Tax is back on the agenda and you might be surprised about a new alliance...
With growing talk of tax reform, advocacy to promote equity and ensure that those on low-incomes are not negatively impacted is essential. Interestingly, the advocacy landscape is changing, with new alliances being formed to advocate for a different type of tax reform. In this post, Ben Spies-Butcher (@SensibleBSB) takes us through how tax reform has been reframed and its implications for a more equitable taxation system.
Tax is back on the agenda. But this time the debate comes with an unusual alliance of interests. In July the Australian Council of Social Services (ACOSS) teamed up with the Business Council of Australia (BCA) and the Australian Chamber of Commerce and Industry (ACCI) calling on state and federal governments to embrace ‘tax reform’. NSW Premier Mike Baird seemed eager to heed the call, raising the prospect of increasing the GST, while compensating low-income earners.
So what is Australia’s welfare lobby doing working so closely with business on tax? After all, the BCA is a well known advocate of a very particular brand of ‘tax reform’, often called lower and broader. This involves cutting tax rates on income while broadening the tax base to make up the short fall. It’s an approach advocated by mainstream economists as more efficient. But it also raises serious equity issues because the taxes being lowered are usually on top earners and business, while ‘broadening’ has usually been code for a higher GST.
The politics of broadening the tax base, however, are changing. Debates around tax have started to shift from how taxes can be cut, to how revenues can be raised. In response to the savage cuts proposed in last year’s federal budget a range of analysts and organisations put the issue of revenue back on the agenda. The problem, they claimed, was not that governments spent too much, or that citizens had become ‘entitled’, but rather that tax revenues were insufficient to meet reasonable expectations.
The revenue debate has since honed in on a series of exemptions and loop holes that allow very high income earners to avoid tax. A recent Senate inquiry saw a series of large multinational corporations confess to remarkably low tax payments. Alongside this, unions, ACOSS and many academics have pointed to large tax concessions for superannuation and housing investments that primarily benefit very high income earners.
So base broadening is starting to mean something different. It is not only about expanding the role of consumption taxes, which tend to be regressive, but also about closing loopholes in income and company tax, which would be highly progressive. The debate has also shifted on what to do with the additional revenues.
Mike Baird’s call for a debate on the GST was different to the position normally taken by business. Instead of asking for the revenue to fund ‘tax reform’, i.e. to lower taxes on business, he instead said the money was needed to fund schools and hospitals. This was a Liberal Premier asking that the total amount of tax increase so that social spending could increase.
Of course, Baird’s call was in response to an artificial crisis of spending. While most of the Abbott Government’s cuts have been blocked in the Senate, one big cut did not require Senate approval. This has allowed the Federal Government to substantially reduce the funding it allocates to the states to spend on hospitals and schools in future years. It is this spending cut that is driving the states to look for revenue elsewhere. Closing loopholes in income tax and for multinational corporations would also be far more equitable than raising the GST, or even than raising the Medicare levy as advocated by Victorian Premier Daniel Andrews.
The joint statement from ACOSS and the BCA also calls for “reducing tax rates”. Indeed, the statement is unified at one level, but then goes on to ask for seemingly contradictory changes, suggesting substantive disagreement remains.
There are, however, two striking areas of agreement; housing and retirement. Both areas involve large and very inequitable tax concessions that allow those with large investments and on high incomes to claim much more than those with more limited means. Housing is also subject to growing and inefficient state taxes, notably stamp duty.
This creates an opportunity for changes that both increase equity and efficiency. Those changes could also help address chronic housing unaffordability. Skyrocketing Sydney house prices threaten to lock an entire generation out of secure housing. The tax system makes that worse, rewarding investors (through negative gearing and capital gains tax concessions) while penalizing new entrants (through stamp duty).
Despite the unusual unity in calling for reform, it is precisely these kinds of changes that the Abbott Government has ruled out. If reform also requires agreement across state and federal governments, it will be even harder.
The Joint Statement does reflect a more encouraging debate on tax – one the focuses on raising the revenues we need and closing unfair tax loopholes. But it also highlights just how contested tax is, and how fraught any attempt to achieve a fairer tax system will be.
Posted by @corr_lara