TREASURER Joe Hockey has been caught out – by John Howard no less. In 1998 the Howard Government passed the Charter of Budget Honesty Act. It required the Department of Finance to publish a “Final Budget Outcome” by 30 September each year.
It is an excellent Act. It follows former Labor Attorney-General Gareth Evans’s observation that anything making government more open has to be done early in a new government’s term, before it has secrets to hide.
Unfortunately, this Government has had secrets to hide since about Day One.
In any event, the 2013-14 Final Budget Outcome has just been published. Of course, Treasurers can put whatever spin they want on the document. In Hockey’s opinion the document is “a report card on the previous Government’s irresponsible fiscal and economic management”.
Well Hockey is entitled to his own opinions, but he is not entitled to his own facts.
The facts are different. So different, indeed, that the aura that conservative governments are better economic managers is now exposed as myth.
In Opposition, the Liberals carried on mercilessly about Labor’s spending blow-outs and rising government debt.
But what about the facts? The last report under Labor in August 2013 showed projected year-end debt of $178.1 billion. It remained the same for the next four months – the first four months of Coalition Government.
Then in December 2013 it rose to $191.52 billion and stayed at that till rising in May 2014 to $197.85 billion.
And now in September it is $202.5 billion – up 14 per cent on Labor’s debt level.
So now you have it, the Coalition is as bad at running up debt as Labor.
Australia has a potential debt problem. It is manageable now, but could easily get out of hand. Tony Abbott was quite right to highlight the matter before the election. But since then he has made it worse – on both sides of the ledger. His government has made wasteful spending decisions and has given away revenue.
The revenue side is critical. Australia must fix its tax base if it is to deal with increased health and education costs.
Yet this government abolished the mining and carbon taxes. It is absurd that we allow mainly foreign-owned mining companies to dig up and take our minerals paying virtually no company tax and very little royalties.
Smart countries like Norway taxed their main resource – North Sea oil – at 78 per cent and built up a vast sovereign fund. The tax did not deter the miners.
This Government, on the other hand, having abolished resource taxes, has failed to propose reasonably acceptable alternatives that would pass the Senate. Moreover, spending on the military and security has ballooned.
But the problem is not government spending, it is the failure to gather the revenue to match it.
In the past week the scandalous tax evasion of large corporations was revealed. A third of ASX200 companies pay less than 10 per cent tax and 84 per cent of them pay less than the 30 per cent company rate. Labor’s assistant Treasury spokesman Andrew Leigh estimates that $8.4 billion a year is lost in company tax through evasion and minimisation – mainly by saddling up Australian arms of multinational companies with large interest payments on loans that are used worldwide. These companies should pay full Australian tax on their Australian revenue.
One of the most effective ways of making big companies and high-wealth individuals pay at least some tax is the GST. If you want to buy a fur coat from DJs, you pay the GST.
Australian workers and consumers must stop fearing an increase in the GST, because an increased GST could give income tax relief. Australians on quite modest incomes are now facing significant tax increases as inflation pushes them into higher tax brackets.
We should at least index the brackets. A far better solution – as a reader of this column has suggested – would be not to have the four big steps of tax brackets at $18,200, $37,000, $80,000 and $180,000.
It is manifestly unfair that the $1 earned after $37,000 (a very modest income) is taxed at 32.5 cents — the same rate as the $1 earned after $79,999 (a very comfortable income).
In these days of computerisation why not have a Cartesian scale? We could have the tax rate at zero for the marginal dollar after $18,200 gliding incrementally up to, say, 60 percent on the marginal dollar after, say, $1 million. And then plateauing.
That would be better than having these vicious steps.
And please ignore Hockey’s rubbish about the top 10 per cent of earners paying 46 per cent of total income taxes and the top 2 per cent of earners paying 26 per cent whereas the bottom 20 per cent pay just 2.5 per cent.
The trouble with this is the definition of “earners”. These are ATO figures. The level of “earning” is based on DECLARED income. As the corporate figures suggest there must be a lot of individuals pulling in very, very large incomes but whose “declared” income is very modest indeed.
