The Treasurer's economic roundtable that concluded yesterday?
It's… complicated.
First, I want you to put aside your political cheerleading. You can have your favourite team, but good policy is colour-blind.
Next, I want you to put away self-interest. If that's the only lens we use, nothing gets done. And, frankly, this government has been timid at the best of times… which means any potential policy changes could be shelved in the face of any significant pushback.
Or, in the words of economist Chris Richardson, who attended the summit:
"… the potential for progress is stunningly fragile – and especially so in tax, our most poisoned well."
The good news? I reckon most of my readers can do both of the things I mentioned above, in the national interest.
The bad news? I'm not sure that the majority of Australians will, especially if whipped up by scare campaigns by our politicians, vested interests, and/or media.
We have got to move away from pretending we can't have any 'losers' when policies change.
Which is not to say I think everything Jim Chalmers announced is the right way to go.
In fact, I'm about to agree with some and disagree with others.
So I'm not asking you to give the Treasurer a blank slate; rather to consider any policies on their national-interest merits.
Speaking of which, here's my go at doing just that.
There was a lot of stuff that was essentially pre-announced before the roundtable, that were then re-announced at the end. Largely, some very 'low hanging fruit' that frankly should have been done already, but is welcome. As the AFR put it:
"…abolishing hundreds more so-called nuisance tariffs, fast-tracking the reform of the Environment Protection and Biodiversity Conservation Act to speed up approvals while safeguarding habitats, the Coalition's policy of simplifying the National Construction Code to speed up housing construction and introducing a road-user charge for electric and hybrid vehicles."
Hard to argue too strongly with much of that. I would worry about what it means to 'reform' environmental approvals if it means fewer protections, but it's welcome if it makes it simpler and clearer for us to know what will and won't be approved, and for those decisions to be made more clearly.
Ditto the Construction Code.
A road user charge for EVs? We know fuel excise revenue will fall as people swap their petrol and diesel cars for EVs over the next decade or two. So the Treasurer is right to see and try to fix the looming revenue shortfall. And I have no strong objection over replacing it with a road user charge. But it does feel pretty lazy to just replace one tax with a similar tax without considering other options that might be better (more efficient, less distortionary, more appropriate).
They were, believe it or not, the easier ones to consider.
The real bombshell came yesterday, when the Treasurer announced three 'principles' for tax reform. Again, per the AFR:
A fair go for working people, including in intergenerational equity terms
An affordable, responsible way to incentivise business investment
A simpler, more sustainable tax system to fund the services people need
Now, the problem is that there is absolutely no detail on any of those. Yet, at least.
But a few pre-roundtable submissions might give us some clues.
The Grattan Institute highlighted the increasing reliance, now and in future, on income taxes as part of the tax mix, and that that burden would be increasingly on younger people, given the tax-advantaged status of Superannuation income streams.
And the Productivity Commission has suggested a reduction in business taxes for small business, plus the addition of a 'cashflow' tax, aimed at incentivising business investment. (The net result would be that small business would pay a lower tax rate than at present, while larger businesses would pay a higher one.)
What we don't know is whether those recommendations will be picked up, in whole or part, by the government.
And as to what 'simpler, more sustainable' might mean… that's anyone's guess, so far!
So… the devil is in the detail. My hope is that we'll hear more of said detail in the coming months. I also hope that the 'national interest' test is applied, first and foremost.
Me?
I have a laundry list of things I'd have liked to see.
Payroll tax, a tax on employment, should be the first to go. It disadvantages Australian workers, making both offshoring and automation relatively more attractive. It's madness.
I'd like to see a fairer tax applied to Superannuation incomes. It makes no sense for a Superannuant to get a six-figure income, income-tax free, while someone who works for the very same income gets slugged with a five-figure tax bill, for example. (I wrote more about my suggested changes, here.)
I'd abolish (but grandfather) negative gearing on all residential properties.
I'd return capital gains tax to the original 'indexation' method, rather than providing an arbitrary 50% discount for any holding period longer than 365 days.
I'd remove 95% of personal income tax deductions (maybe even 100%, but there might, perhaps, be justification for retaining a small number of them), and lower tax thresholds with the savings.
Ready for the big one that proves I'd never be elected? I'd institute an inheritance tax on large estates.
I wouldn't, however, be in favour of a wealth tax. And as I've written before, the government's wrong-headed tax on $3m Super balances – retrospective, unindexed and on unrealised gains – is awfully constructed policy.
There are also some policy changes that aren't strictly 'tax' policies, but are related, too:
Excessive population growth is putting undue pressure on housing affordability for young people (not to mention the environment and infrastructure). Early childhood education funding is a mess, and should be absorbed into the public education system. The NDIS is out of control: We must look after those with disability, but the structure – a three-cornered market where the payer, provider and recipient are three different parties – is how you'd design a scheme to maximise overspending, overcharging and straight-out rorts.
And lest I finish these thoughts without mentioning it, we still have no commitment from either major party to return the Federal Budget to structural balance. We're still living on the national credit card, so some of the above – and/or other taxes or spending cuts – must not simply be redirected to other programs, but instead banked to return the national accounts to balance over the economic cycle, and pay down the Federal debt.
Now, I suspect that you nodded your head at a few of the proposals, above. I suspect you shook it violently, too.
Good. That means we're all thinking independently.
But I'm going to go back to what I said at the start. If you really, truly, think the suggestions are bad for the national interest, then object strongly. But if it's because you might be disadvantaged, I'm going to appeal to the better angels of your nature.
We simply have some national issues that don't get solved by appealing to self-interest. And without some 'losers'. If that sounds jarring, that's because we've spent decades pretending otherwise – and that's how we got into this mess.
We need a strong, structurally balanced Budget. We need to make sure the tax burden falls on those who can most reasonably afford it. We need to remove distortions that retard productivity growth (while ensuring there are appropriate protections). We need to make sure our young people can afford housing.
Frankly, on balance, I'd be worse off, under my suggestions, above. But my two young blokes – one a uni graduate now working, and the other in high school – will be better off than they'd otherwise be.
That seems pretty fair, to me. But it means I have to put my self-interest away for the good of the nation.
Don't get me wrong, I'm no martyr – I'll be completely fine if we made those changes.
But I think Australia would be better off. Both now and, crucially, in future.
Need just a little self-interest, both as a citizen and an investor, to go with that? My simple take is that I'd rather be a little less wealthy in a more functional society, than slightly richer in a dysfunctional one!
So… there you go. My colours, nailed to the mast.
But not political colours. Or, maybe, lots of different political colours.
Because while politics might be a team sport, good policy isn't.
And the latter is what we should be aiming for.
Fool on!
