by Richard Denniss
[Originally published on The Guardian Australia]
It’s time we talked about tax. Bill Shorten wants to close tax loopholes and spend more on schools and hospitals. Prime minister Scott Morrison wants to scare voters about the perils of a high-taxing Labor government. And the business community still want the Liberal’s big cut in the company tax rate, but they also want Labor’s proposed tax concessions for new investment.
While there is no agreement about what shape “tax reform” should take, there is overwhelming agreement between the major political parties that this year’s federal election will be a referendum on tax. And the best thing about living in a democracy is that the decision about whether we collect more revenue and spend more on services, or cut taxes further and spend less on services, will be made by you.
History and geography make clear that there is no “right” amount of tax revenue to collect. The Nordic countries have some of the highest tax/GDP ratios in the world and also have some of the most prosperous and cohesive societies. Many developing countries in Africa and Asia have very low levels of tax collection and some of the weakest economies in the world. If investment simply flowed to the countries with the lowest tax rates then all of the world’s cars, computers and clothes would be manufactured in tax havens like the Cayman Islands. But of course, despite their low taxes, almost nothing is produced in tax havens – beyond accounting services.
There is also clear evidence that there is no “right” way to collect the amount of tax preferred by a country’s citizens. The “lefties” in the US have a strong preference for the kind of property taxes and wealth taxes that give Morrison and treasurer Josh Frydenberg conniptions. The Tories in the UK oversee a 40% inheritance tax, which in Australia would obviously be called a “death duty” and deemed as “class warfare”. Countries as diverse as Sweden and South Korea raise revenue through carbon pricing. Norway has become rich by taxing its oil reserves while Australia has literally chosen to give much of its gas away for free, mostly to multinational companies which pay little or no company tax here in Australia.
And while there is no clear evidence about the right amount of tax to collect and the way to collect it, luckily the Australian constitution allows us to have elections to make such important decisions. After decades of the ALP and Coalitionagreeing that lower taxes would deliver benefits that would “trickle down” to the broader community, we are about to have the first election in a generation where the government are keen to place competing ideas about revenue collection at the centre of their election campaigns. Get your popcorn!Conservative commentators seem convinced that Shorten’s plans to close tax loopholes like the capital gains tax concession, negative gearing for investment properties and franking credit refunds will cost him enormously at this year’s election. At the same time the ALP’s strategists seem convinced that talking about spending more on schools, roads and hospitals that are funded by making the tax system fairer is a political winner for the opposition. If one thing is for sure, by May this year we will know who was completely wrong.
For decades political commentators, and many voters, have complained that the two major parties had become virtually indistinguishable. You don’t hear many people say that anymore. But regardless of what you think of either major party’s policies, the fact that they are offering us, the voters, a clear alternative is to be applauded.
While we will need to wait a while for the Australian Electoral Commission to tell us which vision for Australia is the most popular, early signs are ominous for the Morrison government. Shorten spelled out his proposed changes to negative gearing before the last federal election and his clamp-down on franking credit refunds before the Batman byelection, and he did much better in both contests than was expected. The Coalition have been attacking the proposed changes for years in some cases, yet they still lag behind Labor by as much as 10 points in some polls.
The Victorian state election provided another rebuke to Coalition strategists who believe that scare campaigns about Labor’s economic management are a substitute for a positive vision for the country. Daniel Andrews trounced his Victorian Liberal opponents at last year’s state election on the back of promises to spend more money on essential services and infrastructure.
Australia is one of the richest countries in the world yet as anyone who has travelled to Europe knows, our cities and our essential services are far from world’s best practice. For 30 years Australian voters have been told, by both major political parties, that if we cut taxes and public spending sufficiently, we would become rich enough to have world class services one day. Strangely it didn’t work.
Democracy isn’t perfect and it’s not quick, but it was set up to answer big questions about what we want more of and what we want less of. The ALP is doubling down on its strategy of closing tax loopholes and spending more on services. The Liberals are sticking with the importance of cutting taxes and cutting public spending. I can’t wait.
Richard Denniss is chief economist for the Australia Institute @RDNS_TAI
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