It is a bit rich for Gina Rinehart, with the enormous privileges she has inherited, to be telling us that we all need to work harder, cut taxes and curb wasteful government spending. Born on third base, as baseball enthusiasts would understand, does give a very jaundiced view of yourself and others.
There is a quite dishonest campaign being run about the need to cut spending and reduce taxes. It looks as if we are being softened up to help the “deserving rich”.
The facts are clear however that Australian taxes are very low by world standards. At 28% of GDP our taxes are well below the OECD average of 34% of GDP and much lower than the taxes in some northern European countries that have very successful economies and where taxes reach about 45% of GDP.
It is our tax system that needs attention as Ken Henry keeps reminding us, including could I suggest a stiff inheritance tax that would bring some people back at least to second base!
One of the reasons why we have such lower tax revenue is because of ‘tax expenditures’ as economists call them. These “tax expenditures” cost our tax revenue $115 billion in 2012-13. “Tax expenditures” are government revenue foregone as the result of differential or preferential deductions and treatment of particular sectors and taxpayers. Deductions for superannuation are the most blatant of these rip offs. Ross Gittins calls those that benefit so much the “super fat cats.”
In a working paper in January this year the IMF showed that Australia has one of the highest “tax expenditures” in the world. . We topped the list of 16 countries with “tax expenditures” as a percentage of GDP at 8.5%. For big spenders like Italy, it was 8%; for the US 7.5%; UK 6%; France 4%; Canada 2%; Germany 1% and South Korea 1%.
The Australian Parliamentary Library in its report on January 28 this year was headed “Australia tops the charts in tax deductions”
In Australia the “tax expenditures” that put us at the top of world ranking are in key areas that benefit high income earners — superannuation, retirement incomes, health insurance, capital gains on short-term investment, housing (both owner occupied and investment), family trusts and the absence of inheritance taxes. These generous concessions have been designed to preserve the incomes of the wealthy and the middle class which both political parties have tried to keep onside. Such concessions have also favoured older Australians, to the disadvantage of the young, who have faced increases in university fees and more expensive housing and have been cajoled into private health insurance to pay for the healthcare of the aged.
The IMF Working Paper highlighted the problems that high levels of “tax expenditures” cause.
- They compromise fairness. The report says ‘Tax expenditures can be a poor way of pursuing equity objectives in a progressive tax system. For instance any policy that reduces taxable income will benefit most those in the highest marginal tax bracket and convey no benefit to those out of the tax system.’ It is surely unfair and unsustainable that if we are over 60 and regardless of the level of our income, we do not have to pay any tax on our superannuation income.
- They can be inefficient and poorly targeted. ‘ … the current deduction of mortgage interest for instance may encourage leveraged housing finance’.
- They are vulnerable to lobbying. ‘Special interest groups may find it easier to argue for tax breaks than for explicit spending support. Tax expenditures often bypass the scrutiny according to spending in the regular budget. … This lack of transparency may explain some of the appeal they hold … ‘
In short, “tax expenditures” are unfair, inefficient and provide wonderful opportunities for rent seekers like the superannuation and the private health insurance industries in Australia to secretly lobby for concessions.
If we reduced these tax expenditures by 50% we would be well on the way to meeting the $60 billion long-term structural budget deficit that we face.
The problem is not in our spending or support for persons with handicaps or low incomes. The problem is in our taxes and particularly the system of “tax expenditures” that benefits the wealthy. But we don’t want to know about it. We complain about electricity prices and the carbon tax but they are small beer compared with the enormous rip offs by the wealthy in superannuation and aged pensions.
The previous government made a few changes like means-testing the private health insurance rebate but it ignored the general thrust of the Henry Report for tax reform.
Gina Rinehart and the deserving rich want to defend and expand middle-class concessions like “tax expenditures”. It is galling that people born on third base think that everyone else is wasteful and lazy.