Howard’s tax reform con

Forget Iraq. John Howard’s greatest con has been tax reform.

“Truth in government is long overdue in this country,” Mark Latham said on Insiders on Sunday morning.

“Mr Howard has an appalling record, he can barely lie straight in bed. You look at all these scandals from kids overboard to the war in Iraq, the Keelty affair.

“There has been a lot of deceit from the Howard Government and we have to restore public confidence in the Australian Government by having a truthful fair-dinkum straight approach…”

Latham was talking about the Iraq letter from more than 40 former senior diplomats, heads of department and military chiefs, but no doubt the Opposition Leader had also read Peter Hartcher and Louise Dodson’s extended interview with the Prime Minister in the Sydney Morning Herald the day before. That’s a case of pick your porkies.

The PM talked to Hartcher and Dodson about creating “an enterprise culture”:

Howard argues that Australia is becoming more entrepreneurial, more outward looking and more upwardly mobile: ‘The old story … you see a bloke driving by in a Rolls-Royce in America, you say “I’ll have one of those one day!” But sometimes the old Australian [attitude] resents the fact that somebody else has got it.’

Now, I think that’s changing, I think that’s changing quite a lot with younger people. Younger people now are more aspirational. There’s a very important change that’s come over our society.

Good point, Prime Minister – and something that’s worth fostering.

But what about this?

“Howard wants to hasten the change to a more entrepreneurial culture…

 ‘I think finding different ways of encouraging small business, of particularly recognising a growing number of people who run businesses from their homes is particularly important for women’…

“But [the Government] is not likely to release a further round of tax cuts for those who missed out on the $14.7 billion tax benefits over four years handed out in the May budget to those earning more than $52,000.

” ‘I think we have been very generous in relation to tax, you never say never in this business but it is fair to assume that we feel we have done quite a lot on tax,’ Howard said.”

Oh yeah? It sounds like the tax system is perfect – that there’s nothing more to do! So why has your Treasurer gone to such extraordinary lengths to stop documents relating to the tax burden on ordinary workers being released?

Ordinary Australians are being screwed by the tax system – but you’re not allowed to know that.

Have a look at Peter Costello’s dirty little secret , Rupert Murdoch, freedom fighter – part II or Hillary Bray on the tax wars and you’ll see what a sham the Howard Government’s tax reform record really is.

And why did we get the little we’ve ended up with? Because the 1997 Budget was a flop, his frontbench was feeling the heat over – surprise, surprise – issues of honesty and transparency and he was on his uppers.

Howard also says he wants to encourage an enterprise culture.

Well John, how about closing the 18.5 per cent chasm between the company tax rate and the personal rate? How about relieving us from quarterly – and for many monthly – BAS/IAS/PAYG hell? How about applying the same tax rules and rates to companies and individuals so people don’t spend half their time shuffling money around to minimise tax. How about letting Australians save for their retirement without taxing them at every opportunity?

There are a few ideas for a fourth term! You talk about “policy nuggets”. How about policy poussin – gourmet to go?

Remember Alan Kohler’s write up of this year’s Budget in the Herald?

“The idea of the pre-election, vote-buying budget has to be one of the
most pointless and most corrupt in the political economy…

“All Australians understand the three fundamental problems with the tax and welfare system:

All low income earners understand that the means test on welfare
discourages them from working because of the high effective marginal
tax rates when they lose the welfare.

All high income earners understand that the gap between the top
income tax rate (48.5 per cent) and the company tax rate (30 per cent)
and the effective capital gains tax rate (24) is now such that they
spend much of their lives trying to shift income into the lower
brackets through contracting, leaving money in corporate structures
and/or running fiddles to get it out as something other than income,
and risky investment negative gearing, especially on property (a big
part of the reason for the recent property boom).

Everyone understands the system will go into deficit when members
of the baby-boom population bulge start retiring and becoming infirm.
Retirement incomes will be inadequate, family homes will flood the
market and drive down real estate values and household wealth, and
government subsidies of pharmaceuticals and nursing homes will become
unaffordable.

“These three things are part of the national awareness. Policymakers
and think tanks have razed forests writing reports on them. In
his ninth budget, Peter Costello has not only ignored them again, he
has made matters worse.”

Here’s something that the Prime Minister, his Treasurer – and Mark Latham, for that matter – might like to consider. An individual earning 100,000 Euro would pay the following tax in these countries:

• Japan 24.90 per cent
• USA 28.93 per cent
• UK 33.03 per cent
• Spain 36.67 per cent
• Canada 38.07 per cent
• France 40.75 per cent
• Australia 41.57 per cent
• Italy 41.95 per cent
• Germany 50.47 per cent

These figures come from a report entitled “How Competitive is the US Tax System”, handed down by the Joint Economic Committee of the United States Congress in April. You can find it at here.

There are no figures given for our Kiwi cousins, but as their top marginal rate is 39 per cent (it was just 33 per cent until 1999!) my arithmetic – finely honed my many preselections – suggests they end up paying around 35 per cent overall. That compares to 41.57 per cent this side of the Tasman.

The Libs are supposed to be the party of small business, aren’t they? The party of the individual?

When are they going to stop lying and start acting like it?

Mark Latham’s had a good week this week. I just hope some aspects of that Access Economics report he commission see the light of day in his tax policy – when it finally appears.

A top marginal rate of 30 per cent is probably too radical for the ALP – although it was Labour that bit the bullet in the Shaky Isles – but how about raising the corporate rate to 35 per cent, the same as the US, and bringing down the top personal tax rate to 40. With just a 5% difference between the rates there would be much less incentive tocreate corporate structures to minimise tax. You might as well just pay it.

And, of course, you could pay for much bigger cuts by phasing out negative gearing and the capital gains tax concessions… but I’m writing this on Sunday morning and have clearly had one too many coffees.

Still, if you’re looking for a few policy ideas, here they are, Prime Minister.

And Mark, if you say “you need to be straightforward, you need to be honest in your dealings with the Australian people”, here’s a prime example of where John Howard hasn’t – and on an issue that’s far less divisive than Iraq.

If you’re still tinkering with your tax policy, you might care to have a think about some of the ideas in this item, too.