Month: June 2015

ECONOMISTS looking back at the woeful economic performance of Argentina in the 20 th century say that at the beginning of that century Argentina was wealthy but not modern. Continue reading “Australia could plunge like Argentina”

THE only way to get worthwhile tax reform in Australia is for Labor to get a bit smarter. Alas, Labor seems to get itself constantly wedged by the Abbott Government.

Maybe its preference for pragmatism over moral fibre will make the slide into the mire on human rights unavoidable, but there is a way to make the tax system fairer without political pain.

We have half a dozen starkly unfair elements in the system.

How can a government justify not levying any tax whatever on the earnings of the superannuation accounts of over 60-year-olds. That is, no tax payable on the, say, $2.5 million earned on a $25 million superannuation account. It is plainly obscene.

Tax breaks are to help people fund a reasonable retirement. People with a fund of, say, $2 million should not need any tax breaks for a reasonable retirement.

How it is that someone can own a, say, $25 million residence and still get a full pension? A pension is a safety net, not a cushion.

How is it that the 37,001 st dollar someone earns in a year is taxed at 32.5 per cent, yet the 179,999 th dollar they earn is taxed at an only slightly higher 37 per cent? $37,001 is a miserable income. $179,999 is a pretty good one.

The tax rates are grossly unfair and a disincentive to lower income earners and too generous to higher income earners.

How can a government justify refusing tax deductions for child care yet allow them for interest payments on investment housing even against income not earned by the investment?

It is impossible for both parents to earn an income unless the kids go to childcare. There would be much more sense and justice in allowing childcare than in allowing negative gearing.

How can the system justify taxing the capital gains made from housing investment at half the rate that it taxes the gains made from labour?

How can the government justify its present Budget position of making no provision for changing the tax brackets to account for inflation? Instead, preferring to raise income tax by stealth as inflation pushes people on modest incomes into higher brackets, while those already in the top bracket are relatively unaffected?

And, in the face of this, how can the Government justify the changes it has proposed or got through – the backpackers’ tax; the part-pension cuts; the removal of the upward adjustment of the $18,000 tax-free threshold; and the changes to family benefits?

Notice how all the changes that got through hit people on lower incomes hardest.

So what can Labor do?

For a start it should not get spooked as it did over superannuation. Labor cautiously suggested something should be done about superannuation tax breaks. The Government seized upon that and branded Labor the party of higher tax. The Government said it would make no change to superannuation tax.

Labor retreated.

In voterland where virtually everyone has a superannuation account, the Government had successfully played a scare tactic and painted Labor as the party that would increase the tax on workers’ superannuation.

Labor could have avoided the scare tactic by being more specific. It should have picked an amount at which the tax concessions would cut out. It could have been if a person has $2 million or $3 million in superannuation.

It could have then ear-marked the money saved to reduce tax for people on lower incomes or for increasing the old-age pension.

Labor should couple the reining in of each tax concession to the wealthy with a break for those on lower or middle incomes.

The family home has been held sacrosanct in Australian politics for generations. You cannot tax the family home, the mantra goes. The family home must be exempt from means testing.

But things change. We now have McMansions and extremely high-value homes in choice areas. Massive wealth can be tied up in an unmortgaged family home. And yet the occupants can still get the pension. Labor could easily draw the line at, say, $3 million or $4 million. People with houses of that value and no income and who want to stay put should be able to borrow privately or from some government scheme.

There is no justification for them to get a taxpayer-funded pension and leave their unmortgaged home to their richly undeserving children.

Labor could ear-mark the money saved for higher pensions, tax deductibility for childcare or reducing income tax for middle incomes.

The same could be done with capital-gains reform.

That would change the political game. Rather than allowing the Coalition to make everyone worry that Labor would tax their superannuation more, the tables would turn. The Coalition would be seen as supporting benefits for the very rich – those with homes over $3 million and super funds over $2 million. The Coalition would be seen as the party of inter-generational unfairness.

An even better result would be to force the Coalition to match lowering the tax burden on lower and middle incomes and to pay for it by scrapping tax breaks for the well-off – in effect wedging it into a more just position.

It may be that Labor would have to make its changes revenue-neutral to gain political acceptance. But eventually someone is going to have to deal with the revenue side of the Budget.

Of equal importance is to remove a lot of the tax concessions in the system, especially to big business and high-wealth individuals. If these were added up as line items of spending in the Budget, the Coalition would have to be branded as the big government spender rather than Labor.

As it is, these are silent gifts to the well-off given in the form of revenue forgone. They should be seen for what they are: undeserved hand-outs.
CRISPIN HULL
This article first appeared in The Canberra Times and other Fairfax Media on 20 June 2015.

THE Australian Constitution is silent on citizenship. It gives the Commonwealth Parliament the power to make laws with respect to “immigration and emigration” and with respect to “naturalization and aliens”.

But there is no specific power over “citizenship”. Continue reading “Govt may not have power over citizenship”

MAO said, “Political power grows out of the barrel of a gun.” But for terrorist groups in the Middle East, power grows out of a barrel of oil. Western nations should heed this lesson if they ever hope to put an end to the so-called war on terror. Continue reading “Terrorists’ power comes through a barrel of oil”