Apr 3, 2014

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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18 thoughts on “Parkinson leaves the rich out of talk of fiscal sustainability

  1. Tamas Calderwood

    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

    “$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

    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

    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

    “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

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

  7. David Hand

    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

    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

    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

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

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