Irresponsible and incompetent politicians

By February 19, 2017Australian Politics

The chess pieces may have been re-arranged a while back with the long overdue departure of ‘entitlement’ hypocrite Joe Hockey, but the same ideological incompetence is evident in the Turnbull government’s new team of economic ‘managers’ Scott Morrison and Mathias Cormann. Unable to get their ‘omnibus’ package of welfare cuts through the Senate, this latest pair of inept and idea-free conservatives has threatened to introduce higher taxes. Not for business of course, because although many businesses don’t pay anywhere near the nominal tax rate, they are receiving handouts to the tune of $48.2 billion of your money over the next 10 years (a little more about that below). The threat is nothing more than grandstanding, but it serves one good purpose. It puts on stark display the Turnbull government’s ideology of attacking those less well off while simultaneously greasing the palms of the already well-to-do. This is a familiar Coalition path for anyone who can remember the spectacularly inept government led by Tony Abbott.

Morrison, as we know, has always believed ‘we have a spending problem’ but to his great discredit he has never accepted that current, manageable, budget problems can be solved by shoring up the revenue side, which is of course where the real problem is, particularly for future generations. Morrison’s problem is that acceptance of the revenue argument would bring into sharp focus his party’s emasculation and subsequent scuttling of the revenue-earning MRRT (Minerals Resource Rent Tax), and the replacement of the ‘revenue neutral’ Carbon Tax with the coalition’s far less effective and far more costly ‘Direct Action’ Emissions Reduction Fund (ERF) – a policy which essentially pays carbon polluters to reduce emissions and which has already cost taxpayers more than $1 billion dollars. Morrison and Cormann were also keen on killing off the revenue earning CEFC (Clean Energy Finance Corporation) but, fortunately for the nation’s current and future citizens, that part of the Abbott government’s great ‘tear it all down’ agenda was sunk by the Senate in 2014. The CEFC continues to invest in Australia’s energy future while contributing positively to the budget.

Back to revenue: The list of possible contributors to long-term tax revenue is as long as your arm, but I’ll mention just a few. Many, such as changes to negative gearing (not Shorten’s half-baked proposal, but real reform) and CGT (Capital Gains Tax) rules, novated leases, trusts, superannuation etc., get a regular run, so I’ll bypass those. Obviously, both a carbon tax/trading system and an improved version of the MRRT could and should be reinstated, but the beholden conservatives will never admit they were wrong, and Labor under Shorten has wavered on the former and dismissed the latter out of hand, so the political reality means they are at best long term possibilities (what we all wouldn’t give for some vision and real leadership in this country).

So, first cab off the rank should be immediate cessation of the ridiculously generous offsets given to gas explorers/producers (shades of the watered down MRRT under Gillard and Swan which cost all us taxpayers tens of millions of dollars) and the introduction of a levy/royalty commensurate with the true worth of Australia’s gas resources. For those who haven’t heard, wealthy multinational petroleum companies have accumulated tax deductions worth hundreds of billions of dollars thanks primarily to generous changes made by Howard and Costello to the Petroleum Resource Rent Tax (PRRT). This was so generous, that many will pay no tax on profits in our lifetimes. This is just another case of Howard government excess that has left current and future governments with huge structural deficits.

Meantime, consumers will pay increasingly high prices for domestic gas supply and companies will reap massive, guaranteed profits – all on the back of ‘taxpayer owned’ natural resources. Successive governments have been asleep at the wheel on this growing problem and it now requires an urgent, bipartisan solution. Selling the nation’s large but limited natural resources for far less than they are worth is both a testament to the gross incompetence and irresponsibility of our modern federal politicians, and a tragedy for current and future generations. With a few obvious exceptions, I doubt any of our politicians would treat their own assets with such apathy or disdain.

The second and equally critical task to increase revenue, should be the removal of tax loopholes that allow many large, extremely wealthy and profitable companies to reduce their taxes in this country to almost nothing. They do this using unethical but quasi-legal tax avoidance mechanisms such as transfer pricing, debt loading (‘thin capitalisation’), and profit shifting/alienation – devices which, according to several reports, rip over $3.1 trillion from governments globally every year. The UK Conservative government has made a token effort to plug that particular revenue-draining hole by instituting its so-called ‘Google Tax’ which recovered some hundreds of millions of pounds in back taxes but Australia has done bugger-all to date, with the 2016 Diverted Profits Tax expected to recover a paltry $200 million by 2019. Oxfam estimates the cost to Australian taxpayers of tax havens alone at around $6 billion annually.

This leads us nicely back to Morrison’s recent corporate tax rate cut. The Turnbull government’s one and only economic policy of significance will reduce company tax from 30% to 25% over time, and is optimistically expected to return a gigantic 1% to GDP over 20 years. This ‘initiative’ is undoubtedly looked upon with great amusement by many senior executives in Australia’s largest companies. Apparently, Morrison is yet to discover that, of the top 100 ASX companies:

  • 29% have an effective tax rate of 10% or less.
  • 14% have an effective tax rate of 0%.

Comparisons are odious in this case, but perhaps Hockey wasn’t such a dud after all (just kidding).

Finally, we come to the black hole that nobody seems to know how to control – the cash or ‘black’ economy, which is much loved by some businesses and self-employed trades workers. In the latter’s case, we all know the deal – a lower price is offered if you pay off-the-books cash for the service. Many of us have probably availed ourselves of the offer occasionally, even though we know that the biggest beneficiary is actually the tradie. The cash economy is estimated to cost the budget $21 billion annually (yes, billion!). Governments have wrestled with this problem for decades but, despite small wins, it seems they are either not smart enough or don’t have systems robust enough to track ‘black’ money in the economy.

For conservative governments such as those led by Abbott and Turnbull (who we can recall once said “everything is on the table” but then immediately left the table when his personal popularity took a dive), it appears significant tax reform is simply too hard. This is little wonder when your focus is on trashing renewable energy, denying climate change, blocking marriage equality, dumping Gonski, eroding Medicare, using the NDIS as an economic wedge (or ‘akin to blackmail’ in the words of some crossbenchers), and negotiating unbalanced trade agreements (for example, the balance in favour of the USA has grown from $14 billion to $25 billion in the decade since the Australia-USA Free Trade Agreement took effect).

Given the likelihood that inept, visionless and uninspiring leaders like Turnbull and Shorten will be around for a while, and that economically and socially bankrupt politicians will continue to masquerade as the nation’s Treasurer and Finance Minister, I very much doubt we will see real taxation reform in the next decade. But hope springs eternal that one day soon someone with gravitas, conviction, courage and a real concern for the nation and its people will emerge from the ashes. For the sake of all our children, let’s hope the wait isn’t too long.



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