Why Labor is committing to ‘progressive taxation’

Ross Greenwood speaks to Shadow Assistant Treasurer, Dr Andrew Leigh, ahead of Labor’s response to the Budget tomorrow night

Introduction: Why Labor is committing to ‘progressive taxation’

Ross Greenwood:  Welcome back to Monday News right across the country here on Wednesday, May 9. The budget last night, we heard the reaction from not only the treasurer Scott Morrison but also from the shadow treasurer Chris Bowen. Tomorrow night from Bill Shorten you will hear the response to the budget from the Labor Party.

As I’ve indicated to you and in the conversation with Chris Bowen last night, it’s quite clear that if there’s more money coming into the government as a result of higher company tax payments, but also higher income tax payments from workers as a result of more people being in employment in Australia.

That that means that money will be not only available to the government to hand out to the community as potential tax cuts, it would also be available to the Labor Party. As I said to Chris Bowen, with the amendments that it’s seeking to make to negative hearing, plus to capital gains tax, plus also not having company tax cuts as the coalition government has got.

It has significant larger amount to potentially hand out or to pay down debt with if it requires. Well, to give you his reaction, the Shadow Assistant Treasurer Dr. Andrew Lee is always great with his time here on Monday News and we appreciate it this evening. Andrew?

Interview with: Dr Andrew Leigh, Shadow Assistant Treasurer

Dr. Andrew Lee: Hi Ross. Glad to be with you.

Ross Greenwood:  I know it’s busy for you whip out between divisions. I was just going through some of my callers there about something that the government put out last night as part of its budget. That is that 40% of Australian households or two in five receive more in government payments than they pay in income taxes.

I think probably what the government was trying to show was that those higher paid families, in particular, are increasingly paying a greater burden or share of the overall company or personal tax in Australia. Is it something that troubles you as the Shadow Assistant Treasurer as you have to make decisions as curve up the pie as you go forward?

Dr. Andrew Lee: Well, sometimes this snapshot can be misleading. You want to look at what social insurance does over the course of a lifetime. It’s true that the minority of us are using the income safety net at any given time but at different stages with our lives we use it. A young person might tap into social insurance when they are at university, getting there or study, they might be unemployed at some point use the social safety net, and then again they might get the pension at the end of their life.

In between times, they’d be paying into the system and that’s how social insurance is supposed to work. I’m certainly not troubled by statistics of that kind. I think it is really important that in an age where we’ve got inequality as high as it’s been in three-quarters of a century, that we do have a progressive tax system.

Ross Greenwood:  I just want to– Can I pick you up there? How is inequality as high as it is in as long as you say, given the fact that it is now a fact that Australia’s minimum wage is AUD $18.29 is now considered to be the highest minimum wage in the world. Have we not as a nation provided a significant safety net?

Have we not provided the sort of safety net through the family tax benefits schemes, through income support, through low-income tax offsets? All these types of things are there but starkly we can still go back to that step. As you point out, some people do go to their safety net from time to time but you’re not supposed to live on that forever I would have thought.

40% of Australian households receive more in government payments that they pay out in income taxes. Problem is if you are a high-income taxpayer in Australia you feel as though there’s no incentive for you to try that bit harder to earn that bit extra money. Because you’re going to get slugged and you effectively feel as though somebody else is not paying their share.

Dr. Andrew Lee: There’s an awful lot in that question.

Ross Greenwood:  It was a question.

Dr. Andrew Lee: It’s all good. You’re a man of big ideas. In terms of inequality, I’d say the series we have is going back right over the full century but we see wage and inequality rising over the course of the last generation. What the market has been doing is producing more inequality. Some of that maybe rated as you say through a minimum wage and through the best targeted social safety net in the advanced world.

Not all the inequalities that the market has been producing is tackled through those government interventions and the end result is that we’ve seen a widening gulf between the haves and the have-nots. Between the [unintelligible 00:04:26] and the billionaires. We do need in that context to maintain a commitment to progressive taxation.

I don’t think there’s anything wrong the notion that I or somebody who’s in the top couple of percent of the income distribution pays not just a higher dollar amount of tax but a higher percentage of my income. Because I can afford to pay in a way that somebody on apprentice on minimum wage can’t afford to pay as high a share of their income. It’s right that the tax scales rise.

Ross Greenwood:  Okay. I get that. I totally and utterly get that. I think every Australian understands that is a notion. The question is about degree and at what point you take away incentive for a person to earn more. Because my point about this is if you don’t give people even in middle-income areas, lower income areas, the incentive to try and work overtime to try and work more. If they got a disincentive that it might actually mean that they lose some family tax benefits or they might lose a low income-tax offset. All those types of things, you don’t want to take away from people the incentive to work more and to put more back into the system surely.

