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Tax: Rudd Labor squibs another challenge

The State is a parasite on the wealth workers create. So too are the bosses, the banks and the big landlords.  

They fight against workers and among themselves over the value workers create in a multitude of ways – over interest rates, taxation, investment, wages, employment…

In terms of tax the State balances a need for expenditure to defend the system and provide a pittance in benefits to workers against the need to protect and encourage the crisis ridden accumulation process. 

It was a Minister in a feudal government in France who summed up the dilemma the State under capitalism faces.  As Jean Baptiste Colbert said: “The art of taxation consists in so plucking the goose as to get the most feathers with the least hissing.” 

In capitalist terms this usually means taxing labour at the expense of or more heavily than capital, sometimes in  form but always in substance.  The Henry Review does nothing to challenge this fundamental idea.

Indeed the fact that 40 percent of big business pays no income tax and most pay much less than the 30 percent headline rate will continue under Rudd Labor and its ‘tax reforms’.

The Henry Tax Review does put forward a long term tax plan for Australian capitalism as a whole.

The Rudd Labor Government in this election year has adopted just a few of the 138 Henry recommendations. The two main ones are to tax the miners under a resource rent tax of 40% on miners’ ‘super’ profits and increase the superannuation guarantee from nine percent to 12 percent by 2020. Yes, 2020!

On top of that Rudd Labor will cut company tax in three years time and over two years to 28 percent from 30 percent (Henry recommended 25 percent).  For small business the cut to 28 percent will be from 2012.

The Government will also give small business an immediate write off for capital expenditure less than $5000 and accelerated depreciation of 30 percent on other pooled assets.

They will also pay up to $500 a year into superannuation for low income earners (those on less than $37,000 a year).

The Government will spend up to $780 million of the resource rent tax on infrastructure – roads, rail lines and ports. 

In other words this is a pea and thimble trick moving money from the miners to small business and some low income earner superannuation contributions. But like all Rudd changes the benefits don’t come into effect immediately – only in the run up to the 2013 election.

And stay tuned for an election stunt later on this year – no tax returns for most salary and wages earners. Nothing substantive to tax rates, just fiddling at the edges.

The small business and superannuation changes are a direct bribe for the so-called Howard battlers – small business and their poorly paid employees. It’s an attempt to wedge the Liberals although I would have thought their obvious response will be to pr0mise a company tax rate cut to 25 percent paid for through ‘savings’ (in health, education and the public service).

But even then the Government will give some of the money back to the big miners in the form of a 40 percent taxpayer subsidy for their capital expenditure and pay for their roads, rail lines and ports.

They will use the rest to buy off small business and give up to $500 to low income workers for superannuation.

The Government’s strategy in  an election year seems simple enough. Tax the big profitable miners (but not, note, those on average profit returns) and distribute the benefits to voters.

In this case those who will most benefit are small businesses (those with a turnover of less than $2 million a year) and low income earners contributing to superannuation.

But even the superannuation changes have a hidden sting.  How do you think employers are going to react to the Government raising the employer Superannuation Guarantee rate from nine percent to 12 percent? Through wage trade offs.

That is already the response of the Australian Chamber of Commerce and Industry. Given that the union leadership traded off wage increases for a 3 percent superannuation guarantee payment when Keating was the world’s greatest Treasurer, they will do the same thing this time around.

The Government’s focus is on digging things up, things like coal that will increase greenhouse gas emissions. There is nothing in this tax package for renewable energy; no inducements or vision for solar, wind, geothermal or wave power.

A left-wing program would tax the rich and business, especially the polluters, and fund renewable energy. It would tax capital and benefit labour.

What Rudd Labor has offered isn’t tax reform, even for the bosses. It’s tax shuffling, buying votes for a July or August election.

It reflects the gutlessness of a Government whose great moral challenge is getting re-elected.



Pingback from Tweets that mention En Passant » Tax: Rudd Labor squibs another challenge —
Time May 2, 2010 at 10:26 pm

[…] This post was mentioned on Twitter by John Passant. John Passant said: En Passant » Tax: Rudd Labor squibs another challenge […]

Pingback from Federal Tax Review: Higher Superannuation to replace wage increases? « 4ZzZFM NEWS
Time May 3, 2010 at 9:12 am

[…] Federal Tax Review: Higher Superannuation to replace wage increases? Jump to Comments Tax academic John Passant says the Federal Government's plan to raise employer superannuation contributions to twelve per cent by 2020 is likely to mean lower wage rises. In an article on his blog, Passant says that the unions accepted higher superannuation instead of wage …. […]

Comment from Ben Courtice
Time May 3, 2010 at 11:21 am

“this usually means taxing labour at the expense of or more heavily than capital” – can you explain that? It seems you are giving two possibilities with opposite effects: “at the expense of” or “more heavily than” — which doesn’t quite seem to fit with the rest of the analysis; unless I misunderstood.

Comment from Marco
Time May 3, 2010 at 1:54 pm

“It reflects the gutlessness of a Government whose great moral challenge is getting re-elected.”

I could not have put it better.

The funny thing is Mr. Rudd decided to adopt the “mining tax”, but right away moves to appease Big Bucks, by lowering the headline income tax and keeping capital gains, superannuation concessions and negative gearing, as if by doing this Big Bucks would be more forgiving…

And notice this: negative gearing, I believe, is one of the factors driviing house prices bananas. So, Mr. Rudd is happily providing fuel for the housing bubble that one day will burst

On the other hand, the Henry tax review supposedly contains 138 wonders, of which Mr. Rudd decided to show us 10: there are 128 surprises there, just waiting.

It wasn’t a revolution, but I fear it could have been a whole lot worse.

Let’s just wait for the future.

Comment from John
Time May 3, 2010 at 7:53 pm

Ben, I was trying to say too many things in one sentence. But I don’t think ‘at the expense of or more heavily than’ are incompatible.

First, the company tax rate is a flat 30% at the moment. When business income hits about $130,000 it is more profitable tax wise to be taxed at 30% than at progressive tax rates (tax free threshold, 15%, 30 % up to 45% etc etc. In addition 40% of big business pays no income tax.

Those that do pay less than the headline 30% rate (using their accounting profits as the guide).

Third business has a range of deductions not available to salary and wage earners. Fourth they can use debt and international profit shifting to reduce Australian taxable income.

Fifth, under dividend imputation company tax is merely a tax paid by companies on behalf of shareholders who get a credit for the amount paid so that the tax paid is actually at their marginal tax rate.

Of course none of this recognises the reality, that the company profit we are taxing is actually the surplus workers create.

So what I meant was that capital pays less tax than labour both in terms of percentages and overall contribution to revenue. The tax system is designed for their benefit.

Comment from Marco
Time May 3, 2010 at 8:35 pm

As a follow up to my preview post, John, you need to have a look at this article:

Inside China’s Runaway Building Boom,9171,1975336,00.html

Look at the photos (under “Related” at the left of the text).

Now, there has been much talk recently that house prices in Oz have been driven up by foreign investment, almost as if Australia was little more than a Chinese suburb.

If you think about it, Australia and Shanghai have pretty much the same population…

Comment from MarkSpizer
Time May 3, 2010 at 9:02 pm

great post as usual!

Comment from Mannie De Saxe
Time May 4, 2010 at 1:32 am

And I am prepared to bet that one of the hidden 128 “surprises” is not a tax of any sort on the religious institutions which get away with – I suppose – almost literally – murder! Just think of all that money hidden away in those god-ridden organisations which would make us all rich – even us pensioners!