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Parkinson leaves the rich out of talk of fiscal sustainability

A debate about the sustainability of our tax system should start with fixing existing taxes before we increase them or create new ones, write Bernard Keane and Glenn Dyer.

While Treasury secretary Martin Parkinson’s warnings about the sustainability of our tax base are timely, they only tell half the story — or two-thirds, if we’re being generous.

At the same time as Parkinson, with the blessing of the Treasurer, is flagging the need to consider how Australians should pay more tax, and preferably more indirect taxes, the government is trying to dump two significant revenue sources, the mining tax and the carbon price, and has dumped two other revenue measures put in place by Labor last year — the closure of the fringe benefits tax rort on novated leases, and the (modest) tax on superannuation earnings over $100,000 a year. That’s the best part of $10 billion to $15 billion a year in foregone revenue, to the benefit of companies and high-income earners.

So it’s OK for the rest of us to pay more for everyday goods and services, but don’t dare touch mining super-profits, try to discourage carbon emissions or modify our absurdly generous superannuation taxation arrangements.

Fair enough that Parkinson — graciously given a stay of execution by Prime Minist Tony Abbott until after the G20 — wouldn’t bag the policy of the current government. He did, however, single out the Howard government’s 2001 decision to abandon indexation of fuel excise. That decision was Canberra at its worst: a minor administrative error by the Department of Transport, an act of “pure bastardry”, as one senior bureaucrat put it, by the Audit Office, and a terrified government facing electoral oblivion combined to inflict a substantial and growing hole in revenues that costs us billions every year.

Unsaid, but implied by Parkinson, was another criticism of the Howard government: its decision to give in to the demands of senator Meg Lees and the Democrats and allow exemptions to the GST based on nanny state notions like encouraging fresh food consumption. That exemption now costs state governments around $6 billion a year — $6 billion a year that could be used for paying for better services, higher-quality teachers, more public transport, more hospital beds. The exemptions for education and health cost another $7 billion or thereabouts.

That’s partly because: guess which areas of consumer expenditure have recorded the strongest growth in recent years? Health, education and food. There’s a reason why food programs like My Kitchen Rules and MasterChef now dominate the ratings.

The GST exemptions aren’t even our biggest ‘tax expenditures’.”

On the other hand, at least the Howard government successfully implemented a major new tax in the face of political opposition, something Labor didn’t achieve while in government under Julia Gillard or Kevin Rudd — the carbon price was implemented despite an explicit promise not to do so in 2010, and the mining tax was badly botched and led to the knifing of Rudd.

The GST exemptions aren’t even our biggest “tax expenditures”. They’re not even close. The capital gains tax exemption on the family home and the concessional tax treatment of superannuation earnings and contributions have that honour; Treasury estimates superannuation concessions lead to nearly $28 billion a year in lost revenue. No one will ever touch the family home exemption, and we do want to encourage retirement saving via tax incentives, but they all point to the extent to which the debate about fiscal sustainability should start with the revenue that we’re not collecting under existing taxes, rather than lifting the rates of those taxes or introducing new ones.

Let’s not forget dividend imputation, either — more than $20 billion by some estimates a few years ago — which benefits shareholders, most of whom are superannuation funds. Ending imputation could finance a big drop in company tax without needing the traditional offset proposed by business of a rise in the GST.

While Parkinson is talking about our fiscal future, what he’s really painting a picture of is the past — and in particular the 1970s and early 1980s, when governments kept increasing spending beyond revenue and our tax system encouraged rorting like fringe benefits and the bottom-of-the-harbour scheme. It took a brave government to overhaul that tax system throughout the 1980s. Is the Abbott government similarly brave?

If its response is a higher GST while it slashes taxes for mining companies and high-income superannuants (the biggest current tax rort, albeit entirely legal), then the answer is “no” — especially when the government is engaged in partisan silliness like the Reserve Bank handout, running hugely expensive royal commissions aimed purely at damaging Labor and the unions and treating the sale proceeds of Medicare Private as a pork barrel to fund an “infrastructure hole” that simply isn’t there, rather than paying off debt or handing it to the Future Fund.

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  • 1
    Tamas Calderwood
    Posted Thursday, 3 April 2014 at 1:29 pm | Permalink

    So more taxes on superannuation, fringe benefits, carbon emissions, mining, fuel, GST on food, health and education, capital gains on houses, double taxing dividends… phew…

    Why not just hand all our money over to the government and then let them pay everyone an equal wage for their work?

