The federal Treasurer, Joe Hockey, has launched a new inquiry into the taxation system with an address to the National Press Club and a media salvo, declaring, “The government’s objective is to achieve a better tax system that delivers taxes that are lower, simpler, fairer.”
Before the hype of “tax reform” takes over completely, it should be pointed out that taxes are the vehicle by which governments raise the money needed for the provision of a range of government services, from defending the country to providing health care, to paying disability and aged pensions.
At the federal level in recent years, governments have been spending far more than they have raised through taxation. And, with a majority in the Senate unwilling to pass unpopular measures to raise government revenue, budget deficits will be with us into the foreseeable future.
What this means is that the federal government will face the unenviable choice of further deficits, which will increase the level of government indebtedness, or raise taxes.
The claim that governments will be able to deliver lower taxes, as this inquiry proposes, is a fantasy: to borrow the words of the Canadian economist and humorist, Stephen Leacock, it is a “moonbeam from the larger lunacy”.
A close look at the government proposal indicates that it is calling for submissions to the inquiry by June 1, two weeks after the 2015 Budget is delivered. So the tax review has nothing to do with this year’s Budget.
In the meantime, the government needs to use the budget to re-connect to its natural base of support, including small-business owners, farmers and single-income families.
The erosion of support for the Abbott Liberal-National Coalition government last year followed the 2014 Budget which, among other things, cut government benefits to families.
The 2015 Budget gives the government the opportunity to correct the mistakes of the past, by showing that it is serious about supporting single-income families, including one-parent families.
Programs which are targeted towards single-income two-parent families have traditionally faced opposition from both the federal Treasury and the feminist network, which is deeply embedded in the federal bureaucracy.
To address the problem, the Australian Family Association (AFA) has launched a national petition to radically simplify the existing complicated system of allowances and tax concessions for children, and to address the injustice which arises from the lavish subsidies given to non-parental child-care, and the lack of support for mothers who care for their children at home.
Pointing out that evidence-based research shows that young children flourish best with direct parental and extended family contact, the AFA says: “The unpaid productive contribution of a parents’ child-care work at home should be affirmed and encouraged in the taxation and child-care payment systems.”
It urged that the complicated, bureaucratically-expensive system of tax benefits and child-care payments be replaced by a single payment per child, means-tested for parents earning above $150,000 and paid directly to parents in order to allow families to be able to choose freely between mother-care, family care and institutional child-care.
It also urged that the government:
• introduce family-based taxation (i.e., income-splitting for tax purposes between spouses); and
• abolish Family Tax Benefit part B, but ensure that single parents can split their income with one child.
The AFA pointed out that the administrative savings would be significant, for both small business and governments.
At the same time, a National senator from Queensland, Matt Canavan, has called on the government to reform the tax system to address the injustices towards single-income families.
Describing Australia’s tax system as one of the most hostile in the world to single-income two-parent families, he said: “The situation now is that families with a single breadwinner are disadvantaged compared with families where both parents have paid employment, mainly through the tax-free threshold.
“Figures from the Parliamentary Library indicate a single-income household earning $120,000, for example, now pays around $10,000 more tax than a double-income family with the same joint income of $120,000. The disparities carry on across various income levels.
“To address this, Australia should introduce a capped form of income-splitting similar to the successful scheme introduced by the Canadian government last year.”
Such a proposal would allow a couple with dependent children to transfer an amount of income equivalent to the tax-free threshold from the higher income earner to the lower income earner for tax purposes. This would in effect give couples relying on a single income access to the same tax-free thresholds as are currently enjoyed by better-off dual-income couples.
Senator Canavan said: “The program would deliver tax relief to upwards of 700,000 families.”
It is clear that if the Coalition government wants to help families, who are an integral part of its natural base of support, it does not need to wait until the tax review is completed. It should act now.
Peter Westmore is national president of the National Civic Council.