Monday Night Q & A: Tax Reform

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Satyajeet Marar, member of the MQ Liberal Club

As aphrodisiacs go, the words “Australia needs tax reform” are not the most arousing. But some things must be asked. How did it get there? Why did it fling my wife’s hair dryer out the window?

For the last decade or more, federal governments have struggled with the problem of ensuring we can sustain our way of life. Our population is ageing and both sides of politics acknowledge the potentially looming crisis posed by mounting debt. We know there’s a problem, we know it’s only going to get harder to maintain the accessibility and quality of public services we take for granted – our medicare, our Centrelink, our police force and more. The only problem is that the public backlash to plans to cut higher education subsidy, introduce a medicare levy for those who can afford it or to cut funding for government programs have made it quite clear that the pain from a jellyfish sting isn’t enough for our public to yet consider that they might have to cop some piss to the afflicted area.

Adding to this dog’s breakfast, is the often shaky relationship between the federal government and state governments – even when under the same party, state governments effectively lobby the federal government for as much federal funding and resources as they can get. This is their mandate after all – the premier of Victoria isn’t going to lose his next election because a kid in Alice Springs couldn’t get to the doctor on time. This connotes the problem of ‘Veritical Fiscal Imbalance’ – a discrepancy between a government’s spending and revenue raising powers.

This is exactly why PM Turnbull’s plan to reintroduce fiscal federalism to the Australian economy – by allowing states to raise their own income tax revenue is such a great idea. Rather than increase taxes, the states which currently provide many of the services we rely upon on the local level, will now also be responsible for raising the money needed to provide these.

This means that your state government is now under incentive to make responsible decisions on both the spending and expenditure front. It could choose to provide excellent public services by raising taxes or it could choose to cut taxes, letting you keep more of your money and encouraging economic freedom in exchange for reduced quality or reach of public services. The point is that local communities that rely on services will also pay the tax to support them and can vote on their feet – travelling to states or territories whose tax and spending policies have produced the most desirable outcome for them. Alternatively, and more simply, you vote in the government that is simultaneously best at providing the level of service you want and is best placed to provide it whilst also being the best at raising the revenue for it without compromising the state economy with tax burdens that may constrain economic activity. And it makes moral sense too – why should mine-loving West Australians have to compromise their state’s biggest industry with a tax to fund the relatively large Tasmanian public sector?

Of course state premiers hate the idea. This not only means more work for them but also the tough responsibility of answering to competing interests at the local level by managing a delicate balance between expectations and the reality of what a state can afford.

Alternatively, they could see the proposal for what it is – a chance to implement tax policy and flexible economic regulations competitively against other states in order to attract the most investment and economic opportunities for their citizens – this will mean a raise to the top connoting more money which can be funnelled into providing the best quality public services possible. This is certainly a far more desirable outcome to the current state of affairs whereby the central government removed from the services its revenue provides, must try to sustain itself by trying to find the least unappealing tax hike or spending cut that the public as a homogenous blob is willing to acquiesce to so we can continue to have inefficient services provided to us at the state level.

Jack Freckleton, Member of the MQU Labor Club 

Taxation reform, a conversation the Australian people need to have.

And yes I know, not a lot of us are daydreaming about sexy income tax thresholds or swooning over consumption taxes, but taxation is a core element of our democracy. It is the social contract that gives us the dollar billz to build the roads we drive on, the schools we are educated in and the hospitals we are born in.

Currently, no matter which state or territory you live in, you pay tax on how much you earn, which is collected by the Australian Taxation Office and distributed back to the states in the form of infrastructure grants and funding. Basically, you make money, the Government takes a little bit back and then you have a curb and gutter and everyone wins.

Enter Malcolm Turnbull, our glorious leader.

Turnbull’s “ideas boom” has seen policy on the run and reactionary politics, and it’s the Australian people that are worse off for it.

Turnbull’s latest brain fart has been this – “lets make the states and territories collect their own income tax, so that we don’t have to fund stuff!”

Okay maybe I’m paraphrasing a little, but the premise is much the same.

Marketed as “the most fundamental reform of the federation in generations,” Turnbull’s push to have the S & T’s set their own taxation rates and collect their own tax revenue is as dull as dishwater. The scheme not only gives license for the Federal Government to stop funding our vital public schooling system, it creates oodles of logistical problems for the fair collection of tax.

Take for example, Old Mate;

Now, Old Mate lives in Sydney, but flies out to the mines in Western Australia to work. Does Old Mate pay tax in WA, where he earns his wage from resources and infrastructure in that state, or does Mike Baird and his team of goons in NSW reap the rewards at the expense of the Western State?

Or what if Old Mate has a friend who owns a few houses on the side?

Old Mate’s mate, Mary, had quite affluent parents and has got some low key property assets on the side because of a evil little market mechanism called Negative Gearing. Mary has one in SA, one in QLD and her “living address” in Victoria. Now Mary doesn’t like paying tax, she’d much rather poor people work it out amongst themselves. So, with the help of a crafty accountant, Mary moves her main residency each year to the state that has the lowest tax system. Is this fair? People who have the financial means to own more than one home, already with a huge advantage over your every day Aussie battler, can move their tax around the country to minimise it, whilst their neighbour, living on an average wage and trying to feed a family, are left to pay whatever tax rate the State Government see fit.

But don’t let the Tories tell you that Labor are “economically irresponsible”, or that we can’t afford to fund public services like schools and hospitals.

Malcolm Turnbull, sitting in his mansion on Sydney Harbour doesn’t care about real tax reform, he just desperately wants to keep his job. His dream of an “age of innovation” won’t happen without properly funded schools.

Labor’s tax plan is not to break up the states and make income tax impossible to keep track off under the guise of “reform of our federation”. Labor isn’t going to raise the GST, a regressive tax that hurts lower-income earners.

Labor’s plan is fair. Go after multinational corporate tax avoidance before you rip the states and territories apart. Go after the Australians who funnel income into overseas tax havens. Fix a broken housing market that would mean Gen Y will likely never own a home.
The Council of Australian Governments have already rejected Turnbull’s tax plan. The States and Territories don’t want it, Australia doesn’t need it.

Turnbull’s so called “Ideas Boom” has already fizzled out.