Ideas@TheCentre – The Centre for Independent Studies

Ideas@TheCentre

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.

Reconciliation at risk without evidence of outcomes

Sara Hudson

26 February 2016 | Ideas@TheCentre

Reconciliation-at-risk-without-evidence-of-outcomesThe CIS held a thought provoking round table this week on whether the corporate sector needs to lift its game when it comes to supporting Indigenous people.

Arguably, the corporate sector is already doing a lot to support Indigenous Australians. The Business Council of Australia’s latest Indigenous Engagement Survey found that collectively its members have spent more than $1.7 billion on Indigenous enterprises and joint ventures.

Businesses (and organisations) with Reconciliation Action Plans (RAPs) have also provided $100.4 million in pro-bono support to Indigenous organisations, $77.7 million for Aboriginal and Torres Strait Islander education scholarships and $32.6 million in goods and services from Supply Nation certified businesses.

However, while RAPs have been a useful vehicle for forming relationships between the corporate sector and Indigenous communities, there is limited evidence on the effectiveness of many of the activities in these RAPs.

Most corporate RAP reports focus on listing the number of activities they have engaged in; and any outcomes reported are often restricted to the impact on their staff’s cultural awareness and the number of Indigenous people their organisation hires.

This is not to downplay all the good things that have occurred as a result of RAPs. Building relationships between Indigenous and non-Indigenous Australians is an important and necessary first step in improving Indigenous social and economic outcomes — and it is heartening to see growing numbers of Indigenous people employed in the corporate sector as a result of employment training programs.

However, the tendency for some programs to continue receiving funding without any evidence of outcomes undermines the whole process and causes people to question the value of continuing to provide support.

While it is wrong to treat the corporate sector as some sort of de-facto government department responsible for improving Indigenous outcomes, if they are funding an education or employment training program, then surely they want to see results from this support?

Showcasing the benefits flowing from corporate funding will help to increase public confidence that the corporate sector’s generosity is worthwhile and progress in improving Indigenous outcomes is possible.

Twists and turns in the not-so-great tax debate

Robert Carling

26 February 2016 | Ideas@TheCentre

Twists-and-turns-in-the-not-so-great-tax-debateAlmost a year has passed since Joe Hockey launched the government’s tax reform project with the Re:think tax discussion paper. Many twists and turns later, the debate seems to have degenerated into arguments about distribution — who will gain or lose most from this or that change — at the expense of what is best for economic growth.

How many times has it been said in recent weeks that the top 20% of taxpayers gain the lion’s share from some policy such as the capital gains tax discount? Claims such as this are being presented as the clincher argument, as if distribution was everything. It is relevant, but it’s not everything.

It is hardly surprising that current tax policies on capital gains, superannuation and investment in rental housing, for example, are of most benefit to those with the largest capacity to save and invest. If there is good economic justification for those policies — and on the whole there is — then they should not be overturned solely on grounds of distribution.

Those with the largest capacity to save and invest also happen to pay an outsize share of income tax. You rarely hear it acknowledged that the top 20% already account for over 60% of net income tax paid, even after the benefits of negative gearing, the capital gains tax discount and so on. Their share of tax paid is around one-third larger than their share of taxable income. That is a measure of the progressive income tax system. A little more acknowledgement of just how progressive the system is already would not go astray.

People who complain about the ‘regressive’ distribution of tax concessions don’t say it directly, but the implication of their complaints is that the system should be more progressive than it already is. That should not go unchallenged as a presumption; it needs to be brought into the open and debated in light of the facts.

Bracket creep: still waiting for sensible discussion

Michael Potter

26 February 2016 | Ideas@TheCentre

Bracket-creepWe are being bombarded with debate over tax reform. This should be good… but much of this debate appears to be ill-informed. Take bracket creep as a case in point.

One commentator has stated that bracket creep only happens when you move up a tax bracket. So if my income goes from $90,000 to $91,000 I won’t be hit by bracket creep. This is wrong. Bracket creep hits all taxpayers, whether or not they go into a higher bracket, because lower tax brackets form a smaller fraction of their income as their income goes up. We confirmed this in the modelling in the CIS research report Exposing the Stealth Tax: the Bracket Creep rip-off — see the interactive snapshot released with the report.

Another commentator, after getting the definition of bracket creep right (as above), goes on to welcome the tax hike if it meant he was getting a pay rise. However, bracket creep can actually mean taxpayers lose money after inflation. In the CIS research report (pages 4-5), there is a worked example of a taxpayer receiving a wage increase equaling inflation, but going backwards after tax. And our modelling is that around 90% of the tax hike is due to inflation, not wages growth (see page 8).

Along these lines, the Minister for Finance, Matthias Cormann, argued that bracket creep isn’t a substantial problem because wages growth is slow. However, our updated modelling indicates that an average full-time worker will be getting a tax increase of $36 per week ($1,885 per year) due to bracket creep in 2018-19, and the total cost is $16.5 billion in that year. And taxpayers facing slow wages growth have less money to pay this tax hike. So much for it being a small problem.

And finally, The Australia Institute modeled one possible solution to bracket creep: lifting the $80,000 tax bracket, finding this will only benefit the wealthy. This result is incredibly obvious and un-newsworthy. It also ignores our modelling showing that if bracket creep is fully addressed, then people on low incomes (around $37,159) will obtain the greatest benefit.

I am ever an optimist, but my expectations for informed discussion of bracket creep might be completely misplaced.