The most depressing election loss ever was in 2019 when Labor promised to remove tax arrangements which helped the rich get richer. Those who love to make the electorate panic had a field day with negative gearing mayhem and that included the dear-departed Tim Wilson, formerly member for Goldstein.
Here we are in 2022 and Labor looks too nervous to fix the continuing problem of tax injustice. But if it wants to make Australia a more prosperous, happier, more equal nation - and to start that process slowly - the one thing it could do is to abolish promised tax cuts (and while we are at it, supertax anyone making war profits! Hello gas companies!). An old friend and former Labor staffer asked me if I was barking mad. He reminded me what happened to Labor governments which promise one thing about taxes and deliver another. I said surely we've all moved on since then. He then proceeded to throw a bucket of cold water over my revolutionary zeal.
I'm not the only one who's keen though. At Senator David Pocock's first community town hall, the week before the first sitting fortnight, attended by 300-plus people, opposition to stage three tax cuts was by far and away the top issue raised (they had a little slide thingy to measure). Pocock thinks ditching the cuts would be a damn good idea.
Sometimes politicians make undertakings they should never ever make. In 2018, when the Coalition started splashing cash because it feared it would lose the 2019 election, it promised tax cuts along the way. The final tranche was a love note for 2024. Looked like we were in for a bubble bath of surpluses and champagne and Lowe interest rates 4 eva! Back in black, baby.
It could not have known then what we know now. Massive government debt (not that there's anything wrong with that). Inflation. Back-to-back rate rises. Nasty. And this government has decided to keep those promised tax cuts. I hope that decision is as flimsy as its decision to toss pandemic emergency payments, a choice it binned as soon as it realised a Labor government should support workers. Weird it had to be publicly shamed for that to happen. It's now nearly three months since it was elected and the government is doing well. Voters happy and more importantly hopeful.
But now it is time for some hard decisions on tax reform or, at the very least tax tweaking. Swear to god, Danielle Wood is psychic. She's the chief executive officer of the Grattan Institute, a positive legend among Australian think tanks. In 2019, she said the stage three cuts, to come into effect in 2024-25, would cost the budget $85 billion over the subsequent six years. That bit didn't require paranormal powers.
But then she wrote: "We do not know now whether these cuts are affordable or the right size and shape for the economy so far into the future." Now she says the cuts are madness.
Here we are, two years out and the cuts are neither affordable nor the right size and shape for an economy made up of people struggling with cost of living increases.
Now before you say we are all struggling with cost of living increases, ask yourself how much you save each month. If you are still saving, you are warding off the worst of the impacts of the increasing cost of essentials: food, energy, transport, fuel, medicines.
Wood suggests a delay of the cuts if not a permanent dumping.
"We could make the tax cuts cost a lot less. We could make them a lot fairer and we could buy some long term reform of our tax system," she says. And of course we should.
Devise some changes which would save revenue, sorely needed for so many other things right now. Wood's not as wildly enthusiastic about ditching negative gearing as I am. Instead the tax cuts should be repackaged along with three important changes to our tax system. One strikes terror into my ageing heart straight up but I'm prepared to woman up - Wood says superannuation in retirement should no longer be tax-free. The capital gains tax discount should be reduced. And we should definitely look at family trusts, a surefire tool for tax evasion if ever there was one.
What we really want is a just tax system where people who earn a lot of money pay more tax. They can afford it in a way in which people who are on the average income can't. And what we don't want is a situation where inflation pushes taxpayers up the tax scale. Inevitably, if we want tax justice, there will have to be massive shifts in the long run but maybe in the short run we could have some early tweaks to make it all less scary.
I'd love the wealthy to pay more tax. News this week that 60 millionaires paid no tax was bound to catch our attention. Thing is, tax minimisation is perfectly legal and there's no point moaning about the rich 60 unless there's a solution. Maybe for people earning cascades of cash we could have a minimum tax they have to pay before they can start to look for ways around it.
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Gaby Ramia, professor of policy and society at the University of Sydney, says the stage three tax cuts favour higher income earners. The higher up the earning order you are, the more you benefit. Someone on $200,000 gains $9000 a year, whereas those on $70,000 get a benefit of $650 a year.
And he explains it is those who earn $70,000 who are struggling with inflation and wage stagnation while those who earn $200,000 are much less likely to spend it.
Ramia points out yet another failure of our tax system, the inability of the system to extract a fair tax share from corporations. In the meantime, the profits share of national income has been increasing at the expense of wages for 40 years.
"Since the start of the pandemic, the gap has been widening. Wages since the start of the pandemic have grown eight per cent, while profits in the same period have grown 45 per cent," says Ramia.
He acknowledges there would be a political downside to stepping back from the tax cuts. But like Wood, he suggests that a delay might help the government be in a position to re-evaluate.
"They could take stock in 2024 when inflation should be better, with both the cost of living and interest rates somewhat eased."
Ditching the tax cuts might be too hard but delaying them could work. We will get one shot at fixing our tax problem. If we can't eat the rich, at the very least we could tax them.
- Jenna Price is a visiting fellow at the Australian National University and a regular columnist.