While the government pushes ahead with its major tax cuts, despite the pandemic, new analysis shows they will have a negative impact on women. By Mike Seccombe.
Morrison fixed on tax cuts as US and Britain embrace big government
Scott Morrison talked a big game on Tuesday, as he spoke to the media at the start of the first meeting of his women’s cabinet taskforce.
Sitting beside his newly appointed “prime minister for women”, Marise Payne, with eight other female ministers arrayed on either side, Morrison promised to bring “a particular focus and lens on our challenges as a country to ensure that women have at least equal opportunity, at least as much safety, at least as much economic security as men in this country”.
Even for a man prone to overpromising, this was a significant promise. And perhaps the prime minister realised as much, for he began his next sentence: “This is our hope…”
Hope is easy, though. Good policy is hard, complex and often expensive. It has become far more so since the start of the Covid-19 pandemic and the global recession the virus triggered, which has seen the rich get richer, the middle squeezed, the poor made poorer, and has imposed vast costs on government budgets around the world.
There have been a couple of interesting consequence of this massive shock to the economic system. One is that people’s faith in government has increased. Another is that governments themselves have realised they must do more to aid the recovery. And a couple of the very big economies – the ones against which Australia most commonly measures itself – have opted to do it not by cutting services but by raising more revenue and redistributing income and wealth.
Thus Britain’s budget statement, released on March 3, which said: “The fairest way to repair the long-term impact of the crisis on the public finances is to ask everyone to contribute, with the highest income households paying more.”
The Johnston government increased corporate tax rates and its tax policy decisions will bring in almost £66.7 billion more for the three years to 2025-26.
On the other side of the Atlantic in the United States, the Biden administration has been even more ambitious with its tax and expenditure plans. It will modestly raise personal taxes on the rich and more dramatically raise corporate taxes to 28 per cent, from the 21 per cent set under Donald Trump.
The US government also plans to crack down on companies shifting profits to tax havens, by imposing a minimum tax rate of 21 per cent on all offshore earnings. The aim is to raise $US2.5 trillion in revenue over 15 years, which will help pay for increased spending on infrastructure, aid to the poor, education, climate and the environment.
As The New York Times columnist David E. Sanger noted last week – 40 years after Ronald Reagan declared in his inaugural address as US president that “government is not the solution to our problem, government is the problem” – big government is back. Biden, wrote Sanger, had placed a trillion-dollar bet “that government can do colossal things that the private sector cannot”.
This week, Biden’s Treasury secretary, Janet Yellen, declared the US was actively “working with G20 nations to agree to a global minimum corporate tax rate that can stop the race to the bottom”.
This is a huge shift, says Richard Denniss, chief economist for the think tank The Australia Institute. “We’ve spent decades pretending that the way to help the ordinary worker was to help the billionaires first,” he says.
It never worked, Denniss says, except as a means of increasing inequality.
“If you want to deliver for existing wealth, then the two things that government can do are keep their wage bill down and keep their tax bill down.”
In this country, that’s what the Morrison government remains focused on.
Only this week, in its submission to the Fair Work Commission’s annual review of the minimum wage, the Morrison government opposed any significant increase. This is despite the fact that wages have been flat in Australia virtually since the Coalition came to power in 2013. Or that corporate profits are exceedingly healthy, and despite abundant evidence that income increases for the low-paid benefit the economy because they are spent buying goods and services.
On the flip side, the government remains committed to implementing huge personal income tax cuts, set to come into effect in 2024-25, which would cost the budget $95 billion over the subsequent six years.
The benefits of the cuts would flow, overwhelmingly, to high-income earners. It is estimated the top 10 per cent of high-earning Australians would get 31 per cent. The top 20 per cent would get 53 per cent.
At the other end of the income distribution, the bottom 10 per cent would get no benefit, and just 1 per cent would flow to the bottom 20 per cent.
The tax cuts would also disproportionately benefit men, because three-quarters of those in the top decile of earnings are male.
Which brings us back to Morrison, and his women’s taskforce, and to the complexity of the job before it.
It was no coincidence The Australia Institute released a new report, entitled “Rich Men and Tax Concessions”, on Monday this week, on the eve of the taskforce’s first meeting. And just a week after Victoria’s Senator Jane Hume, immediately after being appointed minister for Women’s Economic Security, had insisted in a radio interview: “I don’t think you can appropriately put a gender lens on the budget.”
The Australia Institute’s report rejected Hume’s statement.
“Gender inequality comes in many forms,” wrote the report’s authors, economists Matt Grudnoff and Eliza Littleton. “One of these is economic. Women on average earn less than men, have smaller superannuation balances and own less assets. This puts women at a higher risk of poverty and reduces their power within society.
“While the tax system, particularly the income tax system, acts to reduce inequality and lessen this power imbalance, tax concessions act as an important leakage from the tax system.”
Grudnoff and Littleton used modelling from the Australian National University’s Centre for Social Research and Methods on four big points of leakage – the tax on superannuation, the discounted capital gains tax, negative gearing and excess franking credits – that collectively cost the budget $60 billion a year.
