Everyone loves economic reform until it affects them, at which point the excuses and justifications for the status quo — the claims that sounded so hollow when made by others — start coming out.

This week the Australian Financial Review, normally the one media outlet in the country that can be relied on to doggedly pursue fiscal rigour and economic reform, has been a platform for a rearguard action against the Government’s changes to employee share schemes to remove a tax rort costing the country tens of millions of dollars. There have been front page headlines yesterday and today; seven articles, all negative; two critical op-ed pieces; an editorial calling for the Government to reverse the “blunder” and generous coverage of the Coalition’s opposition to the changes and its call for a Senate inquiry.

This is the AFR in full Plutocrats’ Gazette mode, pandering to its business/executive readership, who are the predominant targets of the changes. Fortunately today the Fin got to add concerns from trade unions. The Financial Services Union, the Australian Workers’ Union (led by the obsessively attention-seeking Paul Howes) and that home of eminent good sense the SDA have also expressed concerns about the changes.

It was left to John Durie in The Australian yesterday to offer some balance and reasoned analysis.

In danger of being lost in apocalyptic headlines about the death of small businesses and business backlashes is a simple fact: if you receive something as part of your income then it should be taxed as income, in the same way as other income. Not to do so facilitates tax avoidance. No one is forced to take company shares as part of their remuneration. If they elect to do so it is because of the financial benefits that accrue from doing so. There is no reason why that financial benefit should not be taxed like normal income.

Nevertheless, the issue is shaping up as a minor test of the Government’s reform credentials. The money at stake is relatively small — only $200m over four years, according to the Budget papers. With the top end of town now being joined by some unions, including expert self-publicists like Howes, the Government might be tempted to ditch it, accepting defeat in the Senate and moving on.

That would not augur well for the Government’s response to Ken Henry’s tax review later in the year, which is likely to recommend the removal of any number of inconsistencies and lurks arising from the differential treatment of different forms of income and generate complaints by the truckload from groups exploiting current arrangements. The same cries of threats to jobs and businesses will go up as we’re seeing right now. The principle that tax effectiveness should not be the primary basis for economic decisions, which should apply as much to personal incomes choices as to investment decisions, will be lost in the whingeing.

As the ETS has demonstrated, this Government is not particularly adept at playing the reform game or even holding its ground when vested interests are opposed.

Peter Fray

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