The latest installment of Australia’s epic tax debate has begun with Prime Minister Malcolm Turnbull deciding to risk his newfound burgeoning political capital on turning his government’s energies into another round of tax reform.
Bill Shorten’s educational counters.
But whatever route he decides to take, there are dangers for Mr Turnbull, as history has shown that any changes to tax remain a potent vote destroyer.
His popularity as a leader will quickly evaporate if he gets the tax proposals wrong or if Labor finds a chink in the proposals to mount a full-blooded scare campaign.
Sadly, the same debate has been running for two decades (or almost three if you include the Hawke-Keating governments’ false-start to introduce a goods and services tax in the 1980s), but without much movement in either the positions of the protagonists or in the imaginations of the proponents.
Mr Turnbull is pushing for a wide-ranging debate on tax without ruling anything in or out, while Labor and the unions, and the welfare lobby are opposing any changes, particularly to the GST.
Mr Turnbull says there is not even a hint of a decision yet on broadening or raising the GST, while the Labor Party and its fellow travellers are happy to argue that the less affluent in the community – pensioners and the like – will be ripped off by any of the proposals being contemplated.
The truth is that no decisions have been made, and despite the encouragement of big business for a bold move on taxation, Mr Turnbull’s tax reform is likely to involve a long lead time and be quite possibly a modest move forward.
There are three problems for the Government and particularly for new Treasurer Scott Morrison: first, a huge gap in the budget between outgoings and revenues caused by the end of the mining boom and the inability to wind back generous decisions of previous governments; second, a tax system that relies too much on ordinary income earners who are each year paying an increasing proportion of their wages in tax to support an ageing and increasingly welfare dependent population; and third, the prevalence of tax breaks (mainly to high-income earners) ranging from the family home being free of capital gains, to negative gearing, to super concessions, all of which eat into the tax base.
It is enormously difficult to reconcile these competing problems. Then there are the myriad stakeholders, from business to welfare, who believe their needs in the tax mix are more important than those of others.
Compounding the challenges facing the Government is the demand that any changes to the tax system be “revenue neutral”: that no group (particularly low-income earners) be any worse off than it is now. Moreover, the states and territories have to be satisfied with any changes to the GST.
Recall that John Hewson lost the unlosable election with an ambitious tax policy that was so complex he could not unpack the taxes on a birthday cake; while the Howard government came within a whisker of losing power in 1998 when it first proposed a GST.
But Mr Turnbull, cognizant of the barbs against the Abbott government after its first disastrous budget, has been at great pains to argue that “fairness” will be a lynchpin of any changes to the tax/welfare mix.
Basically, Mr Turnbull is backing his own ability to prosecute a case to the Australian people that tax reform is necessary and will be beneficial to the national economy.
But it is not going to be easy, because the Labor Party has decided that it will oppose whatever reform the Government puts up. Mr Shorten, bereft of ideas in the “year of ideas”, proposes that the Government rein in multinationals and high-income earners first rather than inflicting pain on ordinary Australians via a GST.
And, in a proposal that has received barely any publicity, Mr Shorten has pledged to pay for the tens of billions required for the ambitious Gonski schools funding by taxing some of the poorest people in the community – smokers – by jacking up the price of cigarettes to $40 a packet in order to bring in an extra $40 billion over a decade.
It is bizarre that the Labor Party’s solution to the budget’s problems is to impose enormous excise duties on a dwindling and largely voiceless cohort that is predominantly found in the lowest band of socio-economic groups on welfare or low wages but who remain regrettably addicted to tobacco.
But this move at least provides Labor with the fiscal room to mount a scare campaign against tax changes as it did against Hewson, Howard and Abbott.
Mr Turnbull needs to be bold, but he also needs to be ready for the onslaught that is coming.