Working Papers

Malcolm Turnbull as De Facto Treasurer

The increased budget surplus reported in Mid-Year Economic & Fiscal Outlook has seen the usual spate of calls for further tax reform.  However, the budget surplus should in no sense be viewed as defining the scope for further reform.  Meaningful reform needs to go well beyond a handing back of a portion of the surplus and extend to a complete overhaul of the current system of tax concessions and Commonwealth government spending, particularly the middle class welfare churn, which sees many households paying no net tax.  This makes wholesale tax reform readily affordable out of existing government spending programs.

This point is clearly understood by Malcolm Turnbull, who (perhaps not coincidentally) gave a speech on tax reform yesterday coinciding with the Treasurer’s release of the MYEFO.  Turnbull draws on President Bush’s Tax Reform Panel to argue for what amounts to a radical re-think of the tax system.  Turnbull is even willing to put a flat tax and the abolition of taxes on saving, such as capital gains tax, on the table:

A flat tax is not, of course, truly flat. Flat tax systems impose a single tax on income with the broadest possible definition and with very few deductions. Progressivity, or vertical equity, is maintained by having a tax free threshold which can be adjusted for family size. There is no need whatsoever for a flat tax to be regressive.
The greatest economic benefit claimed for so called flat taxes is that income is taxed only once: either at the business level or at the household (or wage earner) level. This means that income from investments be it interest or capital gains is not taxed in the hands of the recipient, although of course when it is spent it is taxed because it becomes income in the hands of the business or individual who receives it. This reduces the bias against savings and investment which slows capital formation and as a consequence wage growth.

Compare and contrast Treasurer Costello’s most recent speech on tax to the Global Tax Forum, which was essentially arguing for the cartelisation of international taxation and enhancing ‘national tax sovereignty.’  Who would you rather have as Treasurer?

posted on 16 December 2005 by skirchner in Economics

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Forget Treasurer, what about Malcolm for PM?  Look at the options.  Howard has lost all appetite for tax reform and is only interested in buying his way to 5th term, Costello is completely gutless, ditto Beazley, Swan is a lightweight, Abbott, Nelson, Rudd, Gillard etc have no economic credentials.  On the Labor side Emerson, Tanner and Shorten have made some intelligent contributions but they are hardly leadership contenders.  The only politician talking sense on tax (who has leadership potential) is Malcolm T.

Posted by .(JavaScript must be enabled to view this email address)  on  12/16  at  09:38 PM

Kohler is getting stuck in today:

Four stupidities of the tax system

Lots of great stuff, including…

“everyone has to put in a tax return and usually pay someone else to prepare it because it’s too hard.”

“Australia’s tax deduction for passive investment losses is an expensive nonsense.”

“The most ridiculous fact I have heard this year ... $47 billion in underlying cash budget surpluses accumulated since 1996, $39 billion, or 83 per cent, came from taxes collected from super funds”

New Zealand gets a couple of mentions.  Perhaps we should just adopt the NZ tax system, or better still, adopt their foreign policy as well.  Bugger it, maybe we should just become part of New Zealand?

Posted by .(JavaScript must be enabled to view this email address)  on  12/17  at  02:01 PM

See today’s post for my take on Kohler and Smith.

Posted by skirchner  on  12/17  at  04:22 PM

It is a long time since I studied tax at University but I was taught a flat tax had NO deductions but also NO threshold.

A linear tax was a flat tax WITH a threshold such as that advocated by John Humphreys.

One problem as john has said somewhere is that we don’t know how much it would cost because even Treasury is simply guessing.

An easy way to reduce problems of health costs coming up is to abolish Super tax on contributions and earnings.

Posted by .(JavaScript must be enabled to view this email address)  on  12/17  at  04:52 PM

What Humphreys, Turnbull and others are calling a “flat tax” is a tax where the marginal rate is always the same.  If the tax system has a high tax free threshold (or better still negative income tax below that tax free threshold) a flat tax can also be very progressive.

I can’t believe we can’t invent a tax system that preserves existing benefits at the low end (where its really needed), eliminates high EMTRs as benefits phase out, and provides some relief at the high end.

John Garnaut has a interesting piece in the SMH today about middle class welfare:

Middle-class benefits blow welfare spending sky-high

“Peter Saunders, the research director at the Centre for Independent Studies, said it was grossly inefficient for the Government to give welfare payments to the same people it was taxing. He said it was striking that the amount of money churning between the welfare and tax systems was increasing at a time of prosperity, when the demand for welfare should be low.”

Posted by .(JavaScript must be enabled to view this email address)  on  12/17  at  05:29 PM

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