Tax is the price we pay to live in a civilised society. So, in my fantasy budget, our elected government would invest in a lot more civilisation. Imagine if those waiting in chronic pain for their hip replacements didn’t have to wait so long. Imagine if kids with severe disabilities got the support they needed while they were still kids. And imagine if riding the train or bus to work was not just convenient, but a productive and convivial use of time.

Other countries have achieved such civilised goals, but Australian governments prefer to weave new loopholes into our tax base than to sew them up. Put simply, until we scrap the tax concessions and close the loopholes that siphon off tens of billions of dollars a year from consolidated revenue, we continue to believe we “can’t afford” to invest in our citizens.

Our Prime Minister, Treasurer and the rent-seekers represented by the Business Council of Australia are adamant that we have high rates of tax. But according to the “lefties” at the World Bank, the IMF and the OECD, Australia has one of the lowest tax/GDP ratios in the developed world.

These two world views are easily reconciled once you realise that the Australian tax system is designed to make it look like our biggest companies and wealthiest citizens pay a lot of tax while ensuring that they actually don’t. The Australian Tax Office informs us that Apple paid 1.3% tax while poor Google paid 2.7% — and that’s on their “declared” revenue. The real figure is nearly impossible to pin down. The Tax Office also informs us that 55 Australians, with a combined income of $129.5 million, paid not a cent in tax between them.

Genuine tax reform provides the opportunity to collect more revenue, make Australia more equitable and discourage activities that cause social and environmental reform. You might have been told that such a “free lunch” is not possible, but when the rent-seekers have been stealing your lunch for decades, preventing such theft can feel just as good as a free lunch.

So where to start?

1. End the subsidies of things we want to discourage

While there is so much that needs to be done to help tackle climate change, the most urgent is also the easiest, most popular, and most widely supported by economists. Put simply, it is time to end the subsidies for fossil fuel extraction and use. The diesel fuel rebate costs the budget $5.7 billion per year, and that means that Australians on the minimum wage pay more for their fuel than Rio Tinto and BHP pay for theirs. Such a tax concession is neither fair nor efficient.

2. Collect more tax from things we want to discourage

After we scrap the subsidies for producing and consuming things we want to discourage, it will be time to collect a larger slice of the tax pie from the things we want to see less of. While the benefits of a carbon price are obvious to every economist who is not paid a motza to pretend to think differently, it’s also time we used the tax system to address high-frequency speculative trading, traffic congestion and binge drinking. Taxing things we want to discourage would simultaneously collect a lot of revenue and help shift behaviour in the direction we want to shift it in. It’s a win-win.

3. Make the tax system simpler and fairer by removing loopholes favoured by the very rich

Tax concessions on superannuation cost $30 billion per year, 41% of which goes to the top 10% of income earners. The top 10% of income earners get 34% of the benefits of negative gearing and a staggering 73% of the discount on tax payable on capital gains.

Just think about that last loophole. Someone whose income for the year came from selling $100,000 worth of capital gains in shares or investment properties pays less than half as much tax as someone who works full time to earn a $100,000 salary. If Joe Hockey had any interest in fairness or fixing the budget deficit he would drop this obscene lurk in a heartbeat.

It is hard to answer questions about whether we should spend more on aged care or childcare. That’s why conservatives ask them. The easier question is, should we cut spending in essential services or close the loopholes in our tax system?

Most community and advocacy groups have organised themselves around campaigns for specific issues such as mental health, climate change, or addressing indigenous disadvantage. While such an organisational structure makes sense when we are debating how to design efficient and effective policy to help specific groups, it makes no sense when we are trying to influence the macro settings for the budget.

While the right are united around the need to cut taxes, the left are often divided about what the spending priorities should be. In my fantasy budget, we would collect tens of billions of dollars extra each year without increasing any tax rates by simply closing the loopholes. Having created fairness by collecting the extra money we can then have an honest conversation about where it should be spent.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey