The journalistic cliche for the change of a political decision is “back flip”. It is perhaps a misplaced metaphor. When one does a back flip one ends up in the same at position as when one started. A better description would be an about-face or a back-down. In the year since the introduction of a the GST, the Government has done a number of about-faces or back-downs. It changed the quarterly business activity statement to an annual statement. It scrapped the extra 1.5 cents-a-litre petrol excise increase. It changed at the tax system for a self-funded a retirees and pensioners. It gave an amnesty for families who had overstated their income thus affecting their entitlement to family allowance. And this week the Government backed away from its 80-20 rule that a deemed people earning 80 per cent of their income from one employer to be employees not independent contractors.
The latest about-face comes a week before the government faces a critical by-election in the outer Melbourne seat of Aston. The relationship between the events is obvious. Indeed, the about-faces listed above have only occurred since Coalition losses in the Western Australian and Queensland state elections in February.
The government likes to portray these changes in policies as examples of a government willing and capable to listen to the electorate and to make changes accordingly. A less generous interpretation would have it that it the government is panicking and making a policy changes on the hop in order to prevent angry voters deserting the coalition.
The latter interpretation gets more credence when it pitted against the Government’s own statements a year or more ago when the new tax system was introduced. At the time the new tax system was portrayed as a well-thought-out workable package. Since then, the government has been forced to make significant changes to it. That indicates that the Government did not do the requisite consultation to get the tax package right in the first place.
In the most recent case, it also indicates fundamental difficulties with the tax structure remain. Why should contractors be treated so radically differently from employees? Why should the mug PAYE taxpayer cop it in the neck every time? Why shouldn’t the top marginal tax rate for the PAYE tax payer be brought down to the same level as company tax, at 34 per cent? Why shouldn’t PAYE taxpayers have some of the deductions that contractors have – – transport to work, for example. Or alternatively why can’t some of the tax advantages of be taken away from contractors?
Increasingly, it seems like the Government has failed its own test of introducing a simpler, fairer tax system. Many other countries have introduced a GST without the extraordinary number of glitches that seemed to have occurred with the Australian GST.
On contractors, the Government’s response – – a year later now that people are looking at their first tax return under the new system – – has not addressed the fundamental difficulties. It has kept the basic rules the same. The only difference is that instead of taxpayers having to seek a ruling from the Australian Tax Office as to whether they are a contractor or an employee, they can make a self-assessment. Ultimately, however, their self-assessment must be a correct one lest they face a tax audit and penalties if they have got it wrong.
In this respect the change is indeed a true back flip – – a lot of hype and activity only to return to the same position that one began at.