Forget the tax cut “debate” – here are the five real reforms we need

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The tragedy of the fevered politicking about which side has the better tax cuts is that all the heat and feigned fury is about so little.

Sure, “$140 billion tax cuts” sounds big, but it’s mainly petty politics beating the story up.

Looking through the noise of the tax cut auction, what this battle for votes really does is underline how forsaken the promise of genuine tax reform has become.

Trimming $540 from what low and median wage earners pay in tax is bugger all in the greater scheme of what’s needed to improve Australia’s tax system. Partial return of bracket creep is not reform, it’s barely housekeeping, even for those on taxable income of $200,000 a year who are being promised a cut of $7225 a year from 2024-25. (https://www.budget.gov.au/2018-19/content/incometax.html?income=200000 )

The only “reform” element of the government’s package is the flattening of the tax system, reducing the progressive nature of our income tax by scrapping the 37.5 per cent tax rate, leaving people from $41,000 to $200,000 on the same marginal tax rate of 32.5 cents in the dollar.

Similarly, the government’s ambition to trim the corporate tax rate from 30 to 25 per cent is not reform. It’s fiddling around the edges of the system that’s been crying out for political leadership for a decade, ever since Ken Henry delivered his reform bible.

Labor is making a song and dance about its bigger cuts for the lowly paid and tax increases for the highly paid, yet that, too, is window dressing. It will have marginal impact on the economy and do little to improve our chances of becoming a more prosperous and better nation.

Income tax cuts aside, Labor is having a bit of a crack with its proposals to curtail negative gearing, halve the capital gains tax discount, fiddle with cash reimbursement of franking credits, and tighten up the family trust lurk.

But the political nature of the animals is evident there – targeting the coalition heartland and carefully avoiding reform that might affect its own base. (And, as an aside, the timing could be all wrong to change negative gearing – it was a good policy two or 10 years ago, but perhaps not what the housing market needs just now.)

Our politicians will deserve respect when they’re game to offend just about everyone with genuine tax reform that would leave the nation better off.

Here are my top five tax reform issues really worth fighting about:

GST reform – As an absolute minimum, the base needs to be broadened with appropriate safeguards
Land tax – It will take the feds to co-ordinate and finance the states to get them off their damaging and discriminatory addiction to stamp duty and on to broad, no-exceptions land tax
Capital Gains Tax – no, it makes no sense to exempt the family home, however sacred a cow it might be
Novated leases – not so much because this particular lurk is large, but it’s a fine symbol of the tax expenditures that should be dragged into the spotlight and away from the grasp of successful business lobbyists
Resources rent tax – yes, Ken Henry’s attempt to introduce was flawed, but the principle was sound and needs revisiting. And while at it, the federal government could grow a pair and end the rorting of the Petroleum Resource Rent Tax that is earning the nation next-to-nothing for our LNG exports.

The left, right and middle would all be appalled by doing what should be done, and that’s the way to tell if the reform is genuine or partisan electioneering.

There are other issues – the folly of encouraging small business to stay small with preferential tax treatments, especially the state’s dreadful payroll tax regime – but my top five would do for now.

Come to think of it, any single one of them would be a most welcome change. Fat chance.
(First published by The New Daily, June 20,2018 https://thenewdaily.com.au/money/finance-news/2018/06/20/tax-cuts-reform-michael-pascoe/ )

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