Peter Costello, as Australian Treasurer, did a splendid thing when in 1998 he steered trough the Charter of Budget Honesty Act. The aim was to inform Parliament and the nation about the cost of policy proposals from politicians from left, right and centre and to produce reports which show how much various tax and spending policies cost the Budget each year.
Costello, of course, was interested in clamping down on government spending on the welfare side: the dole bludgers, the health blow-out, the public-education black hole of waste, and so on.
Costello said that the best way to ensure the Budget did not blow out was to prevent any new welfare scheme from getting up in the first place and to monitor spending as it happened so it could be curtailed.
He was right. But the new welfare schemes to be wary of were not the ones that helped the needy, but the ones that gave hand-outs to the already wealthy.
The Coalition’s fix for an unbalanced Budget always seemed to be to cut government help to people who really need it.
However, Australia is in a $27 billion fiscal hole, not because of funding for the needy, but because of hand-outs to the distinctly unneedy. The $27 billion could be easily picked up.
Information from the charter’s Mid-Year Economic and Fiscal Outlook and Australian Taxation Office reports show massive corporate welfare and high-wealth tax deductions that if stopped would not only repair the Budget deficit but allow the Government to provide genuine free universal health and dental care; excellent free public education at all levels; enough social housing to end most homelessness; a raft of sensible environmental policies; and lower income taxes for people on low and middle incomes.
Some of the welfare-to-the-wealthy measures and the annual cost of them are as follows:
Negative gearing $6 billion
Capital gains concessions $23 billion
Franking credits $7 billion
Superannuation $51 billion
Trusts $23 billion
GST exemptions $23 billion
Uncollected gas royalties $13 billion
Uncollected company tax on gas producers $10 billion.
Uncollected tax on multi-nationals moving “income” to tax havens $11 billion (at least).
The principal-residence exemption from capital gains tax $23 billion.
Removing all tax concession to the fossil fuel industry, especially the fuel tax rebate * billion.
This is not to mention what could be made of a small tax on capital transfers and a higher Medicare levy.
Sure, not all of it could be easily picked up, but the government could at least make some inroads into it. Most of these concessions to the already wealthy were created in the past 25 years and all of them have ballooned since inception.
True, Labor has done some things with childcare, student debt, and tinkered on the edge of social housing, but they amount to near nothing when compared to the near $200 billion a year of largesse going to people who do not need it.
Unfortunately, the 2019 election result has been read as an edict in stone that promising to take away tax perks for the wealthy is electoral suicide. It has certainly led to Prime Minister Anthony Albanese being timid to the point of being moribund.
But it has resulted in a dangerous failure to stem the increasing fiscal outflows that have been caused by ever more people taking advantage of the tax concessions, many of which were granted by Costello.
For example, the mad franked-dividends scheme to give cash back in the form of a tax rebate to investors who paid no tax in the first place, cost $500 million in the first year. Now it 14 times that. People have flocked to the housing market to take advantage of the capital-gains tax concession ramping up negative gearing deductions as they go.
The Charter of Budget Honesty and last month’s MYEFO have honestly revealed the unfairness of the tax system and the inequality it has inflicted in Australia (thank you Peter Costello).
We should be asking what is more important: health, education, and fairness, or hand-outs to the already wealthy? What do we want as a nation? The tax system provides the answer to those questions. And they are not pretty.
We are not the land of the fair go. Nor are we the compassionate country we like to think ourselves.
Worse than that, having put in place various reporting mechanisms (including Closing the Gap for Indigenous Australia and reports on immigration numbers) the maladies and their solutions stare us in the face.
And the seven quarters of negative per-capita growth (a big recession for all those on middle or low incomes) could also be fairly easily fixed. The mid-year update revised up the rate of net overseas migration from 260,000 projected in the budget to an out-of-control 340,000. With so many more people to spread the wealth around no wonder we are going backwards. We should get back to the 70,000 level before the Howard government ramped it up and Albanese ramped it up further post-Covid.