The data showed that about 70 per cent of the benefit flowed to men.
It’s not that these tax breaks are designed specifically to benefit men. They are designed in a way that benefits high-income, high-wealth people. It just happens that, in Australia, these people tend to much more often be men.
Superannuation is by far the biggest of these concessions, worth more than $41 billion a year. And men, particularly high-income men, get 71.6 per cent of it. The design favours those on high incomes because super contributions are taxed at a flat 15 per cent. The higher a person’s marginal tax rate, the greater the benefit.
When The Australia Institute crunched the numbers not by gender but by income, it found half of all the benefit went to the top 20 per cent. Just 4 per cent went to the lowest 20 per cent of incomes.
If that regressive tax break was removed, Grudnoff says, it would yield enough revenue for government to provide a universal pension sufficient to keep all retirees out of poverty, with “$16 or $17 billion left over, that you could then apply to anything else you wanted to do”.
When he and Littleton analysed the data by accumulated wealth, rather than income, they found 50 per cent of the value of the concession on negative gearing, 83 per cent of excess franking credits and 87 per cent of the capital gains discount went to the top 20 per cent.
These inbuilt inequities are not the fault of the Morrison government. The basic design of the superannuation system was the work of the Hawke–Keating government. The capital gains, negative gearing and excess franking credit schemes were introduced by John Howard and Peter Costello. However, when Labor promised before the 2019 election to undo the latter inequities, Morrison campaigned relentlessly against them.
Take another issue: childcare, the cost of which makes it hardly worthwhile for many women to work.
By the calculations of Professor Miranda Stewart, tax law specialist at the University of Melbourne, and David Plunkett, a former Department of Social Services analyst, a woman earning the median female wage, with a partner on the median male wage and two children in long day care, lost 47 per cent of what she earned on the first day of her working week. Due to the complex interaction of the cost of care and the tax and family benefits regimes, she lost about 80 per cent of earnings for each succeeding day of the week.
Not surprisingly, faced with this reality, many women give up their jobs when they have kids. More than a third of mothers with children aged under five are not in paid work. Some 60 per cent of the rest work only part-time, and many continue to do so through their kids’ school years and beyond.
The cost of this is enormous, not only to their household income and to their superannuation, but also to the national economy.
An international comparison by The Australia Institute a couple of years ago found that if Australia could achieve the same workforce retention among women as Scandinavian nations, it would add $60 billion to $100 billion to the economy.
A more recent report, in November, by Dr Janine Dixon, senior research fellow at Victoria University’s Centre of Policy Studies, found that if the 450,000 parents of under-five-year-olds who wanted more work were able to get just 10 hours more a week, by 2030 GDP would be $15 billion a year bigger.
Government spending of $2.8 billion on additional childcare would create about 135,000 additional jobs a year by 2030, she found. A similar expenditure on tax cuts would create fewer than 10,000 jobs.
In short, the government would get much more bang for its buck by making childcare affordable rather than by cutting taxes.
The situation is all the more critical because the budget is not in good shape, and will not be for years to come, as Michael Keating, a former secretary of the departments of Prime Minister and Cabinet, Finance and Employment, and Industrial Relations, noted recently in a long, detailed analysis on the website Pearls and Irritations.
In 2018-19, before Covid-19, Australian government revenue was 24.5 per cent of GDP, the same as government spending – that is, a balanced budget.
In 2020-21, though, revenue fell to 22.5 per cent of GDP, while spending ballooned to 33.4 per cent.
“By 2023-24, after the recovery is expected to be complete, Australian government revenue is expected to still only represent 23.8 per cent of GDP – that is less than before the recession,” Keating wrote.
He cited projections from the independent Parliamentary Budget Office that, on present settings, “the federal budget will still be showing a cash deficit equivalent to 1.6 per cent of GDP in 2030-31 – in 10 years’ time.”
Keating’s concern is that given the Morrison government’s “ideologically limited” economic view, it will seek to fill this hole by cutting spending, further increasing inequality.
“What is clear is that, unlike their fellow conservatives in the UK, the Morrison government is not prepared to contemplate increasing taxation to help restore the budget balance,” he wrote.
“Instead, the government seems determined to press ahead with its tax cuts scheduled for 2024-25, which will flow almost entirely to the top quintile in the income distribution and do nothing for the voter base that won them the last election,” Keating said.
He would abandon those tax cuts.
So would Miranda Stewart and Richard Denniss, who notes that “the IMF, the OECD, the World Bank and Janet Yellen” all agree that this is a time for bigger, not smaller, government.
So, the big question is this: Who among the members of the prime minister’s women’s taskforce will have the courage to suggest that if the government is serious about promoting equity, not just for women but more generally in an increasingly unequal society, it should can the cuts, whack up taxes on the rich and fairly fund the future?
This article was first published in the print edition of The Saturday Paper on April 10, 2021 as "Morrison fixed on tax cuts as US and Britain embrace big government ".
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