Greg Hallam: Forget the mid-year sugar hits, Australia needs to get serious about tax reform

After decades of deliberation and diminishing political courage, Australia’s taxation system remains a national embarrassment. Greg Hallam, for one, is willing to throw himself on a grenade or two.


Mar 06, 2024, updated Mar 06, 2024
Treasurer Jim Chalmers. (AAP Image/Mick Tsikas)

Treasurer Jim Chalmers. (AAP Image/Mick Tsikas)

To say that I was pole-axed by tax Guru Ken Henry’s claim last month that Australia’s tax system was in a worse position than it was 15 years ago, would be the understatement of the century.

As an economist and public policy geek for over 40 years – who cut their teeth in Canberra during the heady days of the Hawke-Keating Government, I didn’t expect that claim – not grasping the drift into a tax/economic black hole that was underway.

Henry of course was the tax policy wonk in the Hawke-Keating Treasury, then Secretary of the Treasury from 2001 to 2011. He also did the last root and branch review of Australia’s tax system in 2010, so he is incredibly well-placed to pass judgement on the current state of affairs.

You can’t easily dismiss his views. For the record he is a 40-year acquaintance of mine.

It’s fools’ gold to get trapped in the cyclical bracket creep then tax cut charade, it’s akin to endlessly chasing ones tail, or a pea and thimble trick. It misses the central point – workers, aka PAYG tax-payers – are carrying too much of the tax burden. Henry says “ it’s an inter- generational tragedy that we have allowed this to happen.” Moreover, “many of the cost-of-living pressures people are feeling today are the consequence of the lack of genuine tax reform over the last 20 years”.

Henry talks about a generation of future workers being “ poor bastards” who will have to pay the price of decades of our inaction .

Upon some research of calls for tax reform in recent years, I uncovered calls by the Business Council of Australia, who warn of the same tax cliff to which Henry refers. Noted economist Ross Garnaut and his collaborator Rod Sims , and significantly the so-called federal parliament Teal grouping, who say everything should be on the table.

Of note, was a recent AFR survey which found 59% of the community supported tax reform, whatever that means.

Tax can be traced backed to Roman times, when it was used to pay for wars, civil infrastructure, and alms for the poor. Not a lot has changed in that regard, just more spending categories added .

Except, of course, for the additional sources of tax revenue beyond individuals or small traders – company tax, excise ,pollution and indirect taxation aka GST.

Whilst it’s easy to say the Commonwealth must be raising enough revenue with two budget surpluses in a row, it doesn’t take into account the additional funding required to take Australia’s defence spending to the minimum possible amount in the current highly charged geopolitical environment.

Said to be 2.4% of GDP, add to that the burgeoning climate change transition costs, and of course disability and aged care. Peter Costello’s wonderful quote in delivering his Intergenerational Equity Report , that Demography equals Destiny, still runs true.

A good tax system is said to work in the nation’s overall interest, fair in its application and efficient to operate. Sadly, our system fails most of those tests.

At the risk of fawning at Henry’s feet, he said  that in real terms the only tax type that was growing was personal income tax .Furthermore that attempts a quarter of a century ago to broaden the tax mix had been completely undone.

Yes we need a wide ranging tax review to provide for a fair yet entrepreneurial country over the next for 50 years. Are we as a nation up to that ?

On the table for discussion must be a broader and higher rate for the GST.  John Howard’s original Tax Package was close to the mark.The cutting of personal income tax including a possible flat rate of that tax at circa between 25 to 30% , and eliminating all, if not almost all tax write offs, ensuring many more Australians pay income tax .

As an aside as a self proclaimed enlightened young economist I thought the late John Stone, the former Secretary of the Treasury in the early 80s, was positively antediluvian in pushing for a flat tax , but by god he was close to the money.

The tax debate has to include a possible switch to turn over tax for our big tech companies , the so called magnificent 7 who use transfer pricing to severely limit or avoid taxation in this country.

For the sake of completeness and without advocating for one, pricing carbon needs to be on the table. Add a replacement for fuel excise which will greatly diminish over coming decades with the switch to alternative sources of energy to power transport.

Finally, property needs to be in the mix because it’s the beneficiary of massive subsidies and write-offs that undoubtedly push prices up.

All the difficult and gnarly policy questions need to be on the table, surely. It has to be an intellectually honest debate. Items can’t be ruled in or out before the debate starts – beware the vested interests.

Whilst he was pilloried by the political class and unsuccessful at the polls, John Hewson was both brave and forward thinking with his Fightback Plan that he took to the 1993 Federal Election. Paul Keating believed in the same economic theory ( Tax Package C ) but couldn’t resist the temptation of bashing his political opponent over the introduction of a consumption tax.

The GST introduction 25 years was the last progressive tax reform in this country, we are well and truly overdue .

My tax reform shopping list is not a recipe for some right wing utopia, as a social wage must be part of any proper tax reform. Ultimately , you can not redistribute poverty, you first must create wealth. But there is no sin in redistributing it.

Let’s hope more and more commentators, more academics, more peak bodies and the media champion firstly a wide-ranging tax reform debate, then ultimately tax reform. God forbid that the two major parties get on the reform bandwagon.

To do nothing is to invite disaster for future generations, just 20 years down the road.


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