There is a long term need in Australia to raise more tax revenue. If we want to maintain a compassionate society that looks after those who need looking after we need more money to do it. The sick, children, older Australians, people with disabilities and those having difficulty looking after themselves. It is not a budget emergency but we do need to raise more through tax to maintain a compassionate society.
It seems to me that we are looking at taxation from the wrong direction. We fiddle at the bottom instead of looking down from the top. We make incremental changes to existing sources of funds and invent minor areas of tax revenue. We scrape a few million here and a few million there. This is when we actually spend close to $400 billion every year.
Suppose we set some objectives for key tax areas and work out how to achieve those objectives through rules and regulations. Here are four examples.
The government foregoes hundreds of millions in tax revenue because of superannuation tax concessions. Obviously people – particularly on higher incomes – use this to avoid paying tax. The purpose of super is to pay for our retirement.
Surely we can come up with a figure for accumulated super where our comfortable retirement is assured. Anything beyond that is taxed. We can argue about the number, but say we decide that a comfortable income can be generated if the super balance at retirement is $2m. Don’t get hung up on the number, as it is just an illustration. What if we made anything in excess of that amount taxable at a normal rate? How about a primary super account that could contain a max of $2m, and anything else go into a secondary account that had tax applied at a rate in line with normal income?
There are lots of ways to structure the taxation regime but you get the picture. Start with an objective and design the system to meet the objective.
Negative gearing is an unproductive tax break. It provides a tax benefit (i.e. less tax collected) to one group, and drives up property prices for another group. Most commentators say it should go. The problem is that if you cut it out, you hurt the people who currently have negatively geared investments.
Once again, start with an objective. That might be to phase out negative gearing over a 5 or 10 year period to the point where it is comparable with other mainstream investment opportunities. You then work out how to do it. Maybe reducing the percentage claimable through negative gearing by 10% to 20% each year. Give people time to extract themselves from negative gearing if they choose.
Trading in shares is not a productive undertaking for a nation. It is just gambling on a massive scale. You buy shares betting they will rise in value or pay you a dividend. You bet on currency movements.
The objective should be to tax these unproductive activities just as a government would tax gambling revenue. Hopefully it would discourage those trades that seek to make a minute profit on minuscule movements in prices. The objective is to make betting on financial trades a taxable activity. Perhaps a 0.5% tax on all financial transactions would discourage day traders and collect a sizable amount of revenue.
Multinational Tax Avoidance
We all know that Apple, Microsoft and many more multinational companies avoid paying tax by transferring money to tax havens. Here is a problem screaming out to be addressed through taxation.
If the objective is to make overseas companies pay their fair share of tax, what strategies could the taxation department come up with to address the issue? Maybe a 75% tax on payments made to overseas branches that are not for reasonably costed goods and services delivered. How would it work? Probably highly complex, but once again start with the objective and design the details to achieve the objective.
Surely this is an easier way for governments to sell their story to people. The story is that if you want government to deliver these services, they will cost this amount of money. Governments do not create money, they redistribute it.
To get money, they need to tax people and businesses. Tax people too much and they don’t have enough to spend so the economy goes down. Tax business too much and there are not enough jobs so the economy goes down. We need to seek a balance based on fairness.
Areas that are obviously unfair now, need to be addressed. If a government can explain the lack of fairness, and have it understood by people, a broad objective to fix the problem is easier to get support for. Let the bureaucrats work out the details of how it can be done.
The problem with the current budget is that taxation measurements do not address perceived problems. They are just revenue grabs. Was there a problem with too many people going to the doctor when they didn’t need to? Was there a problem with, in particularly people under 30, receiving unemployment benefits? Was there a problem with petrol being too cheap? Of course people will object when a tax is imposed where there is no perceived need. Better to find an area that is obviously unfair, set an objective as to how it should be treated, and put that to Australians. That is the only way to get support for taxation increases.