Abbott undermines Hockey’s Re:think on tax
Less than 48 hours after the treasurer invited us all to a “Re:think” conversation on tax policy, the prime minister put his hand over his ears. Makes you feel almost sorry for Joe Hockey. In a series of interviews and sales pitch speeches, Hockey sounded, well, statesmanlike: “Look, I really think – I would love to have a bipartisan approach in all these issues because whether it’s a Liberal government or a Labor government, whoever it is, we’re going to have the same problems… We’re going to have the same challenges.” His spiel knocked the hard-bitten Jon Faine off his chair. The veteran ABC broadcaster was very impressed, praising the treasurer for his approach.
You could argue, of course, that if the Labor opposition did come on side with a raft of unpopular tax changes, such as raising or broadening the GST, the incumbent government would be the political winner. Let off the hook by an opponent willing to share voters’ ire.
But maybe it’s too early to be churlish in the treasurer’s regard. He bravely entered the quicksand of superannuation tax reform. The biggest losers here, of course, would be those self-funded retirees who inhabit the Liberals’ heartland. A marker for that was the reaction of Gold Coast Liberal MP Steve Ciobo rejecting the need for reform and describing talk of a bipartisan outcome as complete rubbish. Ciobo wouldn’t want the Labor Party targeting some of his wealthier constituents, unsettling their comfortable retirement in the sun.
But the real flak came from the prime minister. Tony Abbott reacted angrily to a suggestion Labor would consider increasing tax on the super of the very wealthy.
“It’s so typical of the Labor Party that they immediately want to see more tax, not less. As far as I am concerned, as far as this government is concerned, we want lower, simpler, fairer taxes.” The treasurer’s project shot down in flames right there.
Labor’s Chris Bowen was scathing, “He’s not up to being PM and still thinks he is leading the opposition. He is not up to a national conversation … All he wants to do is play politics.”
The assistant treasurer, Josh Frydenberg, was more in tune with his immediate boss, Hockey. He tried to prise open the door Abbott had so defiantly slammed shut, telling Sky News that generous superannuation concessions should be reviewed “right across the board”. He diplomatically added, “and not just for the wealthy”. Never mind that the government had already dealt with super concessions for lower income earners. Last year it ditched the low income tax offset for those earning less than $30,000 and froze the superannuation guarantee for wage and salary earners at 9.5 per cent.
Adding to the mixed messages, another senior minister, Christopher Pyne, wants a complete hands-off. He sees the super nest egg as entirely the asset of the superannuants. They have put that money aside for their future, he says, “and they should not have to be concerned that any government will tap into that”.
Pyne’s view flies in the face of new research based on official government data that 24,000 of the richest superannuation holders each with more than $2 million in their accounts receive about $5.2 billion in tax-free income annually. And that’s not all, a further 51,700 retirees with $1 million to $2 million in their accounts receive $4.9 billion tax-free. It’s a legacy of the decision of the Howard–Costello government in 2006 to scrap taxes on retirement income from superannuation.
Distilling the numbers, the Association of Superannuation Funds of Australia says the generous payments allow the wealthiest group an annual income of $216,000 a year tax-free, while the second-tier millionaires glory in $95,000 tax-free.
And it gets worse for the budget bottom line. Super funds also get a tax rebate for income derived from their investment shares. The Parliamentary Budget Office says it has led to a situation where the funds can pay “negative tax” on their earnings. All up it says these concessions will rise to a whopping $24 billion within three years. Almost enough to pay off the budget deficit.
Any fair-minded person would be demanding a complete rethink, never mind “re:think”. What’s on offer in the discussion paper doesn’t inspire confidence. Treasury, true to form going back 40 years, says Australia relies too heavily on income and company taxes. It concedes this makes the system one of the most progressive in the world: the more you earn, the more you pay. But it says our higher company taxes are making us internationally uncompetitive and will discourage investment. Its preference is for more reliance on direct tax – for that, read “GST”.
Queensland University economist John Quiggin, writing in The Guardian, says it’s been pointed out many times that international comparisons of income taxes are misleading if they exclude the social security taxes that are levied in most countries.
Besides, data from the tax office shows Australia’s 900 biggest companies were able to claim deductions and exemptions worth $25 billion last year. Far from paying the corporate tax rate of 30 per cent, they paid an “effective tax rate” of just 19.3 cents in the dollar on pre-tax profits.
So how a government, especially one running on empty when it comes to trust, would sell an ever greater shift of the tax burden from high-income individuals and corporates to everybody else via a higher GST is a mystery. Some bravely point to the success of Mike Baird in New South Wales winning an election despite presenting voters with an unpopular privatisation. The real point here, surely, is the credibility of the salesman. Baird is Australia’s most popular political leader. Tony Abbott is consistently the least popular.
The fact is Abbott won’t even try. Though the government allowed treasury to canvass the goods and services tax in the discussion paper, unlike Labor with the Henry tax review, he says there can be no change unless Bill Shorten wants it. This is either the white flag of surrender or a de facto admission that he hasn’t got the political clout to pressure the senate to support a change.
A further constraint is the pre-election promise not to touch the GST in this term – any change would be taken to the people. Good luck with that. John Howard did it in 1998, winning the election but losing the vote. Labor won almost 51 per cent of the two-party-preferred result. Though some, such as The Australian’s Paul Kelly, bemoan Labor’s record of running scare campaigns on the tax, the fact of the matter is the GST hits lower income earners harder. Compensation is sure to be offered but, as Abbott himself said when attacking Julia Gillard’s carbon tax, sugar-coating it is simply an admission of a harm done. It certainly didn’t convince voters to stick with Labor.
The tax paper was held back until after the NSW election. There were justified fears many of the kites flown in the exercise could frighten skittish voters. It made the week busy. The Harper competition policy review was also unveiled. Its prescription to boost productivity was basically to let the market run free and to take privatisation much further for governments state and federal. You’d think it would fit like a glove with the Abbott ideology. But as with tax reform, some of its key prescriptions risk upsetting entrenched business supporters and – horror of horrors – damaging the goodwill of major donors.
The most obvious example is the suggestion that restrictions on pharmacies be dumped. That would only encourage every chemist shop to run an anti-government campaign. The last thing the most cossetted retail sector in the nation wants is for the big supermarkets to encroach on its territory. The small business minister, Bruce Billson, was making sympathetic noises to Harper’s recommendations but has given himself eight weeks to hear from stakeholders. They have already started to lobby MPs against any change.
And just to prove life was not meant to be easy for any politician, let alone an Abbott government minister, big business, especially Coles and Woolworths, isn’t all that impressed with the idea of a new “effects test” in competition law that would make it easier for small businesses to bring complaints about misuse of market power.
The Council of Small Business of Australia is wary. Its executive director, Peter Strong, says he’s getting conflicting expert advice on what this would mean. The most pessimistic counsel is that it would never be applied. But Strong says the fact that the big end of town hates it makes it something worthy of support. And he’s been assured the budget will have a very generous package for his members, including in its mix a 1.5 per cent tax cut.
The gratitude of small business can’t be taken for granted. Strong says most would prefer more generous depreciation allowances. They’re also waiting to see what relief will be given to non-incorporated businesses. Only 300,000 of the nation’s 1.2 million small enterprises are companies.
There’s certainly plenty on the government’s plate to chew on, and not all of it tasty. The NAB Quarterly Australian Consumer Anxiety Index has found, “Government policy is now the single biggest cause of anxiety for consumers, just ahead of cost of living.” It could need more than a “Re:think” to address that.
This article was first published in the print edition of The Saturday Paper on Apr 4, 2015 as "Joe bites off more than Tony can chew". Subscribe here.