In spite of cynicism and low expectations, last week’s National Tax Forum was extremely productive. It allowed a wide range of interest groups to come together and thrash out ideas about how best to tackle the difficult issue of tax and transfer reform. To really capitalise on the goodwill of participants and the fruitful talks, however, the federal Government will need to set out a clear agenda for tax reform in the national interest.
There was widespread agreement between community groups, business, trade unions, researchers and environment groups on many issues. Like the need to secure our future revenue base, to ensure more consistent treatment of income tax arrangements, and to address the adequacy of social security payments.
ACOSS was particularly heartened by the broad acknowledgement that income support allowances, notably Newstart Allowance, is simply not enough for people to live on and should be increased as recommended by the Henry Review.
There was almost unanimous agreement on this point, including by conservative economists like Judith Sloan from National Seniors Australia. Researcher Peter Whiteford told the forum the Newstart benefit has shrunk so much relative to living costs that the cheapest capital city accommodation leaves a person with just $16.50 a day to live on.
ACOSS does not support the Treasurer’s view that every single expenditure has to be explicitly linked to savings. Governments prioritise spending in every budget and we think policies to ease the worst poverty, such as increasing Newstart Allowance, should have a high priority. We believe that an increase in Newstart can be funded almost immediately by government action to close business loopholes and shelters that cost at least $20 billion in forgone revenue every year. This compares to the $1 billion that it would cost to fund an increase in Newstart by $50 a week, a move which would help lift scores of struggling people out of the worst forms of poverty.
One participant suggested that there had been a supposed welfare payments blowout. This claim received some media attention, but is completely overblown. Commonwealth figures show that the proportion of people of working age relying on income support has declined in the past decade, and as Whiteford explained, Australia spends less on social security than the average of the rich nations in the OECD.
There were also predictable calls for an increase to GST and for lowering the company tax, and a repeat of the old divisive arguments over whether we should tax consumption or income. ACOSS argued that raising the GST would indiscriminately cut the living standards of pensioners, unemployed people and low paid workers. Australia already has close to a flat tax system when both income and consumption taxes are taken into account. Relying on the GST to pay for the services needed by an ageing population would undermine the fairness of the tax system.
One way to pay for future health and aged care services is to remove income tax loopholes for people on higher incomes such as aged based tax breaks and the churning of wages through superannuation accounts.
The community wants a fairer personal income tax system based on ability to pay rather than sharp avoidance practices. We will continue to urge the government to adopt the Henry proposals for removing shelters like breaks on golden handshakes and the use of private trusts, companies and super funds to shelter personal income.
Tax breaks for superannuation should benefit everyone, not only those in the top two tax brackets. We propose taxing employer super contributions at marginal rates before they are transferred to funds — and replacing existing tax breaks with a simpler and more equitable capped annual rebate.
We were disappointed that the Treasurer did not make any reference to securing more affordable housing through the tax and transfer system, another area of wide consensus. We must tackle the biases in the tax system that favour speculative investment in housing and other assets, which then inflate home prices and add to cost of living pressures.
We did welcome the announcement of an independent tax advisory board by the Treasurer but we think it is essential that both the board and the new business tax working group include representation from the community and unions as well as business.
The Tax Forum clearly demonstrated that tax reform is not just about business interests. The diverse interests represented helped to sharpen the debate, and the government must ensure that diverse representation continues.
It can be argued that the tax and transfer system is the engine room of the country. As such, it must be used to guarantee the things we all want: adequate income for all, including post-paid working life, affordable housing, and a greater sense of fairness and equality for people in Australia.
The Henry Review made clear practical proposals in all of these areas and the Tax Forum provided an opportunity to progress tax and transfer reform in line with community demands. If this momentum is to be maintained, however, it must set out a clear agenda for tax reform for the short and longer term. This way, we will be able to secure the tax base we will need into the future, and maximise the benefits of our strong economy for the whole community.
See the ACOSS tax forum submission paper, A Fairer, More Efficient Tax and Social Security System, here.
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