Home Truths About Taxes

taxPerhaps I missed the fireworks, but apparently the new year will see a spirited debate on taxes — mostly about increasing them, of course.  Nothing, according to Malcolm Turnbull, PM, is off the table (although he did  seem coy about lower weekend penalty rates when quizzed while sipping what was undoubtedly a low-fat soy latte at a cafe in his Wentworth electorate). Are any of the current “reforms” things we could, should or are brave enough to do?

First, accept that we are a high-taxing country — primarily to support our welfare state, but also because of the immense cost of managing our vast continent, compared to costs in say Hong Kong, Singapore or Switzerland. Driving from Moscow to Madrid is only 200km more than Perth to Sydney.

Since the 1960s we have forgotten to have enough children to fill up this vast land. Now we are large, growing ever older, under-employed, over-educated and lazy to boot.  Our welfare state — replacing what our family or neighbours might once have done for each other — is here to stay.  There is no stronger proof of its permanence than the insistence of Turnbull and Treasurer Morrison that, no matter what tax reform occurs, no one will be worse off. Remember, when Malcolm Turnbull, PM, convened his economic summit, a key participant was the representative of the Australian Council of Social Services (ACOSS), strongly suggesting he sees compassion-industrial complex as being every bit as integral to the economy as labour, manufacturing and productive sectors of the economy.

The only true way no one can be worse off is if the pie (our economy) grows enough to enlarge everyone’s piece. For now, we just hope to sell more iron, coal, meat, milk and land (and lease our ports and power poles) to China, in exchange for a few mouthfuls of pie.  Were Australia playing chess, we would be exchanging our queen for a pawn and counting that as a winning coup.

When it comes to national expenditure, Malcolm Turnbull, PM, is the barber with the bald man for a customer: he needs to sound as if his is busy snipping away, but sees little expenditure that is obvious to cut.

So let’s see where three major suggested tax changes might take us:

1. Increase GST to 15%

Sounds good.  Those well-known companies that get around corporate taxes would have to pay GST.  Or would they?  If their sales here are all listed against home offices in Ireland, Singapore or Calathumpia, can we actually and practically collect GST in those locations? Can the accountants’ skills and talents for putting potential tax revenues beyond government’s reach ever be rendered impotent? History and human nature strongly argue that it cannot.

Meanwhile, a 15% GST would be a terrible blow to many small business.  That increase — a whopping 50% — will not be available for ploughing back into growing businesses. If, as NSW Premier Mike Baird proposes, we increase GST from 10% to 15%, we will hobble or bankrupt many small businesses and disable the engine both major political parties acknowledge drives our fragile economy.

2. Put capital-gains tax (CGT) on the family home

This seems a no-brainer.  The US does it (albeit with hefty deductions for renovations and improvements performed during the course of ownership).  It only affects families whose homes rise in value faster than inflation, and whose hasn’t recently?  Low-income earners who rent their homes are unaffected, unlike with a GST rise. And since investment properties already attract CGT, adding CGT to family homes shouldn’t decrease the stock of rental properties available. Indeed, it might actually increase it.

But wait!  A CGT on the family home would add insult to the injury that Mr Keating imposed on Australia’s residential property market in 1983, when he imposed CGT on investment properties. Whenever you tax housing more, you make it harder for first-home buyers to enter the market.  As anyone who has attended an auction knows, vendors only take prices they are prepared to accept.  If investor-vendors fail to achieve the selling prices, well, they seek they won’t sell.  And they factor into that price any CGT they will have to pay. In the longer term, adding CGT to family homes would likely raise the cost of getting on the property ladder.  Over time, more Australians would be forced to remain lifelong renters.

If equality, civility, workplace productivity and national prosperity all depend to some degree on home ownership, do we really want to go from a nation of owners to a nation of renters?

