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Tax reform is taxing

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Is it just me, or are there other Australians out there asking why we are stocking up Canberra this week with a whole bunch of whingers who want to either cut or push up taxes. Oh yes, I shouldn’t forget the abolishers of old and the creators of new taxes – the usual suspects always show up to these grandstanding events.

Deep down inside, because of my training and my years as an academic economist, I know that tax reform can be a good thing. The goals are always simple – reduce tax evasion, close up tax avoidance loopholes, improve fairness, which we economists call equity, and finally try to make the tax system more efficient.

No change anytime soon

These are all noble goals and that’s the only reason why I can give the Tax Forum of the past week a tick of approval. For all of the interested parties to be given a chance to run their wild, whacky and sometimes sensible tax ideas up the flagpole to see if we can get a national majority to salute it makes a bit of sense.

But it would be madness for anyone to seriously believe that anything will come out of this before the next election. Why? Well, try this. The Gillard Government is on the nose because of taxes – the mining tax as well as the carbon tax, and don’t forget a little lie about, “there will be no carbon tax”.

We’re scheduled to see the carbon tax kick in next July and so that will either make or break this currently highly unpopular Government. The only tax policy that would work with voters would be a tax cut! But forget that with the budget now in deficit.

Okay, now that you know nothing of real consequence mentioned really will happen over the next few years, let’s look at some of the great and harebrained ideas that have been canvassed this week in the nation’s capital. 

Tax talk

Gary Banks, the chairman of the Productivity Commission warned raising taxes to change society’s behaviour doesn’t have a good track record for working. This has implications for the carbon tax and those suggesting a congestion tax would be good to cut down the ‘car parks’ we see on our so-called motorways at peak hour.

Taxing stuff that people are addicted to has been good for revenue collection but not all that good in fixing up problem drinkers and gamblers.

From the loony left and the Greens, Bob Brown wants a fat tax to kill obesity but does he seriously believe a kid going into Maccas will see the 10 cents a burger tax and go running for the fruit shop, where a great piece of fruit is always dearer than a cheeseburger?

I will say this only once again – taxing does not stop addicts – and that’s why we should invest our public money in great education campaigns, not taxes.

Other ill-timed ideas which are political hot potatoes come from business groups who want the GST to be raised and spread over a wider range of goods to get rid of dumb taxes like stamp duty and to reduce payroll taxes.

Heather Ridout from the Australian Industry Group is running with an idea from cloud cuckoo land suggesting that we impose a land tax on all homeowners to kill off stamp duty on property transactions. The well-named Julian Disney thought it was okay for high-priced land.

It would spell death for any party with the guts to run with this one, but believe it or not, the former Treasury boss, Dr Ken Henry, who is a smart guy, also canvassed the idea inside his famous Henry Tax Review that the Rudd Government quickly ignored.

Not surprisingly, business groups want to cut the company tax rate from 30 to 25 per cent, which would help the businesses in the slow lane of the two-sped economy, but the Australian Council of Trade Unions (ACTU) is railing against the proposition.

The irony is that the experts on public finance spearheaded by Dr Henry agree and as he pointed out, “in Australia, if the company income tax were to be cut, the principal beneficiaries will be workers.” 

The positives

On the plus side, state governments are looking at harmonising payroll and land taxes across the country. Sorting out the problems with state government funding has been an elephant in the room for decades and hopefully, one day, we will see a strong government with a majority, which will make moves to fix this up for good.

Apart from improving state facilities such as hospitals and roads, it could stop state premiers and treasurers always bleating and pleading poor mouth.

Another positive is the suggestion that the Treasurer, Wayne Swan, is looking at ways to use some tax changes to help small business in particular. One worthwhile idea is to let business take losses back rather than only forward.

The idea here is that if a business made a profit in 2010 but losses in 2011, then these losses could be taken back to reduce the profits of the year before, which might mean a tax refund results.

Clearly, safeguards would have to be implemented to avoid exploitation but it means a business has the chance to average out profits and losses and could mean cash flow comes via the tax office when it’s most needed.

Wrong place, wrong time

Russell B. Long once observed that, “tax reform means ‘don’t tax you, don’t tax me – tax that fellow behind the tree’.”

I reckon tax reform is a great idea but right now we can only talk about it and it won’t happen until we have a government with the guts, the majority and the support to pull it off.

By the way, that’s why the carbon tax is especially rejected – it’s a tax in the wrong place at the wrong time.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Published on: Saturday, October 08, 2011

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