A funny thing happened on the way to the tax forum
Posted by John, October 6th, 2011 - under Tax, Tax Forum, Tax Office, Tax avoidance, Tax cuts, Tax expenditures, Tax the rich.
The tax forum has been and gone. There were no grand visions adopted, not even neoliberal ones. Business argued for tax cuts and more rent seeking tax concessions. Unions pointed out we are a low tax country and that business did not come to the Forum with clean hands. The neoliberal visionary, Ken Henry, talked about the conference being predictably scripted. Except the unions are right.
The failure of Labor to progress real and progressive tax reform (as opposed to fiddling at the edges with business tax cuts and the like) highlights the bankruptcy of social democracy in Australia today.
Let’s go back to basics. Workers produce the wealth of society. The social surplus is something that various sections of society fight over. Unions (sometimes) battle with the bosses over the rate of exploitation, i.e. how much of the wealth workers produce goes to capital and how much goes to labour. In Australia the percentage of national product going to capital is at its highest and that to labour its lowest since records have been kept.
But capital and its creation, the state, fight among themselves for a share of the surplus we create – financiers against productive capital, service capital against the State etc etc.
The State however depends ultimately on the successful exploitation that productive capital carries out of its workforce to produce the surplus. So its role is ambiguous - it wants to take some of the surplus without actually upsetting those whose domination over workers are able to steal that surplus.
Labor in the past has been able to implement reforms for the benefit of captial for two reasons. As a party partly of the trade union bureaucracy it has less strong links to particualr sectiosn of capital. So it could once deliver reforms for the capitalist class as a whole while at the same time alienating sections of it. Tariff reforms and floating the Australian dollar come to mind.
Because of its indirect links to the working class it can more easily sell those pro-capitalist reforms to the class, often in terms of jobs and increased living standards.
Labor’s backdown on the Resource Super Profits Tax calls into question its ability to introduce tax reforms for all of capital at the expense of sections of it. The main beneficiary of the RSPT would have been big business and incorporated small and medium businesses. Labor would have redistributed super profits from mining companies to less profitable sectors of industry. This was an attempt to address the low and stagnant profit rates in those sectors of society.
In the face of a concerted scare campaign from mining companies, the ALP dumped the Prime Minister and introduced a new, narrower resource rent tax negotiated with the big 3 mining companies.
This back down shows a timidity to rule for capital that goes beyond mere capitulation to powerful section of the ruling class this one time. It shows to my mind an abandonment of the social democratic role of Labor, or perhaps more accurately it highlights the abandonment of social democracy by Gillard Labor.
That is why the Tax Forum – an idea foisted on Labor by one of the Independents as part of the deal to support the Gillard Labor Government - was not gripped with enthusiasm for big picture reform, let alone progressive reform.
Labor’s vision remains in the gutter of business tax cuts and business tax concessions.
They have trumpeted increasing the tax free threshold from $6000 to a possible $21000. But that will be paid for by reducing or abolishing the low income tax offset. That offset moves the effective tax free threshold currently from $6000 to $16000, and under an earlier proposed change, to over $21000. So it looks like this magnificent change to the tax free threshold is in fact a pea and thimble trick. (I’d have to check the figures but just having got out of hospital my mood is not really amenable tonight to that).
Something else too. Rich tax payers benefit more from an increase in the tax free threshold than low income earners, and those below the threshold limit don’t benefit at all.
The neoliberalism of tax has infected groups like the Australian Council of Social Services. A quote from Peter Davidson, a senior policy officer with ACOSS, in today’s Australian Financial Review summed up the all pervading influence of neoliberalism in the tax debate. He said that $5 billion could be saved by closing shelters and loopholes associated with self-education, offsets for medical expenses, the education tax refund and senior Australian tax offset.
Now some of these might be worth looking at because they may go and do go disportionately to the rich. But to be frank there are much bigger fish to tax.
According to Australian Tax Officer Deputy Commissioner Jim Killaly, between 2005 and 2008 40 percent of big business paid no income tax. Nothing. Zilch. Zero. That figure will be higher as a consequence of the Global Financial Crisis when big business utilise losses arising then against income today. Minimum company tax anyone?
The ATO has been losing case after case recently in the Courts over the application of the general anti-avoidance provision Part IVA. The Courts are destroying its effectiveness. Fixing that up would yield billions from the tax bludgers.
As I have mentioned previously, according to Treasury, in 2010 there was about $113 billion in revenue foregone through exemptions, extra deductions and the like. Tens of billions of these disguised grants go to business.
There is no analysis of the effectiveness of these grants, no outcry about the secrecy attached to them, nothing. Getting rid of the grants to the business tax bludgers, those sucking on the teat of the tax system, could wipe out the budget deficit overnight, provide money for decent hospitals, schools, transport, nurses and teachers and easily cover the cost of equal pay for community sector workers, 80 percent of whom are female.
A businessman, Mark Carnegie, suggested that the wealthiest should pay an extra 15 percent in tax to ease growing inequality. That great union man and Labor icon, Bill Shorten, shot the idea down. Labor’s social democracy is dead.
Readers might also like to look at How about taxing the rich instead?
