It’s Not Rocket Sci­ence

Shorten re­shaped the de­bate on tax

The Monthly (Australia) - - FRONT PAGE - Com­ment by Richard Den­niss

Bill Shorten’s tax agenda is the most pro­gres­sive of any as­pir­ing prime min­is­ter in mod­ern Aus­tralian his­tory. His fo­cus on col­lect­ing sig­nif­i­cant amounts of new rev­enue, and his will­ing­ness to op­pose tax cuts while in Op­po­si­tion, sin­gle out his agenda from those of Kevin Rudd, Ju­lia Gil­lard, Mark Latham, Si­mon Crean or Kim Bea­z­ley. Shorten’s fis­cal pol­icy plat­form, of col­lect­ing tens of bil­lions of dol­lars by clos­ing tax loop­holes, is ar­guably as rad­i­cal as that of Gough Whit­lam. Shorten suc­ceeded spec­tac­u­larly in shift­ing the pub­lic de­bate away from Tony Ab­bott’s “bud­get emer­gency” and to­wards the now pop­u­lar view that Aus­tralia needs to col­lect more rev­enue. And, by fi­nally shift­ing the de­bate away from the “blowout” in the cost of wel­fare and to­wards the need for the rich­est to pay their fair share of tax, the Op­po­si­tion leader re­framed the pol­i­tics of re­dis­tri­bu­tion as well. The Coali­tion un­der Turn­bull was left com­pletely wrong-footed. Aus­tralian vot­ers have been told for decades that we need to “tighten our belts” and “live within our means”. But in re­cent years they fi­nally heard a po­ten­tial prime min­is­ter ar­gue that if we don’t cut the com­pany tax rate, if we don’t cut the top per­sonal tax rate, and if we close a bunch of tax loop­holes, then we can af­ford to si­mul­ta­ne­ously in­crease spend­ing on es­sen­tial ser­vices and re­duce the bud­get deficit. It’s not rocket sci­ence, but it’s rad­i­cal when viewed in the con­text of con­tem­po­rary Aus­tralia. Poor Mal­colm Turn­bull. First his pre­de­ces­sor con­vinced the pub­lic that we had a bud­get emer­gency. And then he came up against the first Op­po­si­tion leader

Econ­o­mists have been urg­ing gov­ern­ments to sim­plify the tax sys­tem for decades. Shorten em­braced that ad­vice and turned it into a rev­enue war chest.

