13/09/2005 - 22:00

Joe Poprzeczny: State Scene - Leaders’ posturing is taxing

13/09/2005 - 22:00


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During the past fortnight Australians have again been subjected to what some are calling the Johnny and Pete show.

During the past fortnight Australians have again been subjected to what some are calling the Johnny and Pete show.

This on-again off-again charade usually begins with Prime Minister John Howard making a statement, which is soon followed by his deputy, Treasurer Peter Costello, saying something different.

And it’s off again.

Journalists then start speculating, again, about Mr Costello’s leadership aspirations and ponder again how much longer Mr Howard will be around.

But neither man’s future is really that significant to the taxpaying public.

Let’s face it; if it’s not one it’ll be another. And if neither, then someone else will be PM and deputy.

The sooner this Liberal leadership charade ends the sooner we can hopefully get proper and efficient governance.

Politics shouldn’t degenerate into silly entertainment.

To make matters worse, the increasingly tedious Johnny and Pete show invariably involves Health Minister Tony Abbott chiming in with a platitude or two.

The latest revolved around taxation.

Mr Howard said the present 47 cents in the dollar upper income tax level could be lower. Deputy Prime Minister Costello quibbled.

Then, out of the blue, came new Liberal hopeful Malcolm Turnbull with a tax plan that largely backed Mr Howard.

One couldn’t object if all this manoeuvring meant Australia acquired a more equitable and efficient taxation system.

But such so-called debates are increasingly smokescreens for what should be better public policy.

The actors, instead, focus solely upon who’ll lead the Liberal Party, meaning improved public policy is the furthest thing from the minds of the participants.

What they’re all really saying is: “I want to be the king of the castle”.

Mr Costello desperately wants to occupy The Lodge in Canberra and Kirribilli House in Sydney.

And Mr Abbott and Mr Turnbull feel they must get into the antics to hopefully ensure they emerge as deputy when Mr Howard finally departs.

But what about Australia’s taxation system?

That, unfortunately, comes a distant second, whereas it should be the primary concern.

State Scene makes the following general comments about the taxation issue.

Firstly, income tax is too high, most especially for what are called higher income earners.

Currently the marginal rate is 47 cents in the dollar on those earning more than $125,001.

State Scene has always contended that no-one should be paying more than one quarter (25 cents in the dollar) of their income as income tax.

Those objecting to this should note that Australia’s most famous economist, the late Professor Colin Clark, who cannot be described as pro-Liberal, argued that the government sector shouldn’t exceed 25 per cent of gross domestic product.

Professor Clark, before going to Oxford, where he taught Rhodes Scholar Robert Hawke, among others, was an economics adviser to Queensland Labor governments, which may explain why Queensland, under Labor or conservative governments, to this day taxes most lightly of all the states.

State Scene also contends – and here agrees with Mr Turnbull – that people should not be taxed until they’re earning $10,000 annually.

Currently, anyone earning $6,001 pays 15 cents in the dollar.

Thankfully one Labor MP, Craig Emerson, has also drawn-up a tax scale in which he set $10,000 as the point after which income tax is paid.

Let’s not forget that everyone is now paying the 10 cents in the dollar goods and services tax that is reaped by Canberra for state governments.

Those earning up to $10,000 annually cannot avoid paying this tax whenever spending.

Anyone earning more than $125,001, therefore paying 47 cents in the dollar, not only pays that, but a further 10 cents in the dollar out of the remaining 53 cents, leaving a mean 47 cents. That’s simply unjust.

Both Messrs Turnbull and Emerson opted for 30 cents in the dollar between $70,001 and $125,000, and beyond that Mr Turnbull wants a 35 cent rate, while Dr Emerson – in good socialist style – unfortunately wants 45 cents, so 20 cents above State Scene’s idea of what’s equitable.

What would be better is a scale of no tax to $10,000, 15 cents between $10,000 and $125,000, and 25 cents thereafter, so just two rates.

Critics will understandably ask how we fill the $30 billion or $40 billion, or perhaps bigger, shortfall in Treasury revenue.

Yes, there would be a huge shortfall. Perhaps even $60 billion.

So how should it be filled? Simple.

Firstly, go back to Federal Parliament’s 2001 Hawker Inquiry that showed Australians paid $20 billion in all forms of taxes for the cost of duplication between all levels of government

Scrap that duplication – there’s $20 billion.

Secondly, by raising the point when income taxation cuts in to $10,000, government could begin to confront the problem of what is called ‘tax churning’, something politicians are too scared to confront, let alone seek to reform.

This is something Australia’s leading welfare expert, Professor Peter Saunders of Sydney’s Centre for Independent Studies, recently elaborated upon.

ABC interviewer Michael Duffy said a Treasury report showed that nearly 40 per cent of families received more in welfare than they paid in taxes.

“Clearly we’re not talking about the underclass here, we’re talking about ordinary middle-class Australians,” Mr Duffy said.

“Now, this was based on Treasury calculations showing that double-income families with two children effectively pay no tax at all until they earn $48,000 a year.”

Professor Saunders: “I think people who have been studying the tax and welfare system have been aware of this for some years.

“What the Treasury is talking about is if you take only one week or a fortnight and look at flows of income coming into a family and the flows going out in tax, that very often they almost cancel each other out.

“Economists call that ‘simultaneous churning’.

“I’ve got an example on the table in front of me that was released earlier this year showing that for a couple with older children – late teens – average income, before the government gets hold of them, of getting on for $1,400 a week.

“But then the government adds another $550, not just in family payments but in the value of things like Medicare and schooling and so on that they’re delivering, and then takes $470 off them in tax.

“So they end up giving this family just $87 dollars a week on top, which means you might just as well have left them alone in the first place.

“But a huge flow of money is sloshing into that family and then out of it again.”

Do away with duplication and begin cutting back on ‘simultaneous churning’ and any Treasury deficiency is solved if introduction of such reforms were staggered over, say, 10 budgets.

Unfortunately, those at the top of the conservative camp pretend they are focusing on taxation, whereas they are in fact using it as a plaything in their leadership dilly-dallying and squabbles.

In light of this it’s time Western Australia was called upon to help finally resolve this issue.

WA has produced three outstanding, independent minded and well-qualified federal MPs who the Howard Government could call upon to draw up an objective, fair, and equitable taxation system for Australia.

They are: former finance minister, Labor senator Peter Walsh; former Liberal MHR and author of the far sighted book, Dry – In Defence of Economic Freedom, John Hyde; and one time Treasury chief and Nationals senator, John Stone.

Since all major parties would be represented they would conduct what is a tri-partisan inquiry.

If this doesn’t occur, taxation will remain the Liberal hierarchy’s plaything with the limiting of taxation to reasonable levels and wasteful practices such as ‘churning’ never being confronted.


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