    Or, you know, the government could just cut spending and stop blowing our hard earned money on pink batts, school halls, NBNs…

  • 2
    Jeff McIlwain
    Posted Thursday, 3 April 2014 at 1:41 pm | Permalink

    $6 billion a year that could be used for paying for better services, higher-quality teachers, more public transport, more hospital beds. The exemptions for education and health cost another $7 billion or thereabouts.”

    it could be, but it won’t. just like jailing refugees coming on boats is supposedly to help “people in refugee camps in africa”, it could be, but it isn’t. who’s naive enough to think that raising consumption taxes won’t be used to offset reductions in corporate tax? or help the better off through upperclass welfare rorts?

  • 3
    Observation
    Posted Thursday, 3 April 2014 at 2:05 pm | Permalink

    No body talks about the rich paying more for fiscal sustainability. They have become the political sacred cow in this whole debate.

  • 4
    bushby jane
    Posted Thursday, 3 April 2014 at 2:07 pm | Permalink

    We have been told in the past that John Howard’s reductions in income tax would balance the budget, but you didn’t mention restoring this to previous levels.
    This govt is so scary with their actions and aims that we shouldn’t expect anything good from them regarding improving Australia as an equitable country to live in.

  • 5
    Interrobanging On
    Posted Thursday, 3 April 2014 at 2:22 pm | Permalink

    On the other hand, at least the Howard government successfully implemented a major new tax “

    So, validating the the political lying of the century is fine as long as is the Liberal Party or a for new tax? (The ‘never, ever’ on the GST was not just a single off the cuff statement in Tweed Heads, but was repeated, including in writing.)

    And what price a bigger GST would have just resulted in bigger electoral bribes eg the repeated tax cuts, baby bonuses and middle/upper class welfare. The ‘profligacy’ period leading up to 2007 would just have been worse. Don’t forget they went into the 2007 election with yet *another* income tax cut promised.

    Tamas, it is beyond futile to try to argue here that there isn’t a revenue problem, only a spending problem. That is more at a Bolt/Hadley level, as suckered by a mendacious government struggling to maintain his fiction.

    Stimulus was necessary (and we all benefit from the lowered electricity demand of the insulated houses). Don’t blather about China rescuing us, because it is their stimulus that keeps them going strongly. They have been doing for for years, and announced a new round today.

    And you do know the Liberals are building an NBN, don’t you?

  • 6
    Jaybuoy
    Posted Thursday, 3 April 2014 at 3:18 pm | Permalink

    Arse licking to keep your job is never a good look in a frank and fearless public servant…

  • 7
    David Hand
    Posted Thursday, 3 April 2014 at 3:51 pm | Permalink

    What a lightweight spray. I looked in vain for any real analysis and what is there is laughable.

    Leaving the GST off food to encourage healthy eating? You’ve got to be kidding, right?

    The mining tax as a revenue source? Hullooo? The miners are progressively shutting unprofitable mines, guys.

    Increasing the GST level or spread is bad but we should re-introduce indexing fuel excise? Regressive tax A is bad but regressive tax B is good? Are you guys for real?

    Increase tax on superannuation? You know, the pot of money Australia has saved to provide for old people free of the taxpayer?

    Did Parkinson say anything worthy of consideration? Anything at all?

  • 8
    Brian Williams
    Posted Thursday, 3 April 2014 at 3:56 pm | Permalink

    What a curates egg of an article. Logical and persuasive comments about the silliness of the removal of the mining and carbon taxes, as well as the tax on excess superannuation earnings, and the retention of novated leases…..and then we get the usual Bernard Keane whinging about particular taxes, much of it non-sensical. Let me give you just one example of the latter.

    You complain about the current GST exemptions, and blame it on Meg Lees and the Democrats, as though everything would have been hunky dory otherwise. The reality is that there would have been no GST in 2000 if Meg Lees and the Democrats hadn’t come to the party with their compromise, as Harradine had already committed to voting it down, and while there is less cash for State Govts than there would have been under the Howard/Costello version, the quid pro quo was that the public didn’t get the full personal tax cuts they were going to get, so most of your ‘missing’ GST of $6 billion actually went to the Feds as income tax, and then higher ancillary distributions to the State Governments. The net revenue result was very similar to what it would have been. Conversely, any increase to the GST will not result in income tax reductions if it’s to have any real effect.

    And why the hell would we want to end imputation when, as you rightly say, it would mostly benefit super funds (i.e, the retirement proceeds of Joe Public), just to give companies a tax cut!

