Tax reform too important to be hostage to party politics
That’s why I have set up a process, where economists, business leaders, unions, social and environmental leaders can come together and discuss their goals for a better tax system.
Most people don’t approach me on the street to talk about tax. But what they worry about – their kids’ futures (can they ever buy a house?), the impact of climate change, the rising cost of living, how businesses can stay internationally competitive – are all affected by our tax system. And it is just not up to the job.
The intergenerational report highlighted the challenges of 2063 – ageing population, fairness between generations, productivity, climate change – but these challenges are already biting, and tax reform should be part of the short and medium-term solutions.
As we know from climate change, putting problems off and narrowing solution sets just makes them harder to address.
Ageing population and Intergenerational equity aren’t tomorrow’s problems. Australia’s population is already ageing – in 2000 we had more than five working age people for every one over 65, now it’s around four. In 20 years it will be around three. But while our older population is ever more reliant on the young, we are letting them fall behind.
According to the Grattan Institute, between 2004 and 2016 the wealth of households aged over 65 increased by more than 50 per cent, while the wealth of those households under 35 years of age barely moved.
At the same time, an average household over 65 on $100,000 of income pays about the same amount of tax as a working age household on $50,000. And spending by younger households on “non-essentials” is falling as they struggle with the increasing rents and mortgage payments.
There is an opportunity to improve our economic outcomes on climate, productivity, intergenerational equity and growth.
Is this what we hoped our public policy and economic settings would deliver? Older households prospering while the young fall behind? I don’t think so.
The older Australians I speak to want their kids and grandkids to live well. Australians want a rising economic tide to lift the boats of all generations, not leave some bobbing uncertainly in their wake.
Many of the issues of intergenerational inequity are to do with housing policy and, to the government’s credit, they’ve shifted the focus to housing supply, rather than gimmicky home-buyer schemes.
But there is also much to do due in our tax and transfer policy. Income tax, GST, stamp duty, land tax, capital gains tax, our super rules, and incentives for older workers to work more years, all critically influence the fairness between generations and how we manage demographic shifts.
Productivity and climate change are other key intergenerational report challenges, and tax is critical again. The Productivity Commission, the OECD, and many economists tell us our current tax settings – stamp duty, payroll tax, the complexity of fringe benefits tax, our company tax rate with its precipitous jump from 25 per cent to 30 per cent at turnover of $50 million – are drags on productivity.
Tax is not the only factor – we need commitment to competition which the government is right to address (their stance on Qantas/Qatar notwithstanding), and I am concerned that the government’s IR agenda will drag productivity – but tax reform is too big a lever on productivity to be put aside. As it is in climate policy: the billions spent on diesel fuel tax credits that subsidise carbon pollution, and our lack of an economy-wide carbon price.
Tax is everywhere, and always potent. There is an opportunity to improve our economic outcomes on climate, productivity, intergenerational equity and growth, with a better tax system.
So, where are the “parties of government”? Political wedging has made significant tax reform too hot to handle, as has the media obsession of getting things ruled in and out.
Tax reform is too important to be hostage to party politics, so I have set up a process, where economists, business leaders, unions, social and environmental leaders can come together and discuss their goals for a better tax system.
We know from previous reforms – Hawke/ Keating, Howard/ Costello – that lasting reforms need coalitions of support, and that packages of reform can have more impact (for the political pain) than smaller pieces of change.
Already we’ve found some common ground and points of agreement and I hope that, by starting this discussion outside the limits of party politics, we can help create some space for reform where the broader parliament can join us. I’m encouraged by the fact that the treasurer and shadow treasurer have sent staff to observe these roundtables.
Can our parliament come together to agree on a package of tax reform that benefits our whole country now and into the future? We can disagree on the scale of spending (and the effectiveness of government spending must be addressed) but there are opportunities for tax reform that create benefit, whatever the size and direction of spending required.
The goal of each generation is to leave future generations better off. If the parliament is serious about achieving that, then tax reform must be on the agenda.