Richard Denniss: Address to the National Press Club

Australia’s Tax dilemma: the case for real reform
National Press Club

Allegra Spender MP, Independent Member for Wentworth & Dr Richard Denniss, Executive Director, the Australia Institute, debated the Stage 3 tax cuts and wider tax reforms at the National Press Club of Australia on

“Australia’s Tax dilemma: the case for real reform”

Dr Richard Denniss, Executive Director, the Australia Institute

Dr Richard Denniss
Wednesday, 31 January 2024

**Check against delivery**

Tax is good. Tax in an investment in our society and the highest taxed countries in the world also happen to be the richest, most productive, and happiest countries in the world.

Australia is a low tax country. If we were to collect the average amount of tax collected by OECD countries then this year, we would have to collect more than an extra $100 billion. Per year.

But we aren’t aiming to be average, and we certainly aren’t aiming for the top.

Instead of collecting an extra 100 billion dollars, per year, and spending it on the services and infrastructure we so desperately need we are about to cut tax revenue by around $20 billion per year. No wonder our schools, hospitals, aged care, disability care and public transport lag so far behind the services provided in northern Europe.

Australian personal income taxes aren’t the highest in the world, they aren’t even close. Indeed, according to the OECD for those on average earnings our income taxes are a lot lower than the OECD average. The same is true for Australians earning twice the average income.

Likewise, the OECD tells us that Australia doesn’t have an excessive reliance on personal income tax. When you compare our reliance on income taxes with the taxes and social security contributions in the OECD yet again, we wind up towards the bottom.

Because Australia is a low tax country that lacks taxes on pollution, lacks taxes on wealth and has enormous tax loopholes for family trusts and superannuation it is true that we collect a high percentage of what little tax we pay from income tax. But the OECD data is clear, it’s not that we over rely on income tax, the problem is we under collect taxes on pollution and wealth.

But our so called tax debate is so dishonest that the same business leaders who have bragged about the destruction of carbon taxes (that most economists love) and resource rent taxes (that most economists love) are complaining that our tax system relies too heavily on personal income tax.

Let’s be clear, as always, the Australian businesses lobby groups are trying to have a bob each way.  Having fended off carbon taxes and resource profit taxes they are now complaining we are too reliant on income tax!

Many of those worried about the inflationary impacts of addressing Cost-of-Living pressures by reshaping Stage 3 tax cuts are the same people who are proposing Australia increase the GST. No tax does more to increase inflation than the GST—it literally increases the price of everything.

We do need to reform Australia’s tax system, and the government is right to redesign the Stage 3 tax to deliver tax relief to low and middle income earners.

But you can’t even start a proper conversation about tax reform until our business community stops telling lies about our tax system.

To be clear, according to the pinko lefties at the World bank, the IMF, and the OECD (run by that well know socialist Mathias Cormann) Australia is a low tax country. Anyone who can’t say that out loud should not be taken seriously in a debate about how to reform our tax system.

So, what needs to be done to really reform the tax system?

Step 1 – Do no harm. Economics 101 says we should tax things we want less of and subsidise things we want more of. But here in Australia we are spending over $11 billion per year on fossil fuel subsidies. In its first budget the Albanese Government committed $1.5 billion to a gas hub in Darwin Harbour. If we want to transition away from coal and gas, we need to stop subsidising them. That’s easy tax reform. This is not complicated stuff.

Step 2 – Do the simple things first. Australia is the world’s third largest fossil fuel exporter, behind only Saudi Arabia and Russia, but even though we export more gas than Qatar, Qatar collects 20 times more tax on its gas than we do. The easiest way to reduce Australia’s reliance on personal income tax would be to increase the Petroleum Resource Rent Tax. We could easily collect billions in extra revenue and, according to science, if the extra taxes discouraged investment in more fossil fuel production that would be a good thing.

You can’t transition away from fossil fuels while you are expanding them. The polluter pays principle needs to be at the heart of any genuine tax reform debate.

Step 3 – Be fair. We need to reduce inequality in Australia. Inequality is increasing in Australia and the market isn’t going to fix it. CEOs aren’t going to give themselves pay cut to reduce inequality, but bizarrely they have responded to the Governments plans to cut taxes for low paid workers by calling on the Fair Work Commission to give those on minimum wages a smaller pay rise.