    Your description of tax exemptions in certain areas as being ‘tax expenditures’ is beyond convoluted. For instance, just because Keating & Hawke decided to increase the excise on booze and petrol every 6 months doesn’t mean it was a great idea, or even a fair one. The booze tax has stayed and the extremely inflationary petrol one is gone. Go and ask the huddled masses if they’d like it brought back - that idea will be as popular as capital gains tax on the family home, which you also describe as a ‘tax expenditure’ before dismissing it as electorally impossible, which of course it is, so why bother talking about it in the first place?

    Saying that an object, asset, person or entity is somehow being treated too well just because it’s not being taxed in some way, is as inane as saying that a government is being benevolent to its people by not jailing everyone who’s caught speeding. Just because a tax is levied on something, but isn’t levied on something else, doesn’t ipso facto make it a bad tax, and certainly isn’t justification for expanding it. True….expansion can sometimes be justified for other reasons. In a modern economy, the tax impost needs to be shared by everybody…not just those who own houses or shares, or drive to work, or who have full-time jobs or are retired… which probably means than a non-compensated GST expansion and/or increase to 12.5% is the fairest way to go.

  • 9
    michael l
    Posted Thursday, 3 April 2014 at 3:58 pm | Permalink

    I like how ending dividend imputation is just casually tossed in to the mix, as if it wouldn’t sink Australian capital markets and crush superannuation accounts overnight.

  • 10
    Steve777
    Posted Thursday, 3 April 2014 at 5:15 pm | Permalink

    I suppose Tony Abbott decided that he needed a senior person at the G20 who actually knew something about the economy.

  • 11
    Steve777
    Posted Thursday, 3 April 2014 at 5:26 pm | Permalink

    The projected costs for the Age Pension for 2013-14 is $39 billion, compared with the cost of $28 billion quoted above for superannuation concessions, which most favour those on higher incomes. Might it make sense to withdraw the concession and simply pay everyone old enough the age pension? Yes, I know that’s not going to happen. At any rate, we could surely save some billions annually if we wind back superannuation concessions to the point where they compensate superannuants for not drawing the Age Pension and benefits like the Health Card.

  • 12
    PDGFD1
    Posted Thursday, 3 April 2014 at 6:44 pm | Permalink

    Brian #8 seems to have the running here…although… he does seem to imply we need a drop in personal tax…(soooo many had that under Howard and more handouts since… did those measures serve us well? Would they in future… but I digress…)

    Meanwhile…
    “Let’s not forget dividend imputation, either — more than $20 billion by some estimates a few years ago — which benefits shareholders, most of whom are superannuation funds. Ending imputation could finance a big drop in company tax without needing the traditional offset proposed by business of a rise in the GST.”

    I am yet to see why all the pundits suck up the notion that we ‘need’ a drop in corporate tax? Corporations have the most generous tax-wright-off system of all taxpayers - deductions for anything even vaguely related to ‘income earning’ (not to mention the financial clout to hire professionals for tax advice - which is tax deductible).

    Shareholder value would inprove (might, I SAY)…yes, I know, but then… shareholder value would be SO much better served by an enormous reduction of ‘top of the town’ salaries and perks (good luck with that, no matter how worthy)

    Onward…
    Why is a few million raised via a mining super-profits tax a bad thing? Just because it didn’t raise as much as the then govt. wanted it to? Nonsensical argument against it.
    Where is it recognised that the MSP tax didn’t raise as much money as it should have because those corporations used the opportunity to shore-up and ‘gold plate’ their (tax deductible) hardware… nowhere.

    And now somehow we have a ‘hole’ in the supply of ‘infrastructure’
    Mmm… we apparently need more rail lines for coal mining, and more roads for Fox et al.’s trucks.
    IF they were trying to raise funds for re-igniting an efficient rail industry for the purposes of off-road distribution and public transport I might have more sympathy for the position. But from what one CAN glean… we’re just trying to increase ‘Public-private-partnerships’ (and they’ve worked soooo well we should do more of them???)

    Getting more than a bit sick of the ‘super is bad’ nonsense too…
    Why is benefiting superannuation funds (or shareholders, or superannuants) a bad thing… the main purpose of super is to encourage people to have the funds to look after themselves… to decrease the burden on the pension system.

    Steve777 (et al.) I get where you’re coming from, but most people join the super system in order that they will be able to live reasonably well in their retirement (having paid their taxes) - no-one thinks living on the pension equates to living well… it’s subsistence at best.

    By the way, the majority of super contributions are made AFTER tax… I know we can’t afford it… but wouldn’t it be great if we could then use our own money, which has been sitting there increasing the wealth of everyone, without any further tax? Sigh.

