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Wealth Redistribution and Other Political Measures
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 do not 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 taxation system that will encourage productivity and the Australian economy with the majority of the voters being better off. And pigs will 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 that money spent in earning a living should be allowed as deduction, so that would be criticism on equity grounds.
• Reduce tax relief for voluntary superannuation contributions and increase compulsory contributions from 9% to 13 %. This would theoretically reduce calls on the aged pension. However companies would have to pass the costs on and it would discourage private savings.
• Increase taxes paid by big miners for extracting minerals. This would bring in more money in the short term, but discourage new developments.
• Raise revenue from Capital Gains and Estate Duty. This would be expensive to administer as the wealthy take steps to avoid tax by using off-shore holding companies and trusts. It would be the working, middle class Australians and retirees who have saved and managed their money diligently who would pay dearly.
• 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 re-rating (in this climate?), and force many self funded retirees to depend on the old age pension.
• Increase Property taxes. This would theoretically tax the wealthy, but would discourage investments in property and impact the earning 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 business in city centres would also be hard hit.
• The European routes to raising tax are on liquor, cigarettes and petrol. These would raise extra revenue and have desirable social effects, but would impact on the lower wage earners and unemployed, would be unpopular and would cost votes.
Many of the current allowances and deductions could be eliminated and this would save money on administration and a burgeoning public service. 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 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 and 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 the measures will be.
This is a difficult time for governments and when one looks at the above steps it is obvious that most either wont work, are unfair or are political suicide. Redistribution of wealth always sounds attractive but the devil is in the detail. To continue down this path will be full of unintended consequences which is why most administrators 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 rusted on 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 not just for short term expediency but to the long term benefit of Australia. It must also yield efficiencies which will improve the productivity and earning capacity of Australia. And it is the last statement where successive governments have been sadly lacking in vision to our cost as a nation.
