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Tax policy has become politicised and toxic, says Allegra Spender

Tax policy has become politicised and toxic, says Allegra Spender

Allegra Spender, The Australian: Tax Reform - 

Tax policy has become politicised and toxic, says Allegra Spender

When people talk to me in Wentworth about what is important to them, long-term tax policy isn’t often first on the list. But the future of the country – particularly for their children and grandchildren, is brought up all the time.

Many people express their concerns at the legacy we are leaving future generations – record government debt, the costs of climate change, unaffordable housing, concern that we might break that intergenerational compact and leave them worse off than us.

And that is why I am talking about tax policy – because it profoundly influences all those issues, and the future prosperity of our society.

But tax policy has become so politicised and toxic that at the last election, the only mention the major parties made of it was to reassure people that they wouldn’t touch it. That just isn’t a good enough response. And as I have talked to economists, stakeholders and members of the community, it has become clear to me that people can see things aren’t working.

The father of economics, Adam Smith, said tax systems should be fair, certain, convenient and efficient. Our current tax system doesn’t meet any of these criteria, nor does it drive innovation and economic dynamism. 70 per cent of people need a tax agent to complete a tax return – it isn’t convenient. We have taxes like stamp duty that distort important decisions on housing – it isn’t efficient. GST and Fuel Excise taxes are shrinking as proportion of the tax take and there is no plan to deal with the consequences – it isn’t certain.

And our tax system as currently structured will increasingly rely on taxing an ever shrinking pool of workers as our population is ageing, putting a greater and greater tax burden on our children and grandchildren. In 1982, there were six and a half working-age Australians per older Australian. Today, there are four. In another forty years, there will be two and a half. That isn’t fair, and it certainly won’t drive innovation and economic dynamism.

This is why I’m initiating a tax reform process, which we launched with an expert roundtable in parliament last month. The process is about bringing people together – experts, academics, businesses, industry groups, social services groups, trade unions, and the community – to see where we all stand and to find long-term path to reform.

We’re already making progress. There is a significant degree of consensus about where to go on tax. Experts on the right and left might have different perspectives and values, but there’s surprising consistency in the solutions they support, and the shape of the tax system we should aim for. It’s early days and it will take time. Some might write these early steps off as a talkfest — but talking is the only way to build consensus and secure real change.

While the structure of the tax system is crucial, a related but separate issue is spending, and we critically need to address this as well.

With spending on track to hit 27 per cent of GDP, we are expected to have the highest level of government spending since World War II. This is off the back of huge growth in the last 5 years from 24.6 per cent of GDP ($478bn) to 25.9 per cent ($644bn). And it is expected to be sustained into the 2030s.

With the lowest unemployment of generations, it is hard to justify.

And when you look at how we are spending that money, and the outcomes it is creating, it becomes even harder.

For example, in schools funding, where the Productivity Commission found that national literacy and numeracy standards had gone backwards at the same time as record increases in funding. Or, the NDIS which, while providing really important support to families, has blown out from its original estimated cost of $13.6bn at maturity, to $33bn today, and to $50bn plus in 2026. Or the Inland rail – which has gone from $8bn, to an expected $31bn in cost.

We have to do better. There are legitimate calls for increased support for our most vulnerable people, such as through increased rent assistance, but to do this, we have to improve the effectiveness of our spending, and find efficiencies, rather than simply increasing the burden on taxpayers, particularly on workers who are constantly paying more tax through bracket creep.

Transparent critical analysis of the value created by each government program would provide a way to assess the real value of government spending. Programs which fail to create benefits, on net, should be reformed or closed, with the funding reallocated to better-performing programs or returned to the taxpayer.

Similarly, new programs and infrastructure investments should have to stack up before they are eligible for government funding. We should make more use of pilot programs and policy experiments to see what works.

The transparent use of this data could transform public policy debates. It could shift the focus from the cost of programs to the value created by them. Those outcomes are what people really care about and it’s what those of us in parliament should focus on.

You would think that this is done rigorously already – but it isn’t – and it urgently needs to be.

There are no easy answers left on tax and spending, but we cannot let this parliament be another one where we ignore the difficult questions The major parties have had too many important reform challenges in the too hard basket for too long. I’m determined to use my time in parliament to make a difference.

Allegra Spender is the independent member for Wentworth

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