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Hedge Clippings | 10 March 2023
Let's have a real conversation about tax! Following the flurry of indignation, debate, and media comment raised by the government's changes to super balances over $3 million, everything seems to have gone quiet. Maybe this is just the temporary or short-lived nature of the news cycle, or possibly that it's hard to maintain the rage or focus on something that affects less than 1% of the population, and a seemingly privileged one at that. However, that doesn't change a couple of key issues we have with Dr. Jim's "discussion" with Australians about the purpose of their super. Firstly, the increased 30% tax rate is triggered by the value of the asset, not the amount of income earned. Secondly, if triggered, tax is payable on both realised and unrealised gains. However, those are just the details. What also seems illogical is that Treasury forecasts estimate the new tax will raise just $2 billion out of almost $250 billion a year in concessions, or less than 1% of the total. Watch out, because what the government would really like to do is to come after some of the remaining 99% if they can. Of course to do that - as Bill Shorten discovered in 2019 - they'll upset far more voters than the 0.5% impacted by their current plans, most of whom are unlikely to be Labor voters in the first place. Of course, what is needed is a total review or conversation, not only around super but the overall taxation system in Australia. We had one of those in the form of the Henry Tax Review (aka Australia's Future Tax System Review) announced by then PM "Kevin '07", in 2008. Having taken 2 years to prepare, this was handed to the hapless Rudd two days before Christmas in 2009, but not released until May the following year. For the record, Kevin Rudd was also careful to shackle Henry's review before it started. It was not allowed to consider increasing the rate of, or broadening the base of the GST, or consider imposing tax on super payments to retirees aged over 60! Henry's report made 138 recommendations grouped under 9 broad themes. Rudd implemented just 3 of the 138 changes suggested in the report, lost his job over one, the proposed resources Super Profit Tax, which became the Minerals Resource Rent Tax (MRRT), passed in 2012 under Julia Gillard, and promptly repealed by Tony Abbott in 2014. History shows it is wise to choose your targets carefully, and avoid upsetting the powerful, and in the case of the resources Super Profit Tax, well resourced (pun intended) self interested companies, 83% of which were reportedly offshore owned. History also shows the futility of trying to overhaul or change the existing system, however broken, inefficient, or inequitable it may be. Most of Henry's report and its recommendations remain in the too hard basket, gathering dust. Some, such as a reduction in company tax, have been partially implemented. This leads us to two questions: Firstly, will we ever get the reform Henry's review proposed, such as just two levels of personal income tax and a much higher tax free threshold ($25,000), across the board company tax of 25%, and a simplification of superannuation, deductions, and offsets? And secondly, will any politician ever dare to increase the GST from its current 10%, and broaden its base in return for a reduction in personal income tax? This 2020 report from PWC estimated that by increasing the GST rate to 12.5% and broadening the base to include water, childcare, health, education, and food, it would generate $40 billion a year - so a rate of 15%, (as it is in New Zealand) let alone 20% (the OECD average rate is 19.3%), it would presumably take that towards $100 billion. The answer to both questions is "unlikely" given the political pain involved. However, that's the conversation Dr. Chalmers needs to have with Australians. And then get on with it! |
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