As the Coalition do their usual big scary number thing, the real debate about taxation is being obscured.
The government’s plan is to cap taxation to an arbitrary percentage of GDP. No-one has ever explained why or how they came up with a figure of 23.9%.
They want rich people to pay less tax, flattening out the income tax scale and making it more regressive.
They have already gone back to indexation of the fuel excise, which is a regressive tax, and smokers are now making a much larger contribution to revenue.
For the moment, they seem to have shelved their plans to cut the corporate tax rate for big business or to increase GST or introduce a GP co-payment.
We are given statistics about how much of the tax burden is borne by the top income earners but they are rarely accompanied by analysis of what share of income they receive and what share of wealth they possess.
The top quintile earn almost as much as the other 80% of households combined. The wealth of the highest quintile households, on average, is 80 times that of the lowest quintile households.
We hear a lot about “taxable income”, ignoring the fact that the wealthy are able to employ accountants to manipulate their investments and spread their income to reduce their tax obligation to zero.
Sixty-nine Australians who earned more than $1 million in the 2016-17 financial year did not pay a cent of income tax. Not even the Medicare levy. Thirty-seven in this group claimed franking credits totalling $7.8 million.
They claimed millions in deductions, primarily for the “cost of managing tax affairs”, but also for “gifts or donations”.
According to ATO data, one-third of large Australian companies paid no tax in 2016-17 despite making a gross profit. They do this through a variety of means – claiming tax losses and concessions that can go back several years, distribution of profits to other entities within the broader group, reinvestment back into the business through share buybacks to name a few.
Even taking into account all these legal methods of tax minimisation, the ATO still estimates that there is a shortfall of about $1.8 billion on the tax that should have been paid.
The Coalition want to reduce taxes for people who have the greatest ability to pay them and the greatest capacity to avoid them. The only justification offered for this approach is a slogan – if you have a go, you’ll get a go.
Labor’s approach is to cut income taxes for low- and middle-income earners in order to stimulate consumption.
They will restrict negative gearing to new dwellings in order to stimulate construction.
They will reduce the tax concession for capital gains tax to 25% still allowing investors to get a quarter of their income tax-free.
They will cap the deduction for managing tax affairs to $3,000 so people’s taxable income will better reflect their actual income.
They will stop giving people refunds on tax they haven’t paid. Franking credits are supposed to be a tax offset, not a gift.
Labor has proposed introducing a minimum tax rate, of 30 percent, on distributions from a family trust which means they will be less likely to be used for tax avoidance and wealth creation.
They want to increase the Superannuation Guarantee to 12% which will have a significant impact on retirement savings, especially of young workers. They also want to introduce superannuation payments for those on parental leave and to decrease the $450 a month threshold at which the SG kicks in – both of which will largely advantage women and young people.
Labor’s tax policies have a purpose as opposed to a slogan.
Projecting taxation revenue for the next ten years is a ridiculous and pointless exercise. Their predictions don’t last for six months.
Treasury was very quick to point out that the numbers they supplied to the Coalition were not based on Labor’s policies and did not take into account how the interaction of policies might affect their projections. Changing taxation rules changes behaviour so without considering this the big scary number is utterly meaningless.
But one thing is clear. If the Coalition go ahead with all of their proposed tax cuts, they will have to severely restrict government spending and services or get used to growing deficits.
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