Real Tax Reform and Fraudulent Tax Reform
It is now accepted that Mr. Peter Costello's "tax reform" of 1999, when a new goods and services tax was introduced, was entirely bogus. Small reductions in income tax were soon swallowed up by bracket-creep, as National Observer predicted.1 Australia has now been left simply with a new, substantial impost, and indeed an impost of considerable complexity that places a heavy compliance burden on all taxpayers affected by it.
When a politician such as Mr. Costello proclaims "tax reform", taxpayers should guard their pockets. "Tax reform" (after all "reform" must be good, must it not?) has become a deceptive term which almost invariably encompasses tax increases, that is, greater tax receipts by government.
Unfortunately Mr. Costello may be regarded as a disaster in terms of the burden of taxation and its collection. Mr. Mark Latham's alternative policies are yet to be known, but it is a sobering reflexion that in terms of taxation Australians might well have been better off if, during the past six years, the government of Mr. Keating had continued. Mr. Costello (who unfortunately has been left by Mr. John Howard, who presumably has better things to do, to make decisions on taxation policy with the assistance of an apparently left-of-centre Taxation Department) has shown no real interest in moderating government spending or in preventing the government take from taxpayers' resources from increasing year by year.2
Unfortunately standards of public debate in Australia on these issues are poor. Journalists in The Australian Financial Review,3 for example, generally limit themselves to superficial analyses based upon ministerial hand-outs, and their left-of-centre political propensities apparently lead them in any event not to question increases in government expenditure. An informed and diligent public would not have permitted a position to arise where so many moderate - not rich - income earners are on a marginal rate of almost fifty per cent.
National Observer has been concerned by these issues for many years, but although its analyses have proved to be correct, there has been a disappointing lack of responsible comment from other sources. However in this issue we are able to publish the first of two articles by Dr. Geoffrey Walker, now a member of the Administrative Appeals tribunal and an Emeritus Professor of the University of Queensland. The first article draws attention to the serious failings of the Australian taxation system, and the second article will set out various ways in which true reform can and must be accomplished.
Dr. Walker draws attention, for example, to the intolerable length, complexity and obscurity of the taxation legislation - it now amounts to some 13, 5000 pages, much of which even experts regard as virtually incomprehensible4 - which becomes worse every year.
Dr. Walker also draws attention to the very important fact that on a number of occasions large reductions in tax rates in other countries have led to actual increases in government revenue. It is thought that the causes of these increases have been in part greater incentives to engage in taxable activity, in part a diminished attraction of the "black" (that is, untaxed) economy and in part a reduced reliance on taxation shelters and artificial arrangements. Dr. Walker points out that where, in contrast, the burden of taxation falls increasingly severely, as in most of Europe today, economic stagnation ensues.
A consideration of the serious position described by Dr. Walker leads to the conclusion that the Australian taxation system should be replaced in toto, and a preferable foreign model should be adapted instead. Under our present system there will be never-ending additions and complexities, and a continuing and stultifying increase in the burden of taxation. This cannot be allowed to continue.
A central requirement is the repeal in toto of the Income Tax Assessment Act. This ridiculous statute has long passed its time of usefulness. What is required is a shorter, simpler statute, with either a single tax rate or a small number of low rates, but without all the concessions, special deductions and shelters that are found in the current legislation. Foreign models should be examined critically, and the best should be chosen for adaptation. In other words, a root and branch approach must not be avoided.
The method of choosing a new system is critical, and clearly this could not be left to Mr. Costello. Mr. Costello would, as he has in the past, appoint members of a tribunal who would support his own views, and his views appear to be identical with his own political advantage and convenience. Unfortunately Mr. John Howard has little interest in these questions, and nothing can be expected from him. Mr. Mark Latham is an unknown on these issues, and a question arises whether he will be able to break free from the outdated prejudices of some of his colleagues and has sufficient intellectual and personal force to make appropriate decisions; but his recent public observations suggest that this is unlikely.
The articles by Dr. Geoffrey Walker are essential reading.
1. It is noteworthy that National Observer was the only publication which stated editorially this obvious fact: see, for example, "Mr. Peter Costello and the Income Tax and G.S.T. Debacle", National Observer, 1999, Issue 41, pages 5-7. Other publications, such as The Australian Financial Review and The Sydney Morning Herald, adopted their not unusual non-critical approach of adopting the Treasurer's press releases. Among individual commentators Mr. John Stone was apparently alone in making realistic assessments of Mr. Costello's proposals.
2. Occasional relief, such as by adjusting tax brackets for the purposes of income tax rates, have only partly offset the effects of bracket creep and have been apparently adopted for electoral purposes, and not pursuant to any responsible policy of restricting government growth.
3. The lack of quality of The Australian Financial Review is unfortunately readily apparent from a perusal of The Financial Times or The Wall Street Journal, which are more serious newspapers.
4. One of the causes of this complexity is the employment by the Treasury and the Taxation Office of literally hundreds of "experts" whose function is to produce continually new amending legislation to "improve" the current provisions. These "experts" value themselves, and are valued by their superiors, according to the volume of new and complex legislation that they recommend or prepare.
National Observer No. 61 - Winter 2004