    An increase in GST… this at least affects those who consume more - fairer in the end really.
    However, if we-the-punters are to suck up a bit more cost… then keep the MSP tax, keep the Carbon tax and USE those funds to support NEW industry, create employment, support NEW manufacturing (ok, so I would say it… but use the funds for alternative-energy R+D, corporate subsidies in carbon-lessening manufacture… anyone? Thought not…)

  • 13
    Brian Williams
    Posted Thursday, 3 April 2014 at 7:05 pm | Permalink

    @PDGFD1 - all good points.

    Didn’t mean to imply we needed further income tax cuts. Far from it. I believe Costello gave us one too many tax cuts with the final one that Rudd carried through on.

    As for the tax free earnings from your super account after you turn 60 that Costello also gave to us, well that little beauty is the poison pill that the tax system will take the longest to recover from, and I’m 54 now so while I’ll get the benefit of it in less than 6 years time, I also feel it’s more than a little inequitable to Gen Y and their descendants.

  • 14
    leon knight
    Posted Thursday, 3 April 2014 at 7:21 pm | Permalink

    I am afraid I can’t see any way that fair increases to the tax take, or plugging of any loopholes for the wealthy, will happen under this government.
    But I would really like to see Labor getting a coherent strategy together, and getting a decent community debate going - apparently the Kiwis could do it..!!

  • 15
    AR
    Posted Friday, 4 April 2014 at 6:55 am | Permalink

    Economic Godwins -(a)nanny state, (b)schools, health roads (c)truncated Gillard “carbon tax” quote - by their words shall we know them for IPA/BigBiz shills.

  • 16
    Michael James
    Posted Friday, 4 April 2014 at 10:42 am | Permalink

    Love this line; “the government is trying to dump two significant revenue sources, the mining tax and the carbon price”

    Yes, like either actually contributed to revenue, both were ill thought out, ill conceived and ill implemented programs that cost more to install than they contributed to the Commonwealth’s revenue.

    Thinking like that suggest you should start paying someone who understands finance, say Alan Kohler or Stephen Bartholemeusz, to write economic articles, leave Keen and Dyer to deal with politics, it’s obviously where their interests and talents lie

  • 17
    PDGFD1
    Posted Friday, 4 April 2014 at 1:51 pm | Permalink

    Brian @13,
    Mmm… I think they’ll succeed in extending ‘draw-down’ to 65… but nevertheless, whenever…
    Super contributions sit there, basically ‘locked up’, circulating around the system… hopefully helping all “boats to rise”. I fail to see why NOT taxing them on the way out (in dribs and drabs anyway… lump sums more problematic) makes an irredeemable ‘hole’ in the nation’s budget (one outweighing super’s 40+ years of use in the system that is)

    Onward to ‘Gen Y’ et al. …
    Mmm… at the risk of sounding like a traitor…they (unlike yourself probably) have had the benefit of employer-contributed super ALL their working lives, as well as the ability to make additional contributions.
    I’m becoming less patient with the ‘move over we’re coming through… and we’re gunna blame you guys for (everything)’ attitude I hear from the cohort. Usually the argument is led by someone who is loudly pontificating about how they still live at home… can’t afford to buy a house (3 beds, 2 baths, 2 car spaces, close to city… blah blah blah) whilst out to dinner, sporting their new ‘haircut’-‘beard groom’- ‘brand’ satchel - sunglasses (pick several), and carrying on a twitter ‘conversation’ on their 3rd smart phone in 2 years!
    Meanwhile… some of us share rent (like our parents did) until we can afford a deposit on a 1,or 2 bedroom flat, lining ourselves up for the day when we can say we do have some ‘right’ (?) to expect to ‘trade up’ to a bigger place (or rent-on and invest… which does seem to be just as valid a process despite the slavish adherence to ‘we all must own a house’ rhetoric).
    Gen Y… when they stop smelling the lightly-roasted-coffee and whining, will come to realise they have it no worse than the cohort that preceded them.
    Letting those who came before us have a decent ‘shake of the sauce bottle’(uugh) - especially if it keeps them out of the pension system… I want that for my parents, AND my cohort!

  • 18
    Itsarort
    Posted Sunday, 6 April 2014 at 7:43 pm | Permalink

    @ Michael James
    The idea behind taxing corporations is hardly ill conceived. Unfortunately, scamming ones way out of paying a fair amount of tax is hardly difficult for business. Even small businesses do it quite deftly with only moderately paid accountants and lawyers.

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