TAX

[Rorschach]

Malcolm Turnbull was right, the way to fix the tax system is to broaden it
Date February 4, 2016 - 12:15AM 126 reading now
Malcolm Maiden
Columnist

Malcolm Turnbull was a relatively new backbencher in 2005 when he told a conference that Australia's tax system was broken, and that the best way to fix it was to broaden it. A decade later he is still right.

The prospect of a GST hike has dominated the tax debate this week. Treasurer Scott Morrison has declared it is a definite maybe. PM Turnbull has told his party room that nothing is being ruled out. NSW Premier Mike Baird has stepped up his call for a 15 per cent GST. Labor opposes a GST hike even as South Australian Premier Jay Weatherill says it has to be considered, as health and education funding costs rise.

Pundits are pouring in. Paul Keating says a GST rise of 1 or 2 percentage points to raise money dedicated to fund hospitals might fly, but that a 15 per cent GST would put "an absolute dead weight" on people's backs, and put Australia on path to joining "the highest taxed countries in the world".

Corporate tax, and tax avoidance by multinationals in particular, has been the other big tax topic in recent months.

Malcolm Turnbull was right in 2005 however, when he said Australia's tax system actually enabled tax avoidance for businesses, and for individuals with access to corporate structures.

"In the light of this, I have observed, in common with many others that our tax system would be a better one if rates were lower and the base broader," he said.

That's still a useful guide for debate that is ramping up now. Everything should be discussed, and the current tax mix and reform options all need to be modelled as part of that. KPMG's submission to the Tax Discussion Paper last year set out a blueprint for the process.

There is no single "Big Fix" for the tax system, however.

A crackdown on corporate tax avoidance is difficult to implement. Large companies and multinationals in particular are complicated, difficult to police from a single jurisdiction and consider they have a fiduciary duty to minimise their tax.

It could also actually be counterproductive. Companies are moving targets, and even if they pay their fair share of tax there are knock-on effects. They can often pass the tax cost on in the prices they charge for what they sell: if they cannot, their returns fall, pressuring investment and employment.

Treasury has calculated that the combined effect on companies (a dollar of lost income for every dollar of corporate tax paid) and those they employ (about $3 of income lost per dollar of corporate tax revenue raised) is an eye-watering decrease of $4 in real and nominal gross domestic product for every dollar of corporate tax raised.

Cutting corporate tax should work the other way, of course, and fans of a GST hike say that higher GST could fund corporate tax cuts, personal tax cuts as well as education and health funding increases.

Weatherill is the only Labor leader backing a big GST hike, however, and all the states would need to agree. A higher GST rate would also need to be accompanied by compensation payments for low-income households that would soak up about half of the $33 billion a year the tax hike would raise. There's not going to be enough left after that to fund tax cuts as well as health and education spending increases.

Which brings us back to Turnbull's original proposition in 2005. The best fix is actually a series of fixes that broaden the income tax base.

Economist Saul Eslake referred to Turnbull's 2005 speech in September last year when he spoke to The Australian Financial Review's Tax Reform Summit. He and other economists including the Grattan Institute's John Daley have been talking about ways to widen the income tax base for years, and at the AFR Summit Eslake ran through the list.

Family trusts could be taxed like companies to prevent income shifting without affecting their role as family financial planning devices. Negative gearing on housing could be dropped, or if that is too hot politically, limited to new home purchases, with the probable support of Labor.

The over-generous 50 per cent capital gains tax discount John Howard introduced could be pruned, to cover inflation, but not give investors a freebie. Superannuation tax concessions could be pared and still underpin long-term super saving. Labor already has comprehensive policy out on that front.

There are many other big questions to answer of course. One of them is whether the tax take needs to be reorganised to boost productivity, or actually raised, to recognise that health and education spending must rise. Limiting Canberra's spending to 25 per cent of GDP is a "useful marker" as Treasury Secretary John Fraser said last week, but it is not an unbreakable rule.

