YOU can have a simple tax or electoral system, but it won’t be fair. You can have fair tax or electoral system, but it won’t be simple. Putting a 1 above the line on a Senate ballot paper is simple. But it is not fair. The Australian population has grasped that much, having been appalled by the election of micro-party senators on minuscule percentages of the primary vote.
So something is being done about it for several reasons:
The problem is identifiable. The solution of having preferential voting above the line is fairly well-understood, particularly for Australians who are used to preferential voting. The losers can be counted on the fingers of two hands – the micro-party senators. And most importantly, the change will improve the position of a majority in both houses: the government, an independent senator, and (at least in the long-term) the Greens.
After the changes go through, seven of the eight independent and micro-party senators would be wiped out in a double dissolution. Only Nick Xenophon would survive. Without a double dissolution the seven would be all gone by the election after next.
A double dissolution must be tempting. More of that anon. Now to tax.
Having just a few steps in the progressive income tax is simple. But is not fair. Nor is a simple percentage concession on capital gains. Nor are generous superannuation concessions and generous deductions for negative gearing on residential property.
So the simplicity-v-fairness conundrum is similar in the tax field as it is in the electoral field. Also the problems are equally identifiable.
But there the similarities end. Some tax solutions that were on the table but since taken off are not well-understood. There will be lots of individual losers even if the nation as a whole would be better off. And the changes apparently will not favour the government or a majority in both Houses, if the conduct of the government this week is anything to go by.
It confirms what I wrote a couple of weeks ago. It’s politics as usual.
Politics as usual means: fear of upsetting voters who might lose something from a new policy; exaggerating the losses from opponent’s policies (scare campaigns); grabbing any argument however inconsistent, specious or spurious; presenting your party as a small target.
Politics as usual means concentrating on winning the next election first and putting the long-term or the overall national good to one side if necessary.
Politics as usual means assuming that voters are not interested in fairness; they are only interested in themselves. Ask not what you can do for your country; ask what your country can do for you.
Politics as usual means an absence of leadership.
So Turnbull has dropped big tax and budgetary reforms because they could cost him votes.
There is an irony here. The latest opinion polls show a decline in support for Turnbull and his government.
Why is that so? It cannot be because the Government is proposing courageous reforms that will hurt some people. It can only be because the Government has walked away from courageous reform to revert to politics as usual.
ANU Professor John Warhurst put an interesting theory a couple of weeks ago. He argued that John Howard just got over the line in 1998 BECAUSE of his policy to introduce a GST, not DESPITE it – as popular myth goes.
He argued that voters want a plan, a direction, some action and that without the GST policy, Howard would have been seen as a do-nothing Prime Minister.
The latest opinion polls indicate that there is something in that.
Turnbull’s rating started to go down as soon as people began to realise that he was not going to do anything new. Abbott without the scare tactics. And this week he even added those.
The irony is that having almost certainly secured changes to the Senate voting system that would favour the major parties in a double dissolution, his failure to deliver any significant new tax or social policies has eroded his popularity to the extent that he cannot take advantage of it without significant risk.
So if the Turnbull Government had not shied away from major tax reform what should it have done?
For a start it would not have engaged, as Treasurer Scott Morrison has done, in petty talks about modest adjustments to counter bracket creep.
In an ideal world we would get rid of the primary-school-arithmetic, 1930s approach to tax levels and replace it with a Year-12-calculus, 21st-century approach.
We should do away with income-tax brackets. The four or five large stairs along the income tax scale would be replaced by a shopping-centre style travellator – the sort you can put a shopping trolley on.
The bottom of the travellator would be an income of, say, $20,000 and a tax rate of, say, 20%. The top of the travellator would be an income of, say, $200,000 and rate of, say, 50%.
The rate of tax would rise incrementally with income. No tax brackets. The start point of $20,000 and the end point of $200,000 would be indexed. No bracket creep.
You might be able to do an equation and a web-based calculator to explain it to the bulk of the highly innumerate Australian population.
Next, capital gains should be adjusted for inflation, rather than made absolute and giving a discount (25% under Labor or 50% under the Coalition). The discounting method (under either party) is erratic and capricious. Under it, the tax level depends on how high inflation is and how long an asset is held.
Further, the gain should not be added to existing income, but taxed afresh in a separate silo at the same rate as income tax.
After all, we do not link the rate of GST a person pays according to their other income, nor to we link income tax according to how much GST a person has paid. So why not separate capital gains (usually made over many years) from other income earned in a single year? It would discourage people from holding capital until they had a year with low or no income.
And we should apply the same tavellator method to superannuation earnings.
All this is gradual, fair and undistorting. Alas, but also complex and difficult, so no politician will go near it. We get what we deserve: simple unfairness and unremoveable entitlements.
CRISPIN HULL
This article appeared in The Canberra Times and other Fairfax Media on 27 February 2016.