All about politics and not tax reform

It’s been said before and it will be said again in the run-up to the election, Kevin Rudd has over promised and under delivered on a Henry Taxrange of fronts. Think ETS, home insulation, new childcare centres, renewable energy targets, even the takeover of public hospital funding.

And you’d have to say the response to the Henry Tax Review fits neatly into that pattern.

The Government has picked up just four measures out of 138 recommended by the Henry Review despite having made a song and dance about its reform credentials as evidenced by it’s commissioning of this “root and branch “review of the tax system..

And the Henry Tax Review certainly is root and branch in its recommendations to realign and simplify the tax base for maximum efficiency and transparency. It would broaden the tax base to areas deemed untouchable until now (ie means-testing the family home) but cut inequitable and inefficient housing tax breaks like negative gearing and a generous capital gains tax regime. It would also eradicate a range of state nuisance taxes that generate plenty of pain and red tape for small business, with little gain.

It would get rid of the taxation traps that lock people into a welfare cycle and it would ensure the proceeds of growth are shared more equitably through the community. The recommendations on superannuation for instance, to focus on being more generous to those at the lower end of the earning scale and wind back the tax breaks that benefit the wealthy, are about getting more equity into the super system. And the same goes for the call for a super profits tax on the mining industry, giving all Australians a better share of the mining profits, not just the miners, their shareholders and the resource rich states.

It’s a blueprint for reform, full of good ideas, challenging ideas and politically risky ideas.

And while members of the Henry tax review can credibly claim they never expected the government, any government, to pick it up holus bolus and run with it in one burst of reformist zeal, London to a brick they were counting on more than four measures being enacted.

Yes, just the four.

There will be more of course, if not in the budget then definitely in the run up to the election.

A pledge to lighten the taxes on savings would be a perfect centrepiece for an election campaign speech by a Prime Minister keen to shore up his reform credentials. He could claim to be all about getting the nation saving not spending and at the same time there might even be a bit in the kitty to tempt low income earners to save more.

The simplified tax system is another voter friendly idea that will come sooner rather than later. Imagine if most of us didn’t need to lodge a tax return anymore - just sign, press the button and wait for your cheque.

But none of it goes to the heart of what Henry is about, and that’s changing the architecture of our tax system to cope with the challenges we face, the challenges of an ageing population in a globally competitive world.

Heather Ridout, a member of the five panel Henry Tax Review committee had it right when she said on RN breakfast this morning that in the run up to an election “there’s always a tug of war between caution by a Government and opportunism by the opposition”.

Declaring herself optimistic still about government appetite for reform Ms Ridout did warn the government not to over-claim in what it’s done, because all it’s done so far is adopt some key measures rather than alter the dynamics of the tax system.

So when the Treasurer calls this “reform of a lifetime” he is over-egging it.

And when he describes a two percentage point cut in the company tax rate as “historic”, well that just sounds silly and cheapens the claim for the future.

That’s not to say what the government has decided to push through here is not significant. Whacking a 40 per cent profits tax on the mining industry is a big bold policy announcement and sets up a fight. Already the mining industry is screaming about job losses and an exodus overseas.

The coalition has joined that fight and Tony Abbott warns of killing the goose that lays the golden egg.

But just because a goose is golden doesn’t mean it doesn’t have to pull its weight in the farmyard production and even the miners accept that the percentage they’ve been paying in royalties in recent years has dropped slightly while their profits have risen astronomically. In other words they’ve been getting off lightly, enjoying super profits from the resources we all have some claim to.

And the 40 per cent resource profits tax is a recommendation from the Henry Review team. Not as pure as the Henry committee would have liked it, because the government didn’t have the stomach for a fight with the states over giving up their mining royalties. But it is an election year.

All this makes it difficult for Tony Abbott.

Can he accuse Kevin Rudd of over-promising and under-delivering, but then criticise where he has delivered. Of lacking political and reform courage even as Kevin Rudd fronts up to the miners?

He can do anything in this pre-election climate and Tony Abbott and his team are going for broke. If that means ramping up a tax scare campaign against a government that has really been very mild, timid even in its response to its tax reform blueprint then, so be it.

If that means accusing the Government of leaving open the prospect of a land tax on the family home when the government is specifically ruling that out, then so be that too.

It’s all about politics and not about reform.

If Tony Abbott was offering himself up as a reformer alternative leader he might take up some of the more systemic changes proposed by the Henry Tax committee and run with them.

Like the road user charges that seem to be a favourite recommendation of the Treasury head Ken Henry himself. Now that’s a reform that speaks to our over crowded freeways, our under-funded public transport systems and our carbon constrained future. But it will be hard to sell.

The Government has basically ignored it for now and ruled out another Henry review recommendation that must surely one day be implemented, to reintroduce the indexation of fuel excise. John Howard froze petrol excise in 2001 when he was fighting for his political life and voters were ropable about petrol prices hitting a dollar a litre and blaming it on the GST. Nothing is so frightening as a motorist scorned, apparently.

So in this election year we now have a Prime Minister backing down on a clutch of election promises but in the past week talking bullishly about taking on big miners and big tobacco.

And we have an Opposition leader saying “no” to almost everything even if he then has to get out a reluctant “yes” a day or so later. That’s how it went with his response to Kevin Rudd’s increase on tobacco taxes and that’s probably how it will go on the Government’s Henry tax changes too.

Tony Abbott hasn’t closed the door on supporting the great big new super profits tax on miners, even though he remains “deeply hostile” to the idea. But is there really any mileage in siding with the big miners against more money for voter’s superannuation, more money for state infrastructure and cuts to company taxes?

Tony Abbott says “this is a government which is absolutely allergic to anything that requires courage”. But he is an Opposition leader who, although politically aggressive has a demonstrated penchant for pragmatism.

Meanwhile, Kevin Rudd just keeps on going, ignoring all the jibes about political cowardice, broken promises and under-delivering.

In this election year the political calculation is probably as simple as this: most voters won’t read the detail of the Henry Tax Review but they will catch the headlines. And you wouldn’t crowd out the headline good news for voters about boosting superannuation returns for instance with a whole lot of other detail that might just complicate the story.

By Fran Kelly,

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