After weeks of confected outrage from many parts of the media and Coalition, the Albanese government has moved on its proposed Stage 3 tax cuts through the Treasury Laws Amendment (Cost of Living Tax Cuts) Bill 2024. According to the Treasurer, the Bill will provide tax relief to all 13.6 million taxpayers from 1 July 2024 through a combination of changes to the income tax rates and thresholds.
As its name suggests, this Bill is fundamentally a cost-of-living measure, something which the Prime Minister and Treasurer have been at pains to point out. The changes under this Bill are not tax reform but simply income tax cuts designed to provide additional cash in the hands of working Australians who have been impacted by a rapid rise in mortgage rates, rent costs and stubbornly high inflation.
While Coalition MPs try to bait the government into a game of low tax limbo, others such as the Independent MP for Wentworth, Ms Allegra Spender, have been focussed on preparing Australians for a more mature discussion about tax reform in this country.
At a recent appearance at the National Press Club, Ms Spender, together with Dr Richard Denniss from The Australia Institute, presented a compelling and at times entertaining narrative on the need for tax reform in Australia. This was no stump speech by the first term MP. Ms Spender was laser like in her assessment of Australia’s taxation system, taking aim at both the major parties for failing to make the hard decisions necessary to address fundamental flaws in the system which is failing our society and the economy.
Such is Ms Spender’s determination to see a proper debate about tax reform in Australia she will be publishing a paper on the matter in mid-2024. The paper will be informed by consultations with her constituents and focus on four main themes: intergenerational equity and housing affordability, productivity, climate action and a framework for future reform. As Sir Humphrey might say ‘a courageous decision’ for a first term MP.
Nonetheless it is refreshing that we have in Ms Spender, someone willing to put their head above the parapet on an issue which is notoriously difficult to prosecute, with little political upside for those who argue for change.
Much of the discussion about tax reform today is about the mechanisms of collection. It gravitates around changes to things like negative gearing, stamp duty, land tax, capital gains tax, tax on wealth and superannuation to name just a few. Any credible economist and academic can provide a smorgasbord of well-developed and diverse policy options which would improve our tax collection mechanisms, if only Governments were interested.
'Reforming our taxation system is a profoundly moral issue. It signals what we value as a society, things such as fairness, compassion and the common good. How and what we tax, as well as what services we subsidise tells us much about the sort of country we are.'
However, focusing on the mechanism of tax collection feels a little like having the cart before the horse. What is missing in the debate around tax reform is a contemporary statement of values which sets out some parameters around what we expect our tax system to fund and not fund. Or as Dr Denniss asked, ‘what do we want to do more of and what do we do less of?’
Australia is a relatively low taxing country. The average tax collected as a percentage of GDP across the OECD is 34.4 per cent with Australia’s share to GDP sitting at 29.4 per cent just ahead of the US which collects 27.66 per cent. Compare and contrast this to the Nordic countries where their tax to GDP rates sits between 41 and 44 per cent. The gap between tax collected in Australia and the Nordic countries is important in the context of Australia’s tax reform debate because it goes someway to addressing Dr Denniss’ question about what we want to do more of and what we do less of.
And how stark is the difference? In his presentation Dr Denniss cited the following example which should give us cause to pause and consider the contrasting policy options available to us as we consider tax reform in Australia. In Norway, their government taxes gas extraction and provides free tertiary education to its citizens. In contrast our government subsidises fossil fuel extraction and charges our children for studying at university. In fact, the Australian government earns more income from our children via HECS than it does from the Petroleum Resources Rent Tax. The policy settings which enable this to occur come about as a result of choices made by governments, although it is hard to fathom that such a policy exists in light of our current cost-of-living crisis and chronic underfunding of many important services.
So, before we ask our politicians to play the game of ruling in and out what changes they will or won’t make to the taxation system in Australia, we would be far better to ask the question what sort of Australia do we want to be and how much are we prepared to pay for it?
That question and the plethora of issues such as quality and quantum of service funded by government, the safety net we want for the vulnerable in our society, the environment we want to live in and leave for our children and grandchildren will shape what we demand of our tax system and the way we raise the revenue we need to pay for it.
Reforming our taxation system is a profoundly moral issue. It signals what we value as a society, things such as fairness, compassion and the common good. How and what we tax, as well as what services we subsidise tells us much about the sort of country we are. Therefore, how we reform the system requires careful consideration and drive from leaders of our community, whether they are of the Church, the broader civil society, business, academia, or our body politic.
Ms Spender and other like-minded people within the corridors of power have an opportunity to drive positive action in the reform of our tax system. Let’s hope the self-interest and partisan politics which has cruelled meaningful reform of our tax system can be overcome for the good of the nation.
Joe Zabar is the Chair of Mercy Works Ltd and a Visiting Fellow with the Tax and Transfer Policy Institute, ANU.