Observing our political powerbrokers grapple with balancing the books while keeping Australian voters on side is like watching Groundhog Day, on a loop. It’s just the same thing over and over again.
We can’t continue to avoid the need for major economic reform. It will hurt a lot more in the long run if we keep wasting time scoring political points.
Nick Xenophon’s calls last week to increase the Medicare levy surcharge are a case in point.
We need the money to pay for important initiatives like the NDIS, yet we don’t have an extra $4 billion up our sleeve, which is what we will require by 2018 just for this component. Of course, Xenophon didn’t want to reduce any other spending, or couldn’t work out a compromise on the government’s budget cuts. Obviously, he thought, a simple increase to the Medicare levy should do the trick, and annoy the least number of voters.
But isn’t this just a reactionary, haphazard approach? Will it help our big picture problems? To continue to increase spending without finding savings is putting Australia’s AAA credit rating seriously at risk.
Simply put, our parliament isn’t working. Snipping and tidying around the edges doesn’t fix it. We need economic bipartisanship in the manner attempted by Paul Keating in the ’80s and ’90s and broadly supported by the Opposition. But when was the last time that federal Labor and the Coalition agreed on a major economic reform? Today it’s all about the votes, not the country.
The rejigged tax cuts suggested by Turnbull’s government on the other hand are hardly worth bothering with.
Our economic growth is stalling, our population is aging (read: less tax revenue and higher costs) and, as KPMG’s Bernard Salt noted in his latest column, Australia doesn’t have a strong record in building the kind of big businesses that can fuel an economy.
Keating did a good job driving revenue by broadening the tax base (including introducing an unpopular capital gains tax and FBT) while reducing corporate tax rates from 49 per cent to 33 per cent. He also wanted to introduce a broad-based GST, but John Howard eventually claimed that one. Howard’s Treasurer, Peter Costello, last year commented that economic solutions were needed, but they had to be broad-based and part of a balanced, fiscally responsible plan.
Yet, our federal politicians continue to bicker over the same things year after year, Budget after Budget, and Australia is getting nowhere fast.
Meanwhile, the UK has addressed economic uncertainty with a range of measures aimed at boosting competitiveness, generating jobs and attracting foreign investment.
Tax reform is at the heart of the agenda. UK corporate tax rates have come down from 28 per cent in 2010 to a single rate of 20 per cent — with plans to reduce rates to as low as 15 per cent in the post-Brexit environment. New Zealand has also used broad-based tax reform to successfully generate economic growth.
How does Australia keep the standard of living we now enjoy, with an expanding suite of welfare benefits and services, while managing not to slide the way of Greece because we simply can’t afford it?
In the federal parliament, we have a Senate controlled by populists who vote for all of the spending and none of the cuts.
We can’t have everything. It’s time to prioritise, look for savings, make hard decisions and be prepared to accept that some people at some time might lose out slightly for the greater good.
With our progressive tax system, around 10 per cent of the working population pay 50 per cent of the tax revenue generated. Aiming for those people to pay even more to fund the rising costs of services is never going to work. And those down the line will also feel the pinch with the growing impact of bracket creep.
Leading economists suggest that easiest way to approach our problems would include a slight rise in the GST. But that’s already been ruled out.
We are left with finding other ways to boost our revenue and productivity, most of which are unpalatable to the electorate. Like giving all companies, both large and small, a tax reduction.
The UK, New Zealand and Ireland have all recorded strong growth and foreign investment after massive reform programs.
Ireland has seen a remarkable recovery. They cut corporate rates to an incredible 12.5 per cent and attracted an army of multinationals which fuelled both jobs growth and industry. In 2015, for example, Ireland’s gross domestic product grew by a massive 26.3 percent.
Whether you agree with these kinds of changes or not, at least other countries have woken up to the fact radical change is needed if they are to stay afloat in a global economy.
The rejigged tax cuts suggested by Turnbull’s government on the other hand are hardly worth bothering with. Reducing the corporate tax rate from 30 per cent to 25 per cent in tiny increments until 2026/27? That’s not going to trigger the sort of corporate behavioural change we need to solve our problems. So, is it worth the $50 billion in lost tax revenue?
Failing to face change will ultimately affect the way we live, including our pensions, our hospitals and our schools.
Although our politicians reject suggestions like cutting business taxes, reduced family tax payments, changing welfare benefits, cutting negative gearing, adopting an inheritance tax or changing capital gains tax – something’s going to have to give eventually.
We need to be a country that can attract investment, provide a robust and attractive business environment, create jobs and fund the level of services we expect.
Politicians on all sides should see sense and start working together to get us out of the hole we have dug for ourselves. The political landscape right now doesn’t seem to allow that to happen.
Andrea Michaels is a tax and family business specialist and the managing director of Adelaide legal firm NDA Law.
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