The Government should take several big tax steps. It should grandfather a lot of the concessions by restricting them to a maximum of what the taxpayer claimed the previous year. This is what happened with the tax deductibility of health gap fees. There was hardly a murmur of protest. And health deductions have more merit that franking credits and negative gearing.
Second, it should abolish wage and salary work-related expenses and replace them with an automatic deduction of, say, $4000. At a stoke, millions of taxpayers would be relieved of doing a tax return other than ticking off the ATOs auto-fill and they would also get a tax break. Too much of the tax burden is borne by labour and not enough by capital and consumption.
Third it should do what the UK Government is doing from 1 January 2025: imposing the 20 per cent VAT (its GST equivalent) on private education fees and use the money to reduce or abolish HECS and HELP debt.
As the Government picks up the revenue it could, for example, start a universal dental scheme with at least a free annual check-up with expansion to other procedures down the track. Surely that is more important than subsidising fees for some very wealthy private schools.
Labor is going to have to put the 2019 election behind it and pick up the revenue loss and channel it to people who need it. Otherwise, voters will rightly ask what is the point of a Labor Government?
Crispin Hull
This article first appeared in The Canberra Times and other Australian media on 24 December 2024.
Your reply to my comment re franking credits stated that you did not object to the dividend imputation system, just the refund of franking credits to those “who pay no tax”. In other words you are quite happy for those who are better off benefiting from this system at the expense of those who are less well off. Why should this be OK? If someone is earning say $100k, they get the full benefit of the franking credit via a reduction in the tax they would pay if the franking credit system did not exist, yet someone who earns only $20k and all from franked dividends would pay 30% tax on that income. Hardly seems fair to me.
Likewise , in relation to superannuation why should those in accumulation phase be able to reduce their tax payable (on both contributions and earnings) using franking credits, yet those in pension phase would effectively pay 30% tax on all fully franked income if franking credits were not refunded.
BTW I have no objection to funds with more than $3m in super paying tax on earnings for the amount over $3m at 30% – why not isolate any balance over $3m in a separate “excess accumulation account” and tax earnings on that account at 30% (like was done for the original $1.6m pension accounts and the amount could then be indexed too).
I also forgot to mention in my first reply the means tests for things like parenting payment and childcare rebates are so high that they apply to almost anyone, not just those who really need them.
Peter Costello, the man who sold off our gold reserves at rock bottom prices. The man who brought in the baby bonus. One for mum, one for dad and one for the country. It turned out to be one for Centrelink, and one more for Centrelink and a third for Centrelink. People I knew who worked in welfare just shook their heads. As an old fart I just cannot believe the handouts my generation gets. My accountant had trouble convincing me that the “transition to retirement” tax rort was actually legal. One has to wonder who benefits from flooding this country with so many people. It certainly is not the younger generation. Hopefully one day they will realize how they are being ripped off and will be a major voting block.
Partly true. But you missed some important changes (thanks to Peter Costello) who not only made superannuation pension income tax exempt (which almost entirely benefits the well off as those on lower pensions would have paid little or no tax due to the 15% rebate and the seniors rebate) and doubled the age pension assets test limits (partly reduced by later Liberal Government, but you can still get a part age pension with nearly $1m assets for a couple and over $500k for a single person). Likewise the seniors health card card goes to those with over $150k in income for a couple and nearly $100k for a single.
I also don’t understand why you keep harping on about franking credits. The system prevents double taxation of dividends and simply banning refunds of credits means that the better off ie those with other income get the benefit from the franking credits (as it reduces their total tax payable). If you have a problem with the franking credit system, you should be advocating for the abolition of the entire system, not just the refunding of the tax credits. Then you end up with double taxation of dividends 30% at the company level, plus individual’s marginal tax rate. Alternately, dividends could be paid out of pre-tax dollars, thereby reducing the tax paid by the company and getting rid of the franking credit system altogether. Dividends would then simply be included in taxable income and taxed at marginal tax rates.
If your name was Wealth N Privilege, you wouldn’t want to vote for Dutton and Taylor. They couldn’t possibly lubricate your lucre as half well as Albanese and Chalmers.