The Abbott Government's 'White Paper' on Tax could see big changes to superannuation and the overall tax mix. But the Paper seems oriented towards the Government's Ideological preference for 'small government', 'low tax' and 'simple/regressive tax' as opposed to a progressive tax system. Labor and the Greens need to enunciate a comprehensive alternative - also informed by a progressive ideology of equity and fairness. Tristan Ewins looks at the alternatives.
Tristan Ewins
31/3/2015
The Federal Australian Treasury’s White Paper on tax reform
seems to have been received well by the Abbott Conservative Government.
Amongst other suggestions, it urges slashing the Company Tax rate
to make Australia a more attractive place for investment.
But arguably decreased Company Tax is not the answer and will
only lead to further ‘corporate welfare’.
The white paper complains that 70 per cent of Commonwealth
tax revenue is drawn from personal and company taxes. But what is the alternative? A higher GST?
More user pays? More austerity in
the context of an-already stunted social wage and welfare state?
Dividend
Imputation, Corporate Taxation, Corporate Welfare
On the good side, Gareth Hutchens of ‘The Age’ (30/3/2015) notes arguments have arisen for
the potential rescission of Australia’s regime of Dividend Imputation. (tax
breaks on share dividends; ostensibly to make up for ‘double taxation’)
For a start, lower Company Tax rates dilute arguments about
the unfairness of ‘double taxation’. Australia’s
Company Tax rate has been reduced markedly since the Keating Government which introduced
the dividend imputation system. Countries
such as the UK and France – which once had imputation – have now dropped the measure. It no longer appears ‘necessary’ either for
‘fairness’ or ‘competitiveness’.
To clarify: Nicholas
Gruen of ‘The Age’ pointed out in 2012 that the cost of Dividend Imputation
to the Australian people (as represented in the Government) of over
$20 billion a year!
The result of falling Company Tax, dividend imputation and
other pro-corporate measures has been much lower levels of tax paid by
business, and the effective consequence of ‘corporate welfare’, in tandem with
other effective corporate subsidies.
For instance David
Holmes at ‘The Conversation’
has noted– “the fuel tax credit scheme to the
mining industry” which delivered $2
billion in corporate subsidies for mining corporate interests in 2011 alone;
and a total of over $5 billion all up.
But it goes much further than
this. Corporate welfare can also be interpreted as taking the form of a
falling minimum wage and a falling wage share of the economy. In Australia
specifically the wage share fell by about ten percentage points since 1959. (see the associated graph via the hyperlink
above) That means higher levels of
exploitation of working people by business. That is, Australian workers are
subsidising corporate profit through lower relative wages.
Further, there is an assault on
welfare rights to ‘make room’ for effective corporate tax subsidies; and ‘punitive
welfare’ , ‘work for the dole’ etc, effectively reduce the bargaining power of
workers because of an insecure and desperate ‘reserve army of labour’.
Also consider the proliferation
of ‘user pays’ measures. (for example for access to transport
infrastructure; school ‘levies’; a
higher cost of living re: water and energy etc) User pays mechanisms can only spread as a
consequence of lower taxes. What we do
not pay for collectively as tax payers, we will pay for (and usually we will
pay more) in our capacity as private consumers.
Declining levels of corporate
contributions (via tax) to the construction of infrastructure, and the development of
skills which the corporates benefit from – means the burden is increasingly
paid by workers, consumers and individual (private) tax payers. More corporate welfare!
Privatisation of communications,
energy and water utilities and assets such as state-owned banks also saw an end
to progressive cross subsidies. At the same time – progressively from the 1980s
and 1990s - a more regressive tax mix (including the GST) ‘began to bite’.
Importantly, the argument that rates of corporate and
personal income tax must fall because of ‘competition’ does not apply to all
companies and individuals. Many
companies cater to Australian markets and Australian consumers. The threat of capital flight is not
universally applicable; and contributing to a ‘race to the bottom’ on corporate
tax will result in spiralling and out-of-control corporate welfare. Global action is necessary to stop the
existing ‘race to the bottom’ on tax.
To get the situation in perspective: Company Tax (now 30 per
cent) has been reduced by
approximately 20 percentage points since the time of the Hawke Labor Government.
The cost to the Australian people of this is tens
of billions in revenue annually - which might otherwise have been
directed towards infrastructure and education (which the corporate world
benefits from after all), as well as health, social services and welfare.
Even though a return to the ‘high water mark’ of corporate
tax may not be possible, an increase to levels enjoyed by other advanced
economies might be doable, and would make a big difference. (nb: US Company Tax goes as high as 39 per
cent; Japan 37 per cent and France 34 per cent – see HERE)
Furthermore, arguably most Australians are not so ‘mobile’ as
the proponents of lower income tax suggest either. Taxes also contribute to the quality of
infrastructure and services which underscore the desirability of living in
particular country. This includes the professionals which some say are likely
to ‘pack up and leave’ if progressive income taxes remain. Indeed
the quality of education, services and infrastructure also acts as a ‘pull
factor’ for investment and skilled labour.
Income Tax
and GST
Treasury is also pressing for lower income taxes and a
higher, less discriminate GST. (eg:
apply it also to education and food)
But because apparently an increase in GST is rejected by the
Andrews Victorian Labor Government we might hope for a more equitable
alternative.
Unfortunately, though, it is more likely we will simply see
further austerity.
The Treasury white paper apparently complains that only
Denmark relies more on income and company taxation than Australia. But
‘just because other people are doing something’ is not a strong argument to
follow suit. More appropriate would be
to consider what –if anything – is wrong with the Danish tax system and
economy.
