Cassandra Goldie
Last week we learnt that regardless of which major party wins the federal election, tax cuts of $180 a week are locked in for the top 5 per cent of taxpayers. Following that revelation, it was rumoured that Labor would pay for the tax cuts by reducing services for cancer patients and older people with sore teeth, although it denied the former. For the government’s part, it plans to slowly starve our essential services and the safety net. Cuts in real public spending per capita of 1 per cent a year are baked into the federal budget from 2022 to 2024.
It is surreal that in the middle of mass lockdowns, when those affected have to feed and house themselves on little more than unemployment payments of $44 a day, we see the ALP join the federal government to lock in the largest tax cut package the country has seen. It also beggars belief that in a year when home prices are tipped to rise by almost 20 per cent in our capital cities, tax breaks such as negative gearing and the capital gains discounts are now bipartisan policy.
The seriousness of these decisions cannot be overstated.
The tax cuts were first announced several years ago as part of a three-stage package by then prime minister Malcolm Turnbull and his treasurer Scott Morrison. At the time, the Turnbull government was in serious crisis. As the tax cuts passed the senate in June
2018, no one seriously believed the Coalition would have to implement them all – nor deal with the consequences. They were seen as a package announced to save the furniture
– an extravagant promise that the Coalition made to its low-taxing base before it likely lost government, handing over to a Labor government that would then grapple with the dramatic hit to revenue or reverse them.
Morrison took over as prime minister in August 2018 and called an election for
May 2019. Again, it was widely thought the Coalition would lose. Holding government by a thread, the Coalition has pressed ahead with the legislated stages of these tax cuts, bringing forward their introduction. Only stage 3 remained in debate – until last week, when Labor capitulated.
We now have both major parties supporting the slashing of income tax, which overwhelmingly will benefit higher-income earners and especially men. We are in the extraordinary position of the Coalition promising a policy they never really believed they would be in government to deliver – and the Labor Party deciding to support it, too. The dog has caught the car, twice. The price we will all pay for these tax cuts is staggering.
We cannot afford to run away from serious debate about how we will pay for the services we need.
The global pandemic exposed the weaknesses in many of our most basic social and economic supports. It has also shown the power of government to fix things when they act based on expert evidence. For a few precious months last year, we lifted Jobseeker and almost ended poverty overnight. We made childcare free, to the collective relief of parents everywhere, women in particular. We housed almost everyone – at least for a while – when we knew our health depended upon it.
Beyond the pandemic, the next government will have to deal with the effects of years of neglect of essential services. The aged-care royal commission shone a light on the horrors inflicted by years of cost-cutting via competitive markets to an essential service on which we’ll all rely. The same can be said of a healthcare system stretched to the limit, especially in chronically neglected areas such as mental health and dental care. People on Jobseeker are back in deep poverty, on just $44 a day.
We can do better. The good news in the 2021 Intergenerational Report is that the pressures of population ageing are much less acute than in most wealthy nations. The 2021 Credit Suisse Global Wealth Report has also confirmed that – measured by median household wealth – Australia is the “wealthiest country in the world”.
But the stark warning in Treasury’s report is that if we do not collect more revenue, we will not be able to deliver the essential services and safety net we need now and into the future. Just to fund the current inadequate policies, Commonwealth government health, aged-care and National Disability Insurance Scheme essential investments will need to grow from about
5.3 per cent of GDP to 5.9 per cent by 2030, an increase of about $12 billion a year in current dollar values. We will need at least another per cent of GDP or more (over $20 billion a year) to plug gaps in our care services and incomesupport safety net. This is before factoring in tax cuts above $16 billion a year. The hole in the budget would be about $50 billion a year.
So we need to talk about tax, not as a political weapon but as the investment we make in services and our safety net.
The federal government argues that we need to lower taxes to create jobs. It argues that we rely too much on income taxes. For reasons nobody can explain, it is fixated on cutting our tax-to-gdp ratio to 23.9 per cent of GDP. Recent analysis from the Parliamentary Budget Office of the stage 3 tax cuts indicates that about two-thirds of them will go to the top 10 per cent of taxpayers, on $150,000 or more, and only one-third will go to women. This is hardly the right target for providing income “relief ” or achieving gender equality. Further, on its own figures, Treasury estimates that each job created by the tax cuts will cost more than $300,000, almost three times as much as the cost of jobs created by investing in the care services sector, exactly the essential services we need.
The reality is that Australia does not rely too heavily on income tax. Australia’s personal income tax revenue (at 11.5 per cent of gross domestic product in 2017) is lower than the average for wealthy nations (17.4 per cent of GDP) when we take into account social insurance taxes. An average wage earner pays 24.1 per cent of their overall income in income tax, lower than an average American worker at 24.4 per cent.
Our income tax is not high but it is hardly fair. Much of the investment income of people on higher incomes – including capital gains and superannuation – is taxed at much lower rates than the wage of the average worker. Capital gains on the sale of shares or property, three-quarters of which accrue to the top 10 per cent of taxpayers, are taxed at half the investor’s normal tax rate. Negatively geared investors can claim deductions for interest payments and other costs against tax on their wages.
Labor has abandoned its previous attempt to curb these excesses, just as property markets are overheating and home prices in our capital cities continue their steep rise. If we’re serious about making housing affordable, negative gearing and capital gains tax breaks should go.
Superannuation contributions and fund income is generally taxed at a flat rate of 15 per cent. The investment income of super funds is not taxed at all once the fund member retires. Further, the income of a retired couple is only taxed once it exceeds $61,000. In contrast, the effective tax-free threshold for people of working age is $23,000 ($46,000 for a couple). For these reasons, less than one in five people over 65 pays income tax at all.
We don’t need to lift tax rates for ordinary workers to properly fund services. Instead, the next government should curb the tax shelters and loopholes that high-income earners and companies use to avoid their tax obligations. Removing the high-end tax cuts slated for 2024 would save more than
$16 billion a year. Beyond that, placing a fair tax on the earnings of super funds, properly taxing capital gains on investments including property, and clamping down on income-sheltering through private trusts would all help to raise the revenue we need. We should start taxing wealth more fairly, including by broadening our land tax base.
The OECD ranks Australia sixth-lowest in our spending on social benefits and the ninth-lowest in our overall tax base, collecting less tax revenue than most of the 37 other OECD nations. This lack of investment in our social benefits is the key reason we have a persistently high proportion of our community living in poverty, including more than 40 per cent of children in single-parent families, and more than three million people overall.
The Intergenerational Report makes it clear: if we do not stop cutting taxes and do not start talking about raising revenue fairly, we will continue to have older people neglected, people with disability waiting for support, parents unable to get childcare, children going hungry, and millions going without the basics, sleeping in cars or living with the lights turned off. We are also hampering our ability to invest in the jobsrich industries of the future, including new technologies and renewable energies.
As the wealthiest country in the world, we need to collect more in the interest of doing better. We have shown what we are capable of doing in a crisis. We now need to show what we are capable of doing for the longer haul.
“We are in the extraordinary position of the Coalition promising a policy they never really believed they would be in government to deliver – and the Labor Party deciding to support it, too … The price we will all pay for these tax cuts is staggering.”