Someone pulling in a million or two might only have a “declared” income of, say, $50,000. We simply do not know the level of tax contribution of people with high incomes for the simple reason that the ATO does not know what their real income is.
Income minimisation by non-wage earners is rampant and eradicable. Income-tax rates which apply almost rigidly to wage slaves could be lower if the GST were increased. NZ has done it.
We should widen the base of the GST to include everything, especially education (including private school fees) and health (including all the fringe products that have little to do with real health). And also all food, not just the processed stuff. Just look at the well-dressed, well-heeled people in the supermarket picking up all that GST-free fresh food, while the struggling mums fill their baskets with GST-attracting processed stuff.
Also, forget the folly of abolishing negative gearing. A far better approach would be to apply the GST to rent, making sure through legislation that rents in existing leases are inclusive of GST. The burden would fall on landlords. And market forces would ensure that rents would not go up by the GST component. Rents are only as high as people can pay.
The states are crying out for revenue to finance health, police and roads. So they are encouraging and taxing gambling. It’s a moral outrage. We are plundering vulnerable people on low incomes with gambling addictions to help state finances. We are filling hotels and casinos with poker machines. About 500,000 problem gamblers lose on average $21,000 on poker machines each year.
And State governments encourage it. The clubs push the lie that problem gambling is tiny, when in fact it is more than a quarter of their gaming-machine revenue.
Tragically, when the GST was introduced the Howard Government had to compromise on its breadth at the insistence of the Democrats. The Democrats thought that exempting unprocessed food, education and health would help the less well off.
Fifteen years later we now know that compromise back-fired. The states kept their gambling and conveyancing taxes which hit those on low and modest incomes or inefficiently prevented elderly people downsizing.
And there was only modest relief in income tax when the GST came in.
It is indefensible that someone on just $37,000 will pay almost a third of the next dollar they earn in tax.
So, let’s forget the hysteria about government spending and have a rational overhaul of revenue.
CRISPIN HULL
This article first appeared in The Canberra Times on 4 October 2014.
You wrote:
In the past week the scandalous tax evasion of large corporations was revealed. A third of ASX200 companies pay less than 10 per cent tax and 84 per cent of them pay less than the 30 per cent company rate. Labor’s assistant Treasury spokesman Andrew Leigh estimates that $8.4 billion a year is lost in company tax through evasion and minimisation, mainly by saddling up Australian arms of multinational companies with large interest payments on loans that are used worldwide. These companies should pay full Australian tax on their Australian revenue.”
Read more: http://www.canberratimes.com.au/comment/opinion-is-one-thing-facts-are-another-20141002-10ogp4.html#ixzz3F8JsaSX2
The paragraph above compounds several errors. The $8.4 billion dollar figure (which has achieved gospel-truth status) comes from a Tax Justice Network’s report Who pays the Common Wealth. Andrew Leigh was just parroting of the report’s conclusion. The $8.4 billion additional revenue would come if all the ASX 200 companies paid the statutory tax rate of 30% instead of the average of 23%.
Never mind that the report acknowledges valid reasons why the tax paid might be less than 30% of profit: these are promptly ignored as the report combines like with unlike.
Credit for tax paid to foreign governments on foreign-earned income seems reasonable tax justice. While a company might pay 30% on its Australian income to the ATO, the average tax paid to the ATO as a percentage of total profit will be less, and is reflected in some dividends not being fully franked.
Some of the ASX 200’s “companies” are not companies: they are trusts. The tax on a trust’s income is paid by the unit holders. The report fails to realise that the ATO would get no extra money if trusts were taxed directly because the resulting imputation credits would reduce the tax paid by unit holders. As an aside, the concept that the ATO gets the 30% of tax that an Australian company pays is also slightly askew because of imputation credits: the proportion of the profit returned to shareholders is taxed at the tax rate of the share holder, and might be more than or less than 30%.
This report’s unjustifiable conclusions from half truths and pseudo-logic set back the admirable cause of curtailing the shifting of corporate profits between countries to take advantage of tax differences.