Genuine tax reform? No. Tinkering to win elections? Yes

Politicians want us to think things like the stage 3 tax cuts are matters of high principle: keeping solemn promises or redirecting tax relief to those who’ve been doing it toughest. But the sad truth is, it’s just as much about the two big parties using tax promises and tax scares to damage the other side and win elections.

The great lament coming from the big end of town is that the latest squabbles just go to show how, between them, the two sides have no interest in achieving the major tax reform the country so desperately needs.

Illustration: Simon Letch
Illustration: Simon Letch

And big business is right. The pollies have no interest in proposing any needed but controversial change that would leave them open to cheap shots from the other side. In consequence, our tax system is deteriorating. It’s neither as fair as it should be, nor as effective in raising the money needed to pay for the ever-growing list of services we demand of government.

But before I elaborate, note this: business people, like many of us, use the word “reform” to mean changing the system in a way that leaves them paying less tax while others pay more. Specifically, they want to increase the goods and services tax so that we can afford to reduce the rate of company tax and the income tax paid by people at the top. When they call for “genuine reform” after Labor has halved the intended tax cuts for top earners, that’s what the bosses are on about.

But don’t forget this: Anthony Albanese has gone for the best part of two years happy to let these greatly unfair tax cuts proceed rather than be condemned as a promise-breaker. Only in the past week or three has he changed his tune.

Why? Because party polling and focus group feedback told him all the cost-of-living pain had finally caught up with him. His popularity had slumped, and he was in danger of losing next year’s election, with the rot starting at a Victorian byelection in a month or so’s time.

But while I’m casting aspersions, I have little doubt that, had Albanese allowed the stage 3 cuts to proceed as already legislated, the first person to point to how badly low- and middle-income earners had been treated would have been Peter Dutton.

These days, tricky politics trumps good policy. And neither side has a monopoly on hypocrisy.

Advertisement

It’s been almost a quarter of a century since our last large-scale, controversial tax reform: John Howard’s introduction of the GST. And that brought him within a whisker of being tossed out. Since then, talk about tax has become the biggest and best political football for the two parties to kick back and forth as they try to gain the advantage in election campaigns.

The Liberals portray themselves as what Dutton called “the party of lower taxes”, while damning Labor as “the party of tax and spend”. Many voters find this easy to believe, and it does have a degree of truth, even though taxes were at their highest as a proportion of gross domestic product in the early noughties under Howard.

The two sides have no interest in achieving the major tax reform the country so desperately needs.
The two sides have no interest in achieving the major tax reform the country so desperately needs.Credit: Alex Ellinghausen, Nine News

The main thing that pushes tax collections up is bracket creep, “the secret tax of inflation”, according to Malcolm Fraser, and collections hit the heights whenever a government, of whatever colour, leaves it too long before giving some of it back in a tax cut.

What’s true is that Labor is more inclined to spend on health and education and all the rest, leaving it under greater pressure to let taxes rise. But, as we saw particularly under Scott Morrison, the Libs are more inclined to underspend on things such as aged care, while allowing waiting lists for non-urgent surgery and at-home aged care packages to build up. You hope the dam doesn’t burst until the others are back in power.

The Libs never propose explicit tax increases before elections but whenever Labor wants to pay for something by cutting back concessions to the better-off, the Libs make a meal of it. When, next time, Labor reacts by promising not to make any tax changes, you give credibility to some groundless rumour that it intends to bring back death duties.

What makes unpopular tax reform even more unlikely is the game of chicken the parties play, which they call “wedging”. I propose some extreme tax change I know the other side won’t like, hoping they’ll oppose it. If they do, I accuse them of being opposed to tax cuts. But they invariably see the trap and refuse to oppose my change. Meaning we often end up with a bad policy going ahead unchallenged.

The original stage 3 was partly intended to swing one for the Liberals’ well-off supporters. But also, to tempt Labor to oppose it, proof positive it was the high-tax party.

But get this: now Labor has broken its promise and made the tax cuts far more politically attractive, the wedge is on the other foot. Should Dutton vote against Labor’s broken promise, he’ll be accused of raising the taxes on “middle Australia”.

Most Viewed in Business

Source: Thanks smh.com