Christian Kerr writes:

It’s going to be very hard to take Peter Costello seriously again after George Megalogenis kindly pointed out over the weekend that Treasury used exactly the same table in the Warburton/Hendy report to demonstrate how the tax burden on the average Australian wage earner “has been steady at around 22% over the past 40 years” as it did to show “income tax rates are too high” back in the 1998 GST package.

Megalogenis warned of policy fatigue in the whole debate – an obsession with the top rate of tax. So how should we be tackling tax torpor?

John Stone and Tim Colebatch approach matters differently, but they’ve had interesting contributions over the past two days. The former Treasury secretary and National Party senator wrote in yesterday’s Australian:

Last week’s “international benchmarking study” is a 450-page compendium of data that, while not wholly worthless, is chiefly an answer to a silly question: “How do our tax rates compare with other countries?” Whatever the answer, the only sensible reaction is: “So what?” The right question is whether, by reforming our own tax system, we can improve incentives, increase national efficiency and raise our national economic performance. If so – and there is overwhelming affirmative evidence – we should do it…

Today, The Age‘s economics editor looks at the whole tax “industry”, for want of a better word:

No country grew rich on tax avoidance. Tax lawyers and accountants can be of great value to us as individuals, but for society as a whole, they are a net drag, reducing our output.

When avoiding tax becomes a preoccupation, it consumes time and brainpower that we could use more productively to develop new markets, products, processes and efficiencies. It leads to investments and spending going where they will yield tax benefits, not economic returns.

That’s why economists have entered the tax debate with a simple message: we need a tax system with lower rates and a broader base (ie fewer ways to avoid tax). We want a tax system that is simpler to understand and comply with, fairer in its outcomes and removes tax as a decisive factor in investment decisions.

Megalogenis is right to warn of policy fatigue – and both Stone and Colebatch start to tackle the problem.

We’ve forgotten that tax is just a means to an end – a very important and highly significant means, but still just a mechanism to fund the functions of government. The fact that this is forgotten shows the utter intellectual exhaustion – or feebleness – of the Government.

Peter Costello has a nice, thick document which he says shows we are not highly taxed by OECD standards. But what he really needs to be talking about is the efficiency of government services and the tax system that provides for them.

It’s not just a question of bucks – but how much bang we get for those bucks.

Peter Fray

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