Wikipedia states of
Denmark that:
It has the
world's lowest level of income inequality, according to the World Bank Gini (%),[8] and the world's
highest minimum wage, according to
the IMF.[9] As of January
2015 the unemployment rate is at 6.2%, which is below the Euro Area average of
11.2%.[10] As of 28
February 2014 Denmark is among the countries with the highest credit rating.
So Denmark has a strong economy. It has chosen ‘a different path’, say, compared
with the Anglosphere. But its path of high, progressive taxes, labour market
regulation and strong social welfare works!
Finally the Treasury White Paper has considered the threat of
bracket creep, and apparently the
Abbott Conservatives are considering an increased GST as an alternative.
Bracket
Creep refers to workers being pushed into higher tax brackets as a
consequence of inflation, and (only nominally) increasing wages. Both Labor and Liberal governments have a
history of dealing with bracket creep by returning the proceeds to tax-payers
through tax cuts. Though even under
Labor arguably this has sometimes been dealt with in a regressive way. Higher brackets have been eliminated or cut
- or raised so high as to minimise their progressive impact - and restrict
(relatively) strong progressive taxation to only the most wealthy of all. Arguably this is to the benefit of the upper middle
class and the wealthy; and to the detriment of working people, including the
working poor. It means the working class
and the poor pay more proportionately; and that those in need suffer with the
constriction of the social wage and welfare.
But this is not an honest Liberal-National Federal Government. Joe Hockey made the ingenuous claim, for
instance, that Australians pay 50 per cent of their income in tax.
“ Nobody in Australia pays 50% of their
income as personal income taxation. According to NATSEM modelling, around 3.5% of those who have a tax
liability actually face a top marginal tax rate of 49 cents in the dollar.
Around 25% of taxpayers are paying a top marginal tax rate of at least 39 cents
in the dollar.”
To summarise – Australia’s income tax system involves several
brackets. Higher brackets and rates only
apply after specific thresholds are met. So as Phillips insists: NO-ONE is
paying 50 per cent of their income in income tax!
Hockey is not stupid.
Surely he understood this.
Apparently he was attempting to tap into populist anti-tax sentiment
through a deceptive and false argument.
But depending on your notion of ‘the good society’ tax as a
whole needs to go up; and the tax and spending mix also needs to be reformed.
Negative Gearing, for instance, benefits upper middle class
investors; but does not create much in the way of new employment. And important social programs demand higher
levels of social expenditure.
Crucial priority areas which need substantial public funding
include:
·
Full implementation of the National Disability
Insurance Scheme as well as ‘lifting up’ the standards and resource base for
state schools; Extend the NDIS to apply to aged disability pensioners
·
A big public investment in a National Aged Care
Insurance Scheme: to provide for the needs of aged Australians both at home and
in care
·
Investment in a comprehensive Medicare Dental
Scheme
·
Implement Programs to ‘Close the Gap’ on both
Indigenous Life Expectancy and Life Expectancy for the Mentally Ill
·
A big investment in new Public Housing stock –
solving the housing affordability crisis by increasing supply
·
Fair Welfare and amelioration of Poverty – Raise
all welfare payments by at least $35 a week on top of the current indexing
arrangements; Thereafter implement fairer indexing arrangements for Newstart,
Sole Parents and Student Allowance; Relax
criteria and significantly slow the withdrawal of payments for disability pensioners
attempting to re-enter the work-force; Eliminate welfare poverty traps
·
Restructure the Higher Education Contribution
Scheme (HECS); raise the repayment threshold and lower interest on debt;
suspend all debt for former students who acquire a disability which interferes
with or prevents work
·
Public investment in public infrastructure –
Including the National Broadband Network – with Fibre to the Home Broadband
At a crude estimate these items would likely cost over $50
billion a year to implement out of an economy valued at around $1.6 Trillion.
Options to fund include Company and Income Tax reform, and withdrawal
of Dividend Imputation; but also the
following
·
reform of
Superannuation Concessions for the wealthy and the upper middle class*
·
cut Negative Gearing and plough the proceeds
into Public Housing;
·
implement an Inheritance Tax;
·
Restore the original (Rudd-inspired) Mining Tax
·
Increase and progressively restructure the
Medicare Levy
·
Implement a banking sector tax on super profits
·
Implement progressively-structured
infrastructure levies on business and individual taxpayers– to provide for
communications, transport, energy-related and water and sanitation related
infrastructure – without regressive user pays mechanisms or
inefficient/wasteful private finance
·
Implement
a progressively structured Aged Care Levy
The Treasury ‘white paper’ on taxation seems at a first glance to largely comprise
a ‘wish list’ for Liberals pursuing an ideological ideal of small government,
low taxes, and high levels of inequality. (which the Liberal ideologues put
down to ‘merit’) Labor and the Greens
need to develop their own responses. And
hopefully this post will contribute meaningfully to that process.
*It should be noted, however, that even $1 million in accrued
superannuation will provide a relatively
modest retirement income of $33,000
a year. (compared with a Single Aged
Pension of just over $22,000 and in the case of a couple roughly $17,000
each) This is far from grandiose –
though assuming the recipients’ home is owned it provides relative comfort
compared with those fully dependent on the Aged Pension. (more than $10,000/year
additional income) But The
Australia Institute has suggested that cuts in Superannuation Concessions - which cost taxpayers tens of billions
annually – could instead be channelled into a more robust Aged Pension –
lifting the full Single Rate to just over $26,000/year, and just under
$40,000/year for couples. The rate at which the Aged Pension is
withdrawn could also be slowed, benefitting those with smaller superannuation
accounts – and especially women – who have suffered as a consequence of interrupted working lives
and the devaluing of ‘feminised’ professions.
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