Tax Summit: Joe Hockey Op Ed

06/10/11

Two days, 200 people and $1 million and the best this government’s tax summit could do is set up another committee and another review.

Instead of making tough decisions on tax reform, Treasurer Wayne Swan has squibbed it.

We already know this government’s idea of tax reform is to introduce new taxes.

To date, Labor has introduced or increased 19 taxes, including two new big taxes on mining and carbon. The government has used these taxes to give the appearance that it is being generous with tax cuts and other assistance for households.

The carbon tax is a classic case of the government’s sleight of hand. It will raise $7.7 billion in the first year, at $23 a tonne of carbon, escalating to $9.2 billion by 2014-15.

The carbon tax is being levied on companies but the burden will fall on households because the tax will increase the price of everything.

Only part of the tax will be paid back to households in compensation.

The rest will be paid in industry assistance and to meet our international obligations. So households in aggregate will be substantially worse off and this hit will rise year after year as the tax goes up.

Another Labor con is the claim that the government is rewarding hard-working Australians by trebling the tax-free threshold.

However, the effective tax-free threshold is $16,000 due to the impact of the low income tax offset (LITO).

When you combine changes to the LITO with the other changes being made as part of the compensation package for the carbon tax, much of the benefit of increasing the tax-free threshold is clawed back.

This is a tax con, not a tax cut.

Then there is the claim by the government that it has delivered $47 billion of personal tax cuts since coming to office.

These were tax cuts announced by the Coalition in the 2007 election.

They were funded by the Coalition through fiscal discipline and budget restraint, and simply appropriated by Labor.

When it comes to tax reform, the Coalition has done the heavy lifting and has the runs on the board.

The Coalition’s experience with the introduction of the goods and services tax provides a useful lesson in implementing tax reform.

We had the courage to take the GST to an election. Labor is refusing to do the same with its carbon tax.

The GST reforms provided the basis for a more efficient taxation system by eliminating a host of small and inefficient state taxes such as financial institutions duty, bank accounts debits tax, stamp duty on marketable securities, conveyancing duties on business property, bed taxes and so on.

Many of these were taxes paid by individuals, so removing them simplified the overall tax burden on everyday Australians.

Most importantly, the GST was introduced at a time when half a decade of fiscal prudence by the Coalition had provided sufficient room for reductions in personal income taxes and generous compensation to low-income groups.

The overall financial standing of households was improved.

After these changes were completed, 80 per cent of Australian taxpayers paid a top marginal tax rate of no more than 30c in the dollar.

Some key lessons emerged from this experience.

The first was that reform must lead to a simplification of the system. The number of taxes should be reduced.

The second is that taxpayers have to be better off after the reforms.

The third is that the need for change has to be fully explained and the arguments have to be fully accepted and understood.

Taxpayers have to understand they will be better off after the changes.

As Tony Abbott has already announced, the Coalition remains committed to real tax reform while restoring the integrity of the finances of our nation.

The first step in achieving this is to do everything we can to stop the carbon tax and mining tax.

The second step is to continue to press for cuts in government spending, which is why we continue to highlight the waste and mismanagement of this government.

In government, the Coalition will pursue lower taxes for households and businesses which will be funded through targeted reductions in government spending.

Put simply, we will tax less and spend less. This will reduce cost pressures and will help ease upward pressure on interest rates.

There is only one sustainable way of delivering real tax reform and that is to cut spending and return the budget to surplus.

I fear, though, that that will not be a lesson Labor learns from the tax summit. Joe Hockey is the opposition treasury spokesman.

The Coalition will pursue lower taxes for households and businesses which will be funded through targeted reductions in government spending.

Put simply, we will tax less and spend less.

This will reduce cost pressures and help ease upward pressure on interest rates.