I don't think there is much doubt however that successful reform would have many components, not just the ones that have been grabbing headlines in the past few months. With the government eyeing an election in August this year, one question is whether there is enough time to discuss them all, and then develop a package that works.

[skippy]

Do you have a comment on the subject Rorschach? If what Kearing says is true, and no economist has questioned it, I would think a government would have a good chance of getting an increase of one percent through.
I'm not totally against a lift to 15 percent but they would have to do some major work on income tax and other taxes and not just teeter around the sides. To be honest as I salary sacrifice I don't pay much income tax so personally I'd want to see some other taxes cut. Stamp duty is a scam. I'm in the process of looking to buy a new place and the stamp duty is outrageous.

[Rorschach]

Yes I do Skip...
don't always lead with my chin or an opinion though, like giving others the first go, but as you know I will post topics with an article to open the debate.

[Rorschach]

Don't like Baird, hope he never gets into federal Parliament.
Don't like his 15% idea.
Don't like broadening the base too much either.
Cost of living is the big problem for most Australians on average wages and by that I mean the modal wage not the average or mean or median wage. It is not reflective of what most Australians earn.

Never liked the S part of the GST, if Baird and the rest of the micro-brains get their way the cost of living will go up; 5% on electricity, gas, water, rates, phone bills, etc, etc, etc.... That's enough to kill anyone on the modal wage or the wage most Australians earn.

Lets not forget those already living below the poverty line... including the 6% (more like 15%) who are on benefits like Newstart.

I will share more of my opinion later Skip.

[Neferti]

Didn't I read somewhere that both Keating and Costello reckon that raising the GST to 15% will just give The Government more money to throw about? So in their opinion it is a bad idea?

They (the Government) should find ways to STOP THE SPENDING .... not raise the taxes.

[Black Orchid]

I cannot stand Baird and did not vote for him. He is going to destroy NSW. Between him and Turnbull the future looks bleak.

[mantra]

Baird is a huge disappointment to a lot of people now, but we're stuck with him for years. He has turned out to be a lying dictator.

I don't agree with increasing the GST, especially while there are so many other tax loopholes left open which could easily be closed. There will be a huge outrage from the electorate if we're forced to pay 15% tax on fresh food.

[Rorschach]

So far no specific options have been put to the public to choose by the Government, only Labor and The Greens have in their dishonesty and mischief making

[IQS.RLOW]

Spending by state and federal govts is still at an all time high thanks to Rudd. Winding back govt spending just doesn't happen because we have so many rent seekers and a willing lefty media ready to go into bat for any perceived injustice no matter how small, hence the reason why it has stayed at the same levels.

Keating was right. Give these pieces of shit another $30bn and they will spend every last cent and try to make you feel grateful by giving you back $0.10 (that they will borrow) out of every extra dollar they take.

Fuck the lot of them and the media shills that prop up the rent seekers.

[Outlaw Yogi]

Sooner or later ... apparently later now .. GST will be increased and broadened. Don't be surprised if GST is 20% on everything in 15-20 years time.
Of course when it happens income tax will be marginally reduced, and within 10 years will climb back up via bracket creep.
Our govts of either persuasion have no intention of reducing government spending, debt or deficits. Our pollies are busy
pumping as much into there super accounts as possible til the system crashes .. then we can all be Greeks.

If govts had any genuine intention of cutting spending, the first thing they'd do is put a full stop to immigration.
Their theory is a larger population means a larger economy, but the reality is, a larger population means increased
govt spending for infrastructure and social services.

So now looking to plug the hole in treasury they want to break the ever changing promises concerning superannuation.
I've never trusted the super industry from day 1. I always considered it a tax. If it wasn't a tax, it wouldn't be compulsory. So in effect we are obliged to let parasites gamble with our money.

That's why I've done my utmost to keep my money out of super funds mits. Twice now I've had to run scams to get my own money. And it seems I've done a good job keeping my money out of super funds clutches, my last statement showed a balance of $8.22