This is sick.

Scott Morrison’s stage 3 tax cuts would have delivered $9000 to those earning over $200,000 and literally nothing for those earning $45k or less…the governments changes to stage 3 are a good start but we need to go a lot further. A simple, economically efficient, and popular solution would be to collect more tax from the PRRT and use it to boost rent assistance and help low income earners struggling with their utility bills.

If we collect more tax and lower the price of energy, medicines, childcare and going to the doctor we can reduce inequality, greenhouse gas emissions and the CPI all at the same time.

Step 4 – Think big. Whether its climate change, cost of living, covid or the new Cold War, Australia is going to need a bigger better public sector moving forward, not a smaller one. For decades we have been told if we cut taxes and privatise services things will get better, but in reality, it’s inequality that has grown, not productivity or service quality.

The clearest example of the damage we have done to our society and our economy through decades of tax and spending cuts is that here we are today — the week that school goes back — with a teacher shortage in the middle of a skills crisis.

Anthony Albanese’s decision to recast Scott Morrison’s 2018 Stage 3 tax cuts to suit the economy of 2024 is the biggest and most honest piece of tax reform in modern times.

In the middle of a cost of living crisis he will legislate to shift around $90 billion from the top 10 percent of Australians to low and middle income earners.

If he had stuck with the plan to give $9000 to those earning over $200,000 and literally nothing to those earning less than $45 k it would have ripped the fabric of our democracy at a time when democracy around the world is already fraying.

It is hard to believe that Scott Morrison ever designed a plan that delivered the temporary and timid stages 1 and 2 and the enormous and permanent stage 3 tax cuts, but it is inconceivable that any government could implement them today. The world has changed too much.

Polling by the Australia Institute has repeatedly shown that a strong majority of voters would prefer governments to do what is right for the economy than to keep a promise and I have no doubt that the Albanese Government will be rewarded by voters for doing do. But that said, the issue of trust is an extremely important one.

The best way to avoid breaking these kinds of promises to is to avoid making them. Many Ministers would much prefer to set ambitious targets for other governments to deliver on in the future.

And many journalists feed into this problem by breathlessly reporting a refusal to ‘rule out’ a tax increase as a ‘secret plan’ for a tax increase.

If Australia is to have real tax reform, then we will need to have a real debate about it. And we can’t have a real debate when we can’t even agree on the simple truth that Australia is a low tax country.

And we can’t have responsible governments if they are unable to adapt to changing circumstances because they ‘ruled out’ doing anything unexpected.

The world, our country, our democracy, and our economy are becoming more volatile, more unpredictable. Whether it’s the Rights concerns about the rise of China or the scientists concerns about the rise in global temperatures it is going to get harder to hold our economy and society on a steady course, not easier.

The way we collect and spend tax revenue is one of the major drivers of the shape of our economy. It’s one of the few things we have complete control over.

And if you don’t believe those decisions make a difference, just consider the fact that in Norway, they tax the fossil fuel industry and give kids free university education, in Australia we subsidise the fossil fuel industry and charge kids a fortune to go to university. Indeed, the Commonwealth collects more revenue from HECS fees than it gets from the Petroleum Resource Rent Tax.

Choices matter.

Australia is one of the richest countries in the world and while we can’t afford to do everything we want; we can afford to do anything we want.

Making the stage 3 tax cuts fairer is good for our society and our economy, but if we are serious about improving the lives of all Australians, serious about tackling climate change, and serious about defending this vast continent it is time to admit that we can’t have world class services if we have a third world tax system.

Scrapping fossil fuel subsidies, taxing the fossil fuel industry fairly, taxing the tech platforms and closing the loopholes that allow many of our wealthiest individuals and companies pay no tax will strengthen our society and our economy.

Investing in free childcare would drive far more people into the workforce than any tax cut. Investing in convenient public transport will drive down the cost of living. And investing in our essential services will improve both our quality of life and our productivity.

None of this is complicated, but until we can have an honest debate about the high cost of being a low tax nation, we won’t be able to fix anything.

Just remember, if we only collected the OECD average amount of tax, we would have an extra $100 billion to spend reshaping our economy.

What do we want more of and what do we want less of—these democratic questions should drive any serious debate about tax reform.



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