Ideas@TheCentre brings you ammunition for conversations around the table. 3 short articles from CIS researchers emailed every Friday on the issues of the week.
If a 50% hike in the GST has been swept from Treasurer Scott Morrison’s celebrated tax reform table, it is no bad thing. As commentators ranging from Paul Keating to yours truly have argued, the most likely end-result would have been bigger government, even if the reform package had initially been revenue neutral.
But this week’s turn of events leaves open the question as to what is left on Morrison’s table, or more precisely what should be left.
Top of the list should be personal income tax — the burden of which, thanks to bracket creep, is approaching a level as onerous as it has ever been. It is a massive hindrance to productive effort. Fixing this problem is not just a matter of fiddling with thresholds; the marginal rates themselves are too high, especially the top rate. And thresholds need to be indexed so that bracket creep can be stopped once and for all.
Personal income tax raises one out of every two Commonwealth tax dollars. Making an impression requires the government to give up a great deal of revenue. As the cupboard is already bare, the government may be tempted to take an axe to tax concessions that have long been targets of the revenue lobby: superannuation concessions, the capital gains tax discount and negative gearing. On careful inspection, however, most of these provisions exist for good reason and are not a source of vast sums to fund ordinary income tax relief. Attempting to fine-tune them could create another set of economic costs and compliance burdens while raising little revenue.
Income tax relief should be earned the hard way, as a dividend from government expenditure restraint. Paul Keating has reminded us that in similar circumstances in the 1980s, Commonwealth outlays were reduced in real terms and fell substantially as a share of GDP over four years. A commensurate effort today would see outlays some $70 billion a year lower than presently budgeted.
One persistent annoyance in the current debate around taxation and spending is the conflation of government welfare spending and tax deductions — be they negative gearing, superannuation tax concessions or even just workplace deductions — as if there was no difference between the two.
For example, even if you accept the Tax Expenditure Statement figures that put the total for superannuation tax concessions as approaching the cost of the age pension, these two things are not the same.
The age pension hands out funds generated by the hard work of others, superannuation tax concessions involve the government not confiscating income people have earned.
Unless you believe that government should have absolute sovereignty over the individual, there must be a moral difference between those two things.
In the case of welfare spending, the clear moral duty of the government is to be careful and prudent with taxpayer-provided funds, and to not hand them out to people who aren’t genuinely in need. The moral duty in the case of taxation is to take as little as possible of people’s wages, letting people keep their hard earned money wherever possible.
This doesn’t mean all tax breaks are ok or that welfare should be ruthlessly lean, but that the benefit of any doubts over the appropriateness of the payment or tax break should go to the taxpayer rather than the government.
Those who want to increase the size of government try and conflate the two because then rather than examining the purpose of a spending program, or the reasons for a tax break, they can make the recipients the focus.
‘Fairness’ then requires any ‘savings’ to come from those with the greatest capacity to pay — leading to increased taxation — rather than first examining whether the spending program should be funded by that taxation. The burgeoning cost of the age pension is testament to this way of thinking.
This approach effectively assumes earned income and welfare payments are the same thing; and they aren’t. You have a greater moral right to your own money than anyone else does — including the government.
John Hirst, my mentor and friend for 20 years, died last week.
The date of his death has been misreported: 3 February, 2016 as in the notice here. The record and all versions of reports of his passing should be corrected.
John was a friend of the CIS, as he was of people and organisations across the spectrum. This was because he was a true pluralist, who believed in debate, discussion, and real diversity — political, intellectual, and spiritual.
This was also the reason he was such a great mentor of so many people. Rather than trying to make people into what he thought they should be, he identified the talents and abilities of the individuals and used his teaching and example to help us become the people in whatever our fields that he thought we could be.
My homage to the public man and his work was published in The Australian on Tuesday.
I pointed out, among many other achievements, what wonderful style John possessed as a historian, essayist, and commentator.
As the former head of Melbourne University Press, the late Peter Ryan, once wrote, John’s “language is shiningly lucid” and should serve as a model for academics and undergraduates everywhere.
In this vein lies my real tribute to him as a mentor: Not only that I write well of him, but that I am able to write well at all. This is one the great gifts that his tutelage has bestowed on me.