate structures, income splitting, and poorly designed tax breaks on their savings and investments.

    These issues are all One Nation issues. Making tax fairer and simpler and making business pay their fair share has always been One Nation policy.

    In regards to, Infrastructure and National Development, the Democrats believed that increasing public investment in infrastructure is crucial to our nation’s future development, job security and wealth creation.

    One Nation has always stood for developing Australia – rebuilding manufacturing industries, infrastructure development and increasing development of regional Australia (like the Parkes Air Freight Proposal for example.)

    As for the Public Sector, Privatisation and Competition Policy the Democrats said they will oppose privatisation unless it is shown in a public inquiry that there is a clear public benefit.

    One Nation has always said this.

    The Multilateral Agreement on Investment (MAI) was a policy exposed to the public by Pauline Hanson. The Democrats said that the MAI was unfair and unbalanced because it puts the interests of multinational companies ahead of that of sovereign nations – it threatens Australian Democracy.

    Exactly what Pauline and One Nation were saying all along.

    Health. The Democrats support the development of an equitable, efficient and high quality health care system that is accessible to all Australians. In Rural Health the Democrats believe that the Government should provide health funding to rural areas in a way which can be used by rural communities to meet their specific needs, rather than the needs of Governments.

    This too is common to One Nation, note that services are to be provided on a needs basis. Something else One Nation has always said.

    The Democrats believe in an immigration level which will enable the population of Australia to be stabilised at a level which is consistent with a sustainable environment.

    This is also common ground between the parties, even if they differ in areas such as multiculturalism. A policy which One Nation believes allows cultural migration at the expense of Australian culture. Some parties don’t believe there is an Australian culture.

    Australia has been well ahead of its trading partners in the speed and depth of cuts to its tariffs, quotas and bounties. This systematic cutting of protection has been instigated and supported by Labor and the Coalition. As a result, Australia has been flooded by cheap imports, which have decimated Australian industries and cost many thousands of jobs. Australian manufacturers and workers have been placed at a disadvantage to overseas competitors who receive assistance from their governments, and who operate under much lower labour, environmental and occupational health and safety standards.

    Why has Australia so drastically cut its Tariffs?
    – Strong reductions in tariffs have been a key theme of economic rationalism.
    – There is a belief amongst the major parties and senior bureaucrats in the myth of the “level playing field”.
    – The myth is that industries in all countries can compete with each other on an equal footing without any Government assistance.
    – This is fine in theory, but the reality is that most countries support their industries to varying degrees. It is poor social and economic policy for Australia to expose its industries to unfair competition.

    Trade liberalisation should be reciprocal not unilateral. We should only reduce our levels of protection at the same rate as our trading partners and competitors.

    Sound a lot like One Nation right? Yes, it does. But it was also what the Democrats believed at the time.

    What did the Democrats say they would do?
    – Tariff cuts must cease immediately and any further reductions must only occur when our trading partners agree to cut their real level of protection to the same as ours;
    – Australia’s tariff and non-tariff regime must be reviewed to ensure maximum Australian advantage in international trade. That advantage must be measured in social as well as economic terms – in jobs as well as costs and prices.

    Sounds an awful lot like One Nation policy and rhetoric. There is no doubt that bipartisan support would be forthcoming on the issues brought up here. Imagine… bipartisan support from One Nation.

    More from the Democrats on Rural Affairs and Primary Industries. They said; Regional Australia is in crisis; economically, socially and environmentally. Much of the damage done to Regional Australia can be sheeted home to ‘flat earth’ economists mindlessly pursuing the mantra of the ‘level playing field’, which has seen industries such as pork and citrus sacrificed, textile, clothing, footwear and metal fabrication industries shut down – all in the face of a flood of imports from countries who either subsidise their exports or produce goods using wage rates and labour standards considered unacceptable in Australia.

    Again typically One Nation rhetoric, again strong grounds for bipartisan support.

    On Foreign Investment the Democrats said they were not opposed to foreign investment, and welcome investment which has the effect of opening up export opportunities or introduces new technologies. Foreign investment must be judged against two criteria: will it bring a net economic benefit to Australia, and is there a comparable Australian investor available? These tests must be conducted by a strong statutory authority using vigorous, public and accountable processes.

    Again almost identical to One Nation rhetoric. Again One Nation would without a doubt support this direction.

    As for the magic public Mandate. No party, unless it receives more than 50% of the vote, can claim that it comes to government with a majority of public support for its policies.

    Also a One Nation sentiment.

    Interesting isn’t it, when you get the facts. It would seem the Democrats are an extreme-right-wing party just like One Nation. Or is it just, that’s the myth other not-so-honest parties wanted you to believe?

