Taxing Times in Australia (and Elsewhere)

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Following the surprise victory of the increasingly conservative Liberal-National coalition at the 2019 Australian federal election, one of their first orders of business was to implement their promised income tax reforms. This seemed a little odd as the LNP's tax policy provided excessive benefits that it would provide for the very well off. But the great joy of democracy is people get the government that they voted for, whether by informed, uninformed, or a misinformed public vote. At least the income tax cuts were one the few transparent policies, even if they were promised in the budget prior to the actual campaign. As a piece of electioneering, it was clever; little for the poor, larger tax cuts for the middle, and little for the rich in stage one, but by stage three the wealthiest ($180K per annum) would receive $8640 per annum extra, whilst the poorest (under $30K per annum) would receive a paltry $255 per annum.

Immediately after the election however, there was a snag. Either due to a stunning level of incompetence or a cunning level of plausible deniability, it was announced that they would not be implemented in the current financial year. When the tax package reached parliament, the opposition Labor Party was unable to get any amendments in the House of Representatives considered by the government, who has a majority. Rather than face the unpalatable prospect of having to be seen voting down middle-income tax-cuts, Labor opted to pass the package in full in the HoR to seek amendments in the Senate, where the government doesn't have a majority. That aspect was tactically reasonable at least, although it didn't work - the government was able to pass the package with the support the Centre Alliance and independent Lambie. The support of the Centre Alliance is unsurprising, being milquetoast centrists, who only occupy that position due to a complete lack of coherent ideology. Lambie's support was primarily due to a lack of intelligence; effectively bribed with the offer of $150m in relief for public housing debts, the loss in Commonwealth public revenue is five hundred times greater for the Stage Three proposals.

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It would be inappropriate to simply describe the problems without offering an alternative, and such an alternative should be designed around the optimum result and the transition second. Ideally, public revenue is derived from fixed-supply natural resources, which implies an all-of-Commonwealth land-tax system, with Pigouvian-style taxes for various pollutants, and various competitive rental licenses for other forms of economic land (e.g., radio spectrum bands), all of which equates with an optimal level of public expenditure. It also suggests a continuous increase of the tax-free threshold of wage-income and the equalisation of wage-income and interest-income grades. On the subsidy level there should be a removal of the excesses of fully-franked dividends in favour of a partial dividend system, an end to negative-gearing except for new constructions (and this would increase housing stock), and for capital gains benefits to be tied to real CPI levels. The prospect of such changes of occurring, however, are slim, despite the - literally - hundreds of billions of dollars in benefits that it would bring to the Australian economy. Sometimes those who benefit from having a poor situation will do whatever they can to prevent loss of that privilege, even if the alternative would make all better off.