in decades to sug­gest we do some­thing sim­ple like col­lect more rev­enue. Which left Turn­bull in the un­com­fort­able po­si­tion of try­ing to get the pub­lic to ig­nore the $14 bil­lion bud­get deficit while get­ting ex­cited about giv­ing tax cuts to the big­gest cor­po­ra­tions. Turn­bull’s pro­posal to give away $80 bil­lion man­aged to make Shorten seem fis­cally re­spon­si­ble, and gen­er­ously pop­ulist … at the same time. But it’s not just the Coali­tion that can’t un­der­stand why the Aus­tralian La­bor Party has led in the past 38 Newspolls. Jen­nifer Wes­ta­cott, the for­mer NSW bu­reau­crat who now fronts the Busi­ness Coun­cil of Aus­tralia, seems sim­i­larly per­plexed. For years now she has warned of the dire con­se­quences that will be­fall us if we don’t cut the tax rates paid by her mem­bers. But while such fear cam­paigns seemed to work in the 1990s when there was bi­par­ti­san sup­port and no broad­band in­ter­net, her de­ter­mi­na­tion to ig­nore the pros­per­ity and co­he­sion of high­tax coun­tries like Swe­den, Nor­way and Den­mark sim­ply doesn’t cut through in 2018. And then there is the media. The press gallery has been pre­dict­ing for years that Shorten’s sup­port for new rev­enue mea­sures would be his un­do­ing. In the leadup to the 2016 elec­tion, in an ar­ti­cle en­ti­tled “Shorten Risks All By Ced­ing Fis­cal Or­tho­doxy”, Paul Kelly wrote in The Aus­tralian, “Shorten of­fers a dra­matic eco­nomic pol­icy de­par­ture. He op­poses cor­po­rate tax cuts, as­saults the banks, pro­vides sus­tained sup­port for union in­ter­ests, risks the bud­get, seeks to tighten 457 visas and seeks per­ma­nently higher lev­els of spend­ing and tax. It’s no agenda for an ag­ile and open econ­omy.” But it was an agenda for win­ning back vot­ers, as Turn­bull’s po­lit­i­cal tra­jec­tory at­tested. Sim­i­larly, rather than be­ing seen as a fis­cally con­ser­va­tive and po­lit­i­cally pop­u­lar de­ci­sion, La­bor’s move to crack down on div­i­dend im­pu­ta­tion re­funds was re­garded by many com­men­ta­tors as an elec­tion-los­ing gaffe. As Michelle Grat­tan wrote in The Con­ver­sa­tion, “Maybe the ALP thought – if it took the by-elec­tion into ac­count at all – that the tar­get-the-rich mes­sage would go down well in Bat­man (where about one-fifth of vot­ers are in the age group 65 and over). But that’s not the way it ap­pears to be work­ing out.” La­bor won Bat­man com­fort­ably. Then of course there was “Su­per Satur­day”, where Shorten was widely tipped to be the first Op­po­si­tion leader to lose a seat at a by-elec­tion. Per­haps work­ing on the logic that a bro­ken clock is right twice a day, there were still plenty of peo­ple in the gov­ern­ment and the Busi­ness Coun­cil of Aus­tralia who thought that Shorten’s op­po­si­tion to cor­po­rate tax cuts and sup­port for clos­ing tax loop­holes would be his un­do­ing. Of course, it is not just La­bor that can read the polls or the elec­torate. The re­cent by-elec­tions didn’t just kill off the ar­gu­ment that Shorten’s lead­er­ship was in trou­ble, they killed off Pauline Han­son’s Se­nate sup­port for big busi­ness tax cuts as well. In­deed, it only took a week of by-elec­tion cam­paign­ing for the One Na­tion leader to sniff the wind and side with the vast ma­jor­ity of vot­ers who pre­fer bet­ter-qual­ity ser­vices. It’s not com­pli­cated. The Coali­tion reg­is­tered the shift too. The Turn­bull gov­ern­ment im­ple­mented a $7 bil­lion tax on the five big­gest banks, placed lim­its on tax con­ces­sions for su­per­an­nu­a­tion, and curbed some of the more gen­er­ous tax de­duc­tions avail­able to in­vest­ment prop­erty own­ers (in­clud­ing tax-de­ductible flights to in­spect them). While the Coali­tion op­poses La­bor’s pro­posed changes to neg­a­tive gear­ing and cap­i­tal gains tax, there is no doubt that it feels the need to look like it is crack­ing down on the mil­lion­aires too. The days where the Coali­tion could pre­tend that the bud­get deficit was caused by ex­ces­sively gen­er­ous un­em­ploy­ment ben­e­fits are over. Af­ter decades of bi­par­ti­san con­sen­sus that Aus­tralia needed to “re­duce the bur­den of tax” in or­der to “make Aus­tralia com­pet­i­tive”, how come the Aus­tralian pub­lic, and the Aus­tralian La­bor Party, have lost their fear of the busi­ness com­mu­nity’s threats? How did they find the con­fi­dence to de­mand the same high-qual­ity ser­vices that most other rich coun­tries de­liver to their cit­i­zens? The sim­plest answer is that La­bor cap­i­talised on, rhetor­i­cally and from a pol­icy point of view, the dif­fer­ence between “col­lect­ing more rev­enue” and “in­creas­ing the bur­den of tax”. Work­ing from the re­al­ity that the vast ma­jor­ity of Aus­tralians don’t rely on fam­ily trusts, mul­ti­mil­lion-dol­lar con­tri­bu­tions to su­per­an­nu­a­tion ac­counts or div­i­dend im­pu­ta­tion cred­its to drive their tax bill down to zero, the po­lit­i­cal cost of clos­ing such loop­holes is triv­ial. La­bor can, lit­er­ally, col­lect tens of bil­lions of dol­lars worth of ad­di­tional rev­enue at zero po­lit­i­cal cost. In­deed, the strong re­sult for La­bor in the Bat­man by-elec­tion and the poor re­sult for the Greens sug­gest that La­bor can ac­tu­ally win a sig­nif­i­cant num­ber of new votes from swing­ing Greens vot­ers by pur­su­ing a pro­gres­sive tax pol­icy, while si­mul­ta­ne­ously win­ning votes from the Coali­tion’s swing­ing con­ser­va­tives by promis­ing bet­ter ser­vices and lower deficits. Good pol­icy, they say, leads to good pol­i­tics. Econ­o­mists have been urg­ing gov­ern­ments to sim­plify the tax sys­tem for decades. Shorten em­braced that ad­vice and turned it into a rev­enue war chest. Let’s take a look at some of La­bor’s big­ger pro­pos­als. Tax con­ces­sions for su­per­an­nu­a­tion now cost the bud­get more than $46 bil­lion per year, and will soon cost more than the age pen­sion. Af­ter decades of de­nial, both ma­jor par­ties have re­cently agreed that the gen­eros­ity of

