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May 14, 2021

Thus Spake Mungo: Don’t mention tax reform

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AustralianCoins-Money-ZB-1200By Mungo MacCallum

So the great national conversation has begun, and, it would appear, for practical purposes ended – at least for the foreseeable future. An executive summary:

G’day. Let’s have conversation about tax. What do you think about a few reforms to the GST?

Piss off, hairy legs.

Oh, all right then. Sorry I asked. I won’t mention it again, if that’s the way you feel. Let’s talk about something more pleasant. Terrorism, for instance. Or domestic violence. Or perhaps my superb performance in the Pollie Pedal…

Pragmatic it may be, leadership it isn’t. The most obvious ideas about reforming the tax system, or indeed a new approach to budget reform more generally, is that the government simply hasn’t any. All it can do is canvas broad options and hope that someone else – anyone else, might pick a few of them up.

The assistant treasurer, Josh Frydenberg, who seems to be making most of the media running on the issue, insists that everything is on the table – nothing is being ruled in or ruled out. But in fact the parameters have been firmly set. At least until the next election, there is to be no damage to family budgets – and this includes just about any serious cuts to health, education and welfare, which are the big ticket items.

The family home remains sacrosanct. There are to be no tweaks to the superannuation system – after all, we can’t break a pre-election promise, can we? Well, at least not this one, especially to our own constituents. And the GST is out, because Labor says so and some of the state governments are Labor. It doesn’t leave all that much left.

But despite the policy malaise, some thoughts have been put forward, and a desperate government has said it will at least consider them. ACOSS has proposed an severe tightening of the asset test for the old-age pension, reducing a ceiling on personal wealth from about $1.1 million to about $800,000.

It doesn’t sound a lot, but it would, over time, save a worthwhile heap of government revenue that could be given to a more deserving cause. The new caring, sharing social security minister Scott Morrison says is will go into the mix, although a lot of rich conservatives will not be happy.

They will be a lot more miffed about Labor floating – or refloating – chopping off some of the frankly grotesque perks available to the super rich as they turn them into large scale tax avoidance. Even a few of the more moderate – and rational – Libs acknowledge that on equity grounds alone these need to be brought under control. But the powers that be, Tony Abbott and his backers, won’t touch them except in the context of a wider review, which would not only retrace the grounds covered by the then treasury head Ken Henry back in 2009, but would also be postponed at least until a comprehensive election package, if regarded as politically viable.

And Labor’s other thought, allegedly costed and finalised, cracking down on tax avoidance by the multinationals – has been dismissed by business and its accountants – well, they would, wouldn’t they? – and put in the too hard basket to be ruminated upon by the G20, which appears to be in no hurry either. So perhaps it is time to go back to basics.

We all know what tax is: government theft, of the price we have to civilisation, depending on your beliefs and circumstances. But let’s have a look at the provisions of retirement and old age: just what are pensions and superannuation actually supposed to do, and by whom and by how are they to be financed?

In the beginnings, of course, there were no pensions and no superannuation – no nothing. The old, the ill and the indigent survived on charity – or, more often, didn’t. But the Australian constitution authorised an aged and invalid pension and in 1908 it became legislation for males over 65. Females over 60 followed in 1910.

Over the years a widows pension and child endowment were introduced by the states; in the 1940s they became national policy. In the meantime the pension had become rates and means tested, and an automatic cost of living increase introduced. And at the end of the war the commonwealth extended a flat rate unemployment and sickness benefit subject to an income test.

The 60s saw liberalisation on the part of women and couples, and later the beginnings of the part pension system. Successive governments continued to add benefits to children, the unemployed and the homeless and in 1985 the first asset test was applied. But until the start of the Howard years, the emphasis was always on need, not on entitlement. The bonanza of the 1990s opened the flood gates.

The story of superannuation is similar but much later. The idea goes back to the 19th century but only in 1992 did Paul Keating bring in compulsory superannuation. The long term aim was that it would replace the pension, but in fact it has continued side by side.

It has never been universally popular; many workers resent having to sequester what they see as legitimate wage rises they can manage for themselves. But, once again as a result of the prodigality of the Howard years, it has offered huge benefits to the smarties, who have turned it into the equivalent of a tax-free trust fund for themselves.

Belatedly, the government has realised that this is not only unsustainable, but unconscionable. But the electoral risks of paring it back to something closer to its original purpose are immense, especially in the context of an already dangerous election year.

The new conversation will no doubt go on, and perhaps – just perhaps – a glimmer of bipartisanship will offer a breakthrough. But given the sullen and selfish mood the voters have demonstrated in the past, their response is more likely to remain the traditional one: piss off. And given the government’s recent record, it will happily do so.

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  1. But Mungo re the election risks of sorting out these superannuation tax concessions…I would have thought they weren’t that huge because they only really apply to the top 5 or 10% of income earners, or in other words 5 or 10% of voters. I don’t quite see how that would be a big election risk in the same way I don’t quite get why some polly doesn’t have the balls to stand up to big business as the majority of Australians are all for a bit more equity. That equates to more votes won than lost I would have thought?


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