Could tax reform help ease burden on our wallets?

Ross Greenwood speaks to Dale Boccabella from UNSW Business School about new analysis from the Parliamentary Budget Office warning the federal budget could suffer is there is tax reform.

Introduction: Could tax reform help ease burden on our wallets?

Ross Greenwood: I want to take you to something else. That is, who is going to pay the taxation for Australia into the future? Now, there’s been a number of calls out there. We did a little bit of this earlier on tonight. I think this is really one of the most fascinating things that we can have a debate about. The Parliamentary Budget Office has put out a new report today looking at Australia’s what they call a shrinking tax base. Effectively, fewer dollars are coming out of the overall tax space and the tax burden is falling on less people.

They note three big trends. They basically say government decisions will worsen the mix of taxes. They’re basically saying bracket creep is a fundamental problem and more people or rather more workers will pay more tax over the time. The second is changes in what’s collected via consumption taxes. That is a shift to more spending on services such as health and education that are GST free and also on fresh food, which is the other one GST free. The third one is a decrease in company receipts as a result of tax cuts.

They do note, it could be offset as investment allowances carry forward by resources industries are actually exhausted. Now, this is important. Going back to the budget, I mentioned this earlier also. That is, from the budget, the thing that shocked me. In 2015, ’16, 3.6 million Australian households, that is 40% of Australian households, 40%, received more in government payments than they paid in income tax. If you throw your mind forward 10 or 20 years, if nothing changes, that number could be up to 50 or 60%.

The reason for that is because, as our population ages, more people go on to government benefits and fewer people are out there working and paying net tax. Now, somebody who is brilliant on this is from the University of New South Wales Business School, Dale Boccabella, who’s on the line right now. Many thanks for your time Dale.

Interview with: Dale Boccabella, Associate Professor, UNSW Business School.

Dale Boccabella: Welcome, Ross.

Ross Greenwood: You and I have spoken about this before. Income tax now counts for 53.7% of our tax take. It means something’s wrong in our system because compared with most other Western nations, they do not rely on income tax as much as Australia does.

Dale Boccabella: Absolutely. That’s dead right. At some point, we need to do something. That’s completely correct.

Ross Greenwood: What is it that we need to do?

Dale Boccabella: Well, this report just focused on the federal taxes. I think we probably need to think about the state taxes. The big one that the Henry Review mentioned, of course, is a really comprehensive land tax. We need to start thinking about that. There’s some of the states, of course, the states have got a terrible tax called stamp duty. Canberra’s working, the ACT is working on trying to get rid of that and move towards land tax. I think we do have to keep working away at the federal taxes, the consumption taxes, and the income taxes.

I think we really have to think in the long term fixing up our state land taxes.

Ross Greenwood: Isn’t there something about the indirect taxes that Australians pay as well because such a large chunk is taken away in income tax over time, as more people fall onto welfare as they age? That’s through health benefits and also through the actual pensions they receive also. It means that if you’re going to lump more taxes on to the fewer people who are working, that there’s a genuine imbalance. There’s going to be a revolt. Those people are going to blow up because they’re going to be paying so much. If you don’t get the GST and the sales taxes right.

One good example that they have is wine. They say that wine consumption per person has increased since 2001, 2002, but it hasn’t resulted in a higher wine equalization tax receipt because the wine equalization tax is levied on the value of wine and wine prices have gone down over the past 15 or 16 years or so. It shows that basically, the tax system is not keeping up with social trends.

Dale Boccabella: Ross, you’re completely right. That beer, wine switch or mix, whatever you want to call it, that’s one thing that probably needs to be looked at. I agree with that completely. Just getting back to the consumption taxes. I’ve said to you in the past, we really should be talking about those GST free areas, the exempt areas, et cetera. Just one little example, the financial services sector. There’s about a $4 billion loss of revenue there because we’re not fully taxing financial services. There’s areas here to work on. There’s no question about it.

I do take your point that if the income tax ends up falling on a shrinking portion of workers, I think you’re right. There is an issue there.

Ross Greenwood: What most people don’t recognize– I have these debates with people on a regular basis about population. I understand that there is a very popular move right now to try and slow Australia’s population growth. I can understand that because Australia, in a purist form– I’m saying, maybe this is politically incapable of being done.

If I was a purist, I would be trying to bring in young, highly skilled, ready to work people who are aged between 18 and 25, maybe 27 because the problem is if you bring in 40 and 50-year-olds, doesn’t matter if they working it’s not very long before they actually get old enough to receive Australia’s benefits. They might not have put in sufficient taxes to justify the benefits that they will receive long term.

Dale Boccabella: Dead right. Absolutely, dead right.

Ross Greenwood: The problem here as I see it, Dale. You and I can talk about the theory. The Parliamentary Budget Office can talk about the theory but politicians have got to have the will to do this. If they don’t, the longer they wait before they do this, the worse the problem becomes.

Dale Boccabella: Absolutely. It’s better to chip away at these problems rather than have them do a big bang solution down the track. Absolutely agree. There’s plenty of areas to work on. There’s no doubt about that.

Ross Greenwood:  Do you think that really you have seen any will from either side of politics to address some of these issues?

Dale Boccabella: Ross, as you know and I’ve mentioned it before, the Labor Party has some policies, especially in the income tax, to try and chip away at the concessions that are there to try and make our income tax a bit stronger. The Liberal National Party, to my surprise, I think a lot of people were surprised, did introduce those reforms to the super sector. That put a bit of a cap on lost revenues. Most people agreed that the concessions there are a little bit too big. Every now and then I get my hope up.

Then, when we get next to election, as you know, close to an election, the hopes drop again.

Ross Greenwood:  The very odd thing here, Dale is it would seem to me that some of the very best tax reform in Australia has come after significant economic downturns and or recessions. I just wonder whether Australia, having been some 27 years now without a recession, has really not had the political appetite or the social appetite to be able to carry out some of those tough decisions either.

Dale Boccabella: I think that’s a correct assessment. The other thing is, maybe we just need to get it into our heads that we can’t do things near an election. There’s a lot of major reforms that have happened over the last 30 years, as you would know, Ross that have happened away from elections. You think about the capital gains tax, fringe benefits tax. They were not done near an election. Maybe we just got to find some will in that first term of a new government to get some of these things through.

Ross Greenwood: It’s going to be interesting to watch it as well. Dale Boccabella is with the University of New South Wales Business School, a tax expert. Always great to have him on the program. Many thanks for your time, Dale.

Dale Boccabella: Thanks, Ross.

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Image source: 2GB