the sys­tem needs to be reined in. Now the squab­bling is sim­ply over the de­tails. Neg­a­tive gear­ing is a long­stand­ing feature of most Western tax sys­tems, in­clud­ing Aus­tralia’s, but af­ter Peter Costello in­tro­duced a 50 per cent cap­i­tal gains tax “dis­count” back in 1999 he tilted both the hous­ing mar­ket and the tax sys­tem heav­ily in favour of land­lords over first-home buy­ers. While the ben­e­fits of neg­a­tive gear­ing are widely dis­cussed in Aus­tralia, it is rarely pointed out that you can only neg­a­tively gear a prop­erty if you are mak­ing a loss. And mak­ing a loss is a bad way to get rich. Ex­cept when your losses al­low you to avoid in­come tax in the short term, and the cap­i­tal gains tax dis­count means you can avoid pay­ing tax in the long term as well. Un­til Costello in­tro­duced the cap­i­tal gains tax dis­count, the num­ber of peo­ple los­ing money on hous­ing in­vest­ment prop­er­ties was around the same as the num­ber of peo­ple mak­ing money on them. As a re­sult, the cost to the fed­eral bud­get of neg­a­tive gear­ing on hous­ing in­vest­ment was around zero. Think of it this way: most peo­ple lost money when they first bought an in­vest­ment prop­erty, but over time, as they paid down the debt and in­fla­tion pushed their rental in­comes up, they even­tu­ally made a (tax­able) profit on their in­vest­ment. Since Costello in­tro­duced the cap­i­tal gains tax dis­count, the “smart money” has bid up the price of houses beyond their ca­pac­ity to ever gen­er­ate a rental profit, in the hope that the low-tax cap­i­tal gains made the whole ven­ture even­tu­ally worth­while. The an­nual cost of neg­a­tive gear­ing has blown out from around zero to $1.6 bil­lion. And the cap­i­tal gains tax con­ces­sions on in­vest­ment hous­ing now cost a fur­ther $3.7 bil­lion per year. La­bor is propos­ing to rein in both. Then there are the cash re­funds for div­i­dend im­pu­ta­tion cred­its, also slated for change un­der La­bor. Few non-re­tirees un­der­stand that, thanks to changes in­tro­duced by Costello in 2000, it is cur­rently pos­si­ble to pay neg­a­tive in­come tax in Aus­tralia. Lit­er­ally. A good ac­coun­tant can en­sure that a re­tiree with a mil­lion dol­lars in su­per can si­mul­ta­ne­ously draw a tax-free in­come and re­ceive “tax re­funds” from the ATO for any tax paid by com­pa­nies they own shares in. And so it is that La­bor hit on the win­ning pol­icy and po­lit­i­cal strat­egy of clos­ing tax loop­holes that de­liver money to the top 10 per cent of in­come earners while win­ning votes from the other 90 per cent. And the is­sue now plagu­ing the Coali­tion is whether to stick to the long­stand­ing “prin­ci­ple” of cut­ting cor­po­rate tax rates or em­brace pop­ulism in­stead. Bill Shorten is the most likely per­son in Aus­tralia to be prime min­is­ter this time next year, and, come May 2019, Chris Bowen is the most likely per­son to be stand­ing at the despatch box de­liv­er­ing the bud­get. It seems many in the media, and many in the com­mu­nity, “just couldn’t see” Bill Shorten as prime min­is­ter. But few Aus­tralians thought that John Howard looked or sounded like a prime min­is­ter be­fore he be­came our leader for close to 12 years. And a lot of peo­ple thought that An­nasta­cia Palaszczuk or Daniel An­drews couldn’t win elec­tions ei­ther. Shorten may be seen by many on the left as lack­ing the charisma or pro­gres­sive legacy they need to get en­thu­si­as­tic about his elec­toral prospects. But the party that Shorten leads is in the box seat on the back of the most pro­gres­sive fis­cal pol­icy pro­posed by La­bor in decades, and the Coali­tion is in tat­ters. Who said there is no al­ter­na­tive?

Op­po­si­tion Leader Bill Shorten. © Jenny Evans / Newspix

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