Dr. Andrew Lee: Absolutely. It’s what economists call the dead white cost of taxation. You always want to minimize it. You want to make sure that you’re garnering the greatest amount of revenue that you need to fund the social services and pay down debt with a minimum drag on the economy. My read of where those disincentives effects are largest Ross, is that actually on people looking at reentering the workforce. Often after having kids. That’s where the disincentive effects of taxation are the most acute.

Frankly, many of the studies show that for middle-aged blocks like you and I on above-average earnings that the disincentive effects of taxation are smaller but we want to look scientifically and critically at the evidence of where the taxes deter work and make sure the taxes are no higher than they need to be in order to raise the available revenue.

Ross Greenwood:  Okay. As a broad concept, however, where is Scott Morrison wrong in trying to take out that 37 cents in a dollar tax bracket. To flatten out the tax system to mean that most people on average are paying relatively the same amount of tax regardless of their income. Now, the truth is, there is the safety net there for those people who aren’t earning less than AUD $18,200 they pay no tax. For those who earn up to say AUD $41,000 eventually, they’ll pay between zero and 18,200, then 19% up until 41,000. Then it goes flat until it ends 200,000. Why is that conceptually not a bad idea?

Dr. Andrew Lee: Let me go back to that issue of progressive taxation I was talking about earlier Ross. I think it is appropriate that tax rates rise as income rises. That’s something that you see all around the world. We haven’t announced what our position would be on those tax cuts that take effect after in his hopes wins two more elections.

We’ve said that they’re a set of tax cuts the government wants to implement on the first of July this year. They will largely to go to low and middle-income earners. We’re happy to support those and then there’s another set of tax cuts much more regressive, much further down the line. For starters, we’d like to know how much they’re going to cost the budget. We don’t have that breakdown yet.

Ross Greenwood:  The other point also about this– I want to get back to the concept and just try and test you with it. Because now, a lot of people would say, “Why don’t you just simply have people up until like 20,000, 25,000 pay no tax and then from there everybody in the country pays 15% flat?” It doesn’t matter whether you’re paying a lot or a little, everybody’s got the same tax rate, everybody is kind of equal. You earn a million, you earn 100,000. Whatever you earn. 10,000, whatever it is, you all pay the same. Where is that as a flat tax idea. Not only is the concept we should consider?

Dr. Andrew Lee: Effectively your tax change there Ross would say that somebody whose earning a million dollars gets a AUD $300,000 tax cut. Where is that AUD $300,000–

Ross Greenwood:  They pay AUD $150,000 in tax. They pay AUD $150,000 or 15% of their wage in tax. The person who earns like AUD $100,000 that there is pretty simple to do pays that’s AUD $15,000 or 10 times less than the person who earns 10 times more. Why is this not equal in the whole scheme of things?

Dr. Andrew Lee: I get it and it goes to the ability to pay. If you’re a millionaire then you have a greater capacity to contribute to our public services than if you’re somebody on minimum wage. If we’re to take that AUD $300,000 and give it to somebody who is on a million dollar salary, then what that means there’s AUD $300,000 less to be spent at school, for example. Now, we know our schools are failing to keep up with other countries. We’ve seen the international test score rankings on which we’re steadily slipping down on maths and reading and science.

Ripping AUD $17 billion out of our schools as the government has said they’ll do means it’s going to be harder for them to attract great teachers. That affects equity but also affects the productive capacity of the economy. Because we don’t have kids who are learning the critical skills in order to engage with the jobs of the future.

Ross Greenwood:  Well, you really hope, of course, that those kids have the incentive to work here in Australia and not to take their skills overseas where they might find cheaper tax rates or they might find greater opportunities to actually use those skills that they acquired with the Australian education force.

Dr. Andrew Lee: Sure but if you’re to rip that much money out of schools then you may end up with a system in which you’re not educating the next generation in a way that we have to do with robots that are coming. We need to make sure we’re boosting the ISA literacy of the workforce. We need to make sure that schools are not just teaching kids literacy and numeracy but also engendering a love of learning. Because one of the things we know about the labor market is it’s constantly going to be changing.

We’re going to have to keep on re-tooling and re-skilling. This idea that you get one lump of learning at the start of your career and that’s it, that’s gone, I think, Ross. Also, investment in education according to Australia’s top academic economist is a much better way of boosting growth than company tax cut.

Ross Greenwood:  Tell you what, good to have you on the program. As always, we’ll see the response to the budget tomorrow night. We’ll see the alternative ways to which these billions of dollars that have come into the budget will be spent. Again, Andrew, it’s always good to have you in the program. It’s a good intellectual debate, I quite like it. The Shadow Assistant Treasurer is Dr. Andrew Lee. Always good to have you Andrew.

Dr. Andrew Lee: Thanks, Ross. Take care.

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