    Instead of a politically correct party like the Democrats, you should consider giving your vote to One nation… a party that will actually
    DO… what it says it will.
    ***

    Oh and BTW Yulia I believe that is the short version.

  10. I’m supposed to rethink on the basis of an unreferenced, piece of One Nation hyperbole with no indication of who the author is?

    Don’t waste my time Geoff.

  11. Do you people always go into denial when confronted with the truth?

    Do you own a One Nation policy Blue Book?
    Have you ever been a One Nation member?
    (Whom BTW wrote it)
    Have your read their original policy manuscript?
    No?
    This is stuff that was written for use in an election.
    I know this is authentic stuff.
    I also know from reading their stuff and talking to their members that it is accurate.

    Seems the only one’s time that was wasted was mine Yulia. fine… live in denial.
    Doesn’t make you right.
    Whereas I am… 100% Yulia.

  12. Well yes, its fairly obvious it’s election stuff written by a card carrying One Nation member Geoff, but thanks for confirming that all the same.

  13. Well how do you explain your denial then Yulia?
    Were you being sarcastic?

    So time for you to rethink I guess eh. :-)

  14. That’s called total denial Yulia.
    You are denying the truth as it stares you in the face.
    Personally I can’t understand that kind of mentality.

  15. Personally I’d say it’s time to get back on topic.

    Anyone can set up their own One Nation Fan Club blog, but this isn’t it. I set up this blog to get wide ranging views from the public, and I’ve already heard Geoff’s a thousand times over.

    As people can see in black and white on this blog, I’m always keen to hear from people who might disagree with me, or have an alternative view to mine.

    That also means I prefer diversity of opinion. An endless stream of troll-spam from one One Nation fan may equal diversity of opinion under Mr Howard’s new media laws, but those laws do not (yet) apply to this website.

    I’m not silencing you though Geoff – feel free to email me anytime with your views.

  16. Off topic.
    Yulia made a statement that was obviously wrong.
    I corrected it with factual information.
    Im’m not a One Nation fan, nor a Hanson fan nor an Oldfield fan. Although I don’t like to standby and watch innocent people be maligned for no good reason.
    Now most of that post was actually Democrat information that came direct from the Democrat site. (So I didn’t expect you to be too upset).
    Have I ever voted One Nation? Yes.
    Have I ever voted Democrat? Yes.
    (Perhaps more than for any other party.)
    Have I voted ALP or Lberal? Yes.
    I find it appalling that someone who provides accurate information (that some don’t like to hear) is regarded as a troll.

    Would I suggest that anyone should vote One Nation in it’s current form and disarray. Not in the least.

  17. So Andrew… as Yulia would say…
    Back to tax.

    “Personally I’d like to see reform ideas submitted to government, properly modelled, then put to the public in a referendum after an appropriate period of education on the options available.” #1

    I would like your opinion of this approach.

  18. Indexation of the tax thresholds is problematic from a presentational perspective. Two things come to mind.

    First, especially in a low inflation environment, the tax cuts would be small every year. The Government of the day would cop the “milkshake” criticism year after year.

    Second, if we retained a progressive tax system, the tax cuts from indexed thresholds would be largest for higher income earners, year after year. While you might say, “no change there”, the outcome does seem to offend people, despite the fact that it’s what should occur under progressive tax scales.

  19. Spog, if people actually thought the tax system was fair, why would they expect tax cuts?

    This government runs up huge surplusses and it seems some now think that “cuts” are a mandatory part of the system. IMO that only shows the government is either overtaxing in the first place of under spending.

    Tax cuts for higher income earners are always more given they pay more tax. Except those like the late Mr packer who paid less than me somehow. :roll:

  20. Hi Andrew.

    The responses to your subject matter is interesting and not being up on tax matters, I note that the ATO is now looking at doing away with tax returns for those who earn less.

    Anyway, just another interesting item as we draw closer to the Treasurer handing down – perhaps his last Budget.

  21. Donna – #20 – small point of aqccurqcy – I never mentioned women or single mothers. ABS would have the cross tabs but only for subscription – whcih I am not. Fecund is such a dismissive and arrogant term – tossed ion by a singly guy – it got my back up.

  22. Ken

    Thanks for clearing that up on single mothers.

    I understood you were having fun with ‘fecund’. I enjoyed your interpretation. Thought I’d carry it on for a bit.

    Cheers

  23. Hi Andrew,

    I think the voters really want more spending with the surplus and not tax cuts as the more you cut my income tax the less that will be spent on Health, Education etc as well as I will get a LEES tax return as I am not paying the tax! The less tax you pay the less spending and the less tax return we get at the end of the financial year!

    I would be more than happy to have my medicare levy uped a couple % so that can be spent on fixing the Doctor Shortage as well as a bigger rebate on my doctor visits.

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