Advertisement
Comments
Comment from John
Time October 7, 2011 at 6:11 am
dl you have to factor in that with the low income tax offset (LITO) the effective tax free threshold is currently $16000. LITO cuts out at about 30,000. Id have to check the exact figures but these are close. Gillard Labor is going to first reduce LITO by 2/3rds and then abolish it. SO in fact the trebling of the tax free threshold is absolute Labor bullshit for low income earners. And the biggest winners will be the rich. Someone on $200,000 will get about an extra $7000. Average wage earners will get about $2000.
Comment from Tristan Ewins
Time October 7, 2011 at 10:31 am
John; What do you think of cutting Dividend Imputation to 75% to bring in over $5 billion and divert it to a cost of living program? As part of an $18 billion package that also includes progressive levies for Aged Care and a NDIS. BTW – if cutting Dividend Imputation went well – If Labor gained a third term there could be a move to Half Dividend Imputation… I think the focus on dividends rather than reinvestment in productive capital would be a good thing…
Comment from John
Time October 7, 2011 at 11:49 am
I suggested cutting it in half in my previous tax article How about taxing the rich instead?
Comment from Tristan Ewins
Time October 7, 2011 at 3:13 pm
John, I agree with taxing the rich, but from the perspective of social democracy within the bounds of a single nation-state there is only so much you can do so fast. Dropping superannuation concessions for the rich would be a great start and could bring in billions I’m certain. I’d like to work up to halving dividend imputation too – and I’ve argued for halving it in the past. But 75% dividend imputation would be ‘a foot in the door’ and $5 billion could come in really useful. In the long term we need a new or invigorated International (or something similar) driving a global minimum program, including tax reform. But ok – I’m suggesting levies (or a single levy) for Aged Care and the NDIS – in addition to 75% dividend imputation. John; again My aim would be to increase social expenditure by 1.5% of GDP ($18 billion in today’s terms). How do you think the government could achieve this in the current context?
Comment from Tristan Ewins
Time October 7, 2011 at 3:18 pm
John; Just looking at your earlier article on taxing the rich now – looks good – I may quote you at Left Focus too. 
Comment from Tristan Ewins
Time October 7, 2011 at 3:21 pm
read your earlier article on taxing the rich; good ideas ; am writing something similar myself now ahead of the December ALP Nat Conference.
Comment from John
Time October 7, 2011 at 5:07 pm
Yes Tristan, feel free to quote me. And sorry, for some reason your comments get caught up in the spam detector, and I have been sleeping and writing this afternoon after a minor operation yesterday.
Comment from dl
Time October 7, 2011 at 9:44 pm
Yes, I believe your figures (particularly in light of the fact that you are a lecturer in taxation law ), and I wasn’t aware of the effect that the LITO had on ‘real’ marginal tax rates. Most of the figures I cited were taken straight from the aforementioned newspaper article though.
Comment from centreblog
Time October 7, 2011 at 9:48 pm
I think the increase in the tax free threshold is the only good idea of this govt. It will reduce compliance costs (no need to fill in a tax return) for many low income earners. For a couple it will also make it more attractive for both to work part time, which is very helpful for parents with caring responsibilities as it helps reduce child care costs. I think that the big point you have not considered is that the taxation system needs to be simplified. If you cut out all the loopholes and make everyone pay, there is no need to increase the tax rate at all. We have a nation of accountants and lawyers and a massive bureaucracy to administer a system that only benefits the rich who can minimize their tax through complex loopholes. This is the real challenge for government. The whole political system is run by tweaking the tax and welfare system every budget to give a few dollars to an interest group in the hope of re-election. The truth is that our politicians have no vision and mostly rely on pimply faced advisers and bureaucrats to come up with their policy ideas.
Comment from paul walter
Time October 7, 2011 at 11:55 pm
Well, I thought it was a gem of a thread starter. As a Quiggin fan, I felt I was at home away from home. John seems the first commentator to definitively call a halt on the speculations on the nature of the conference and its skewed results, with an amplified call of “bullshit”and ought to get a medal for it, alsoTris Ewins for adding sensible comments, with the ensuing conversation.
Comment from John
Time October 8, 2011 at 4:23 am
Thanks Centreblog. I agree with much of what you say. But I am more dubious about the tax free threshold slight lift. It will impact slightly on return to work issues, and it will remove about an extra 100,000 from the tax system on top of the million or so who will be taken out from the previous changes, coupled with standard deductions. Not sure the advisers are pimply faced, but certainly the rent seekers dominate tax policy development and now tax administration too if the Government adopts a Forum proposal to have a board basically run by business managing the ATO.
Comment from John
Time October 9, 2011 at 2:35 am
Thanks Paul.
Comment from dl
Time October 6, 2011 at 11:04 pm
With regards to the planned increase in the tax free threshold for marginal income tax rates, an article in the Sydney Morning Herald estimates that it will deliver around $500 p.a to someone earning 60,000 a year, given that the tax free threshold is heightened to $21,000 a year (apparently this level is to be eased into after several years.) My own crude calculation came up with a gross increase of $2250 through a sole increase in the tax free threshold, for anyone earning over $30,000 a year.
This isn’t to mention that this trivial carrot comes with a stick in the form of the abolition of the low income tax offset. This is apparently factored into the estimate in the SMH article. I’m also skeptical as to the actual incentive that this would have on the average unemployed/underemployed person, whom one can safely assume don’t make the decision to re-enter the labor force merely on the weight of a marginal change in tax rates. This is taking rational choice theory styled thinking a bit too far, IMO.
Anyways, it’s a real indictment to see this well-nigh regressive tax coming from a purportedly Centre-Left political party.