Sunday, 21 February 2016

National Conversation

So, apparently we're having a national conversation about tax reform.  Governments do this every so often.  It used to be called "consultation".

Such a "conversation" sounds like a really good idea.  I imagine that we would get tax experts to analyse our tax system and tell us how it is going now, what's good and bad about it and what options there are for us to improve it.  We could then get non-experts to translate this into terms ordinary people could understand, and there could be various ways for people to have input - web forums, face to face meetings, formal submission processes.  Then the government would narrow this down to its preferred options and see what reaction they get, before modifying and implementing.

Of course I have a fertile imagination.  Actually it's nothing like that.

Not that some people don't try.  The current government released a Tax White Paper last year called "Re:Think" and there are various plain-English resources to help people understand it, a twitter feed, an opportunity (now closed) for formal submissions.

We've been here before, of course, not that long ago.  Back in 2008 the Rudd Government launched a tax reform process which involved various consultation events including a Tax Summit, following which Treasury Secretary Ken Henry put together a detailed paper called "Australia's Future Tax System" with lots of quite good recommendations.

The problem is what happened next.  What was supposed to happen after Henry wrote his paper and made his recommendations was that it was supposed to be released, there would be more consultation about its recommendations, then the government would come up with a final package.  What happened instead was the Mining Tax, and we all know how that worked out.

The current government, still shell-shocked from its sudden change of leader, is a lot more cautious.  This means that what we are having instead is a series of "conversations" about individual options.  First of all the government, urged on by various State Premiers, floats the idea of increasing the GST to 15%.  The opposition gleefully beats them about the head, declaring that they want to ruin the lives of working families with this iniquitous tax hike.  The government is carefully non-committal for a while before finally ruling the idea out.

As a second step, the Labor Party has released a policy under which it will restrict negative gearing of rental properties to new-builds.  This is something that's been advocated by housing policy people for a long time, but not usually as an isolated measure.  Cue the alarmist response from the government - it will cause house value to plunge and ruin the lives of home owners around the country.

So not so much a conversation as a shouting match.  When you shout you can only say one thing, so the "debate" can only deal with one idea at a time.  You can't have a sensible discussion, you can only yell angry slogans.  There is lots of noise, but not much light.  If I was a betting man, I'd be saying we will end up with pretty much no change at all.

Tax reform is hard, because everyone can think of reasons why they should pay less tax, but no-one is ever prepared to put their hand up and say they'd like to pay more.  This is difficult in our current environment because both State and Commonwealth governments are bleeding money and need to either shore up their revenue or cut spending.

In its first year the Coalition government tried the second option and got absolutely hammered,  Rightly so, since the main targets were pensioners, unemployed young people, Aboriginal communities and the poor communities we help through overseas aid.  And it still didn't balance the budget.  Nasty as we can be sometimes, Australians won't cop the poorest members of the community bearing the burden of fiscal readjustment.

Before that the Rudd Labor government tried to fix it with a single big tax on wealthy mining companies.  The companies used some of their huge profits (no deficit issues there!) to blitz the government and Rudd got sacked.  The policy got watered down after that to the point where it yielded hardly any revenue, before the Coalition scrapped it.  Even if Labor had stuck to their guns, it wouldn't have solved the problem, because the mining boom went bust pretty quickly.

Pretty much any of the other options will face the same problem.  Changes to negative gearing will have to run the gantlet of the property industry and its well-funded lobby groups.  If you want to wind back concessions on superannuation for wealthy people, well, the superannuation industry has access to literally trillions of dollars to fight you with.  If you want to tax multi-nationals you need the cooperation of all the nations in which they trade to effectively police profit-shifting - what are the chances of that?

So I get that it's hard, but it doesn't help when our politicians continually undermine their own efforts by floating a piece of the puzzle before they have worked out the whole.  Otherwise we will be left with platitudes, like Scott Morrison saying repeatedly that he thinks we pay too much tax and the answer is to cut spending.  He knows very well that he can do no such thing.
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