Wealth Redistribution & Other Political Measures

By: AUSBUY

Australia will soon be in election mode and the strings attached to the hip pocket nerve will be pulled with gay abandon. The rationale is that Australians vote for whoever offers the most bribes. However our politicians realise that these bribes have to be paid for by someone; there are more poor voters than wealthy ones and multinational miners don't have a vote anyway. This tends to result in equity being ignored and tax revenue increased by stealth. We are currently awaiting the publication of the Henry Review of the taxation system. As usual we are being softened up by strategic leaks. The advance publicity is that we will get a fairer and more efficient tax system that will encourage productivity and the Australian economy with the majority of the voters being better off. And pigs might fly!!

Among the suggestions which might be considered are:

• Elimination of work-related expense claims. This might save administration costs and raise more money but it is entirely reasonable money spent in earning a living should be allowed as a deduction so there would be criticism on equity grounds.
• Reduce tax relief for voluntary superannuation contributions and increase compulsory superannuation contributions from 9% to 13%. This would theoretically reduce calls on the aged pension. However companies would have to pass the cost on and it would discourage private savings.
• Increase taxes paid by the big miners for extracting minerals. This would bring in more money but would discourage new developments.
• Raise revenue from capital gains and estate duty. This would be expensive to administer as the wealthy take steps to avoid it by using offshore holding companies and trusts.
• Abolish negative gearing. This would bring in money but we tried it before and ended up in a rental crisis. It also smacks of double taxation as we tax the interest but do not allow that interest as an expense of earning the rental (which it certainly is).
• Abolish dividend imputation. AUSBUY believes strongly that this encourages earnings in Australia by Australian companies and is in favour of dividend imputation. To eliminate it would mean a stock market rerating (in this climate?) and force many self-funded retirees to depend on the age pension.
• Increase property taxes. This would theoretically tax the wealthy but would discourage investment in property and impact the earnings from superannuation funds.
• Levy congestion taxes. The absence of efficient public transport would mean that the public (particularly in Sydney) would see it as a revenue earning measure as they have no other means of getting to work. The retail businesses in city centres would also be hard hit.
• The European roots of raising tax on liquor, cigarettes and petrol would raise extra revenue and have desirable social effects but would impact on the ALP core constituency, be unpopular and cost votes.

Many of the current allowances and deductions could be eliminated and this would save money in administration. The irony of the situation is that the voters want better health, education, justice, infrastructure etc, but do not want to pay for them. More and more of them are receiving government assistance but the size of our tax base is decreasing. The immediate reaction to this is to tax the wealthy. Unfortunately their definition of wealthy means that there are less individuals who think they qualify. Foreign owned companies in Australia do not feel inclined to make up the difference and if pushed too hard they will simply withdraw. That only leaves Australian owned companies in a small number of the deemed wealthy to finance any handouts to voters and reduce the deficit – all this at a time when people are clamouring for better services. Remember there will be winners and losers and the more people who are held to be wealthy by the government the more unpopular measures will be.

This is a difficult time for governments and when one looks at the above steps it is obvious that most either won't work, are unfair or a political suicide. Redistribution of wealth always sounds attractive but the devil is in the detail. I do not admire Mr Henry – nor do I envy him. To continue down this path will be full of unintended consequences which is why most administrations content themselves with tinkering around the edges and ignore the clamour of the media for real reform. They know that the same media will be the first to condemn them.

The one thing that is clear is that to penalise the wealth creators and redistribute to nested ALP voters does not make economic or political sense. If we are to change the current system the new system must be an improvement which, if it does not meet with approval from all sectors, at least meets with acceptance that the changes are fair and equitable. It must also yield efficiencies which will improve the productivity of earning capacity of Australia.

Copyright © - This document cannot be used without our express permission

---