The AFR View
Incremental change is a waste of time. Ken Henry says someone has to grab this thing and get on with it.
The political class’s lack of grip on tax reform, says former Treasury secretary Ken Henry, is turning into “an intergenerational tragedy of our making” that will leave younger Australians struggling to pay for the fecklessness of this generation. Dr Henry is calling again for a “foundational tax review” – similar to like what The Australian Financial Review called on both major parties to commit to before the 2022 election and now calls on again for the looming 2025 election.
Former Reserve Bank governor Philip Lowe agrees that the tax system is not fit for purpose, saying Australia taxes income-generation too heavily and consumption too lightly. “The answers aren’t at the technical level, they’re at the political level,” he says. This is an expert indictment of Australia’s contemporary political leadership, including the previous Labor government that botched Dr Henry’s 2010 tax review, the previous Coalition government, which sat on its hands, and now the Albanese government and the responsible minister, Treasurer Jim Chalmers.Dr Henry warns that the rising share of income tax and the ratcheting up of government spending will mostly burden the shrinking proportion of younger working-age Australians, the same ones who are being priced out of the housing market. That undermines the social compact of fairness that holds the tax system together, encourages avoidance and retards economic growth. As Dr Chalmers’ political hero, Paul Keating, says, taking more than 39¢ in every dollar of personal income tax is confiscatory.
Corporate tax rate
Dr Henry warns that the internationally uncompetitive 30 per cent standard corporate tax rate is reflected in recessionary levels of business investment that has made Australia a net exporter capital. It is a darker explanation of Australia’s current account surplus, which others like to hail as the result of higher national saving from compulsory superannuation.
AdvertisementDr Chalmers lists Labor’s tax agenda as bringing some petroleum resources rent tax revenue forward, a multinational tax crackdown, a limit on tax concessions for superannuation balances over $3 million and now the revamping of the Coalition’s stage three tax cuts. Yet, the stage three revamp is really a retreat that will increase bracket creep, while the others amount to incremental, ad hoc, change. Labor is left without any basic tax principles, which ensures that actual tax policy will degenerate into opportunistic tax grabs.Shadow treasurer Angus Taylor says he is “committed to a tax reform process that delivers lower, simpler, fairer taxes”, but the Coalition must now promise to turn those principles into real policies if it returns to office. The repair job must begin with a set of big picture principles, because without such principles, policy will spray in the wrong direction, as shown by the tax three revamp and Labor’s GST distribution fix. Many will agree with Dr Henry that incremental change is a waste of time and someone just has to grab this thing and get on with it.The Australian Financial Review’s succinct take on the principles at stake in major domestic and global stories – and what policy makers should do about them.Subscribe to gift this articleGift 5 articles to anyone you choose each month when you subscribe.Subscribe nowAlready a subscriber?
Latest In Tax & super
Fetching latest articles