3. Tax superannuation more

Compulsory superannuation has, apparently, so far failed in its objective, that being to wean older Australians off the teat of the pension.  Yet, some of us — older politicians and public servants and private executives in schemes linked to their salaries — have done very well out of it and sit on piles of cash.

But over-generous superannuation schemes are mostly a thing of the past.  Future Aussie generations will retire with more modest chests of money, especially if share portfolios continue to show uneven growth or government’s fingers slip back into the lolly jar. With so many Baby Boomers now retired or retiring, the pot of superannuation they hold is an irrestible temptation for the state and its revenuers.  Taking this money from its owners would be no more difficult than kicking away the Zimmer frame and mugging its frail owner.

And why not? If you follow the logic of the would-be tax gatherers, older Australians cost us through the nose.  Unhappy in their latter years with the degenerating state of what God provided 70 years earlier, our grey battalions get new hips, knees, lenses, stents and valves.  They must have things cut off that weren’t there last time they checked.  And they almost-continuously swallow expensive pills to keep blood pressure and acid from rising, arteries open,  growths at bay, and their minds from wandering.   Surely, it is time for these people to “give back”?

Well, perhaps not.  Successful societies on Earth seem to keep much wealth in private hands.  Why? Because governments tend to spend — dare I say waste!  — whatever they take.  By contrast, private capital prudently invested underpins modern industrial economies.  Wealth accumulated by the elderly passes on — alas, too soon — to the next generation, which may also use it in countless different ways, from funding new ventures to supporting charities.

If government snatches this wealth by means taxes on super, or via punitive death duties, we shatter an important motivational link between hard work today and our family’s prosperity down the road.  We also reduce the availability of philanthropy to support charities, education, the arts and research.

In a society that taxes all we earn by the time we die, perhaps only pop stars, famous actors, sporting stars, gambling and entertainment entrepreneurs and those with Cayman Islands accounts will earn fast enough to accumulate wealth. And society will be poorer for that.

9 thoughts on “Home Truths About Taxes

  • Jody says:

    Taxation on superannuation! Now, there’s a subject dear to my heart. I’ve sent 15 emails to those whom I know to be “self funded retirees” in the hope of garnering support to stop taxation for the over 60s in its track. A lot of myth and cant has been spewed of late about “wealthy” self-funded retirees. Pretty soon it was realized that only 475 people in this country have circa $15M or more in their super funds; in short, not enough to yield cash for government. No, the bar had to be lowered exponentially. Now the Gratten Institute and Adam Creighton (“The Australian”) as well as everyone at “The Guardian” are pressuring government to introduce tax on ALL super fund earnings (Note: not ‘members’ and no tax free threshold). John Daley (Gratten) says ‘a retiree couple needs only $580,000 in a super fund for a comfortable retirement”. This has gone unchallenged as of today, where the only thing which seems to concern the over 60’s is an impending impact upon the family home (they want to hand this down to the kids). In Sydney, where the average home is now close to, or actually, 1 million dollars it is obscene to expect the taxpayer to fund the retirement lifestyles of people who have so much capital but who are unwilling to draw down on it by moving. Meantime, SMSFs are prime targets.

    For me, if tax is introduced on all super fund earnings I’ll rearrange my affairs immediately in such a way that the taxpayer will fund my retirement – at least some of it – because I’m not paying tax AND the high compliance costs/auditing of my super fund. There’ll be nothing left for me otherwise. It’s insane, and it shows how far onto another planet this discussion has gone.

  • bemartin39@bigpond.com says:

    I can’t remember who predicted the inevitable demise of all liberal democracies, but his reasoning was indisputable. He pointed out that in order to win and hold onto power, politicians and political parties must maintain their popularity, which simply means that they must endeavour to please a majority of the electorate. They do that by providing or promising to provide more and more benefits to more and more people than their opponents. This, in turn, “creates” more and more people who prefer to vote for a living instead of working for a living. The cost of this ever escalating dutch auction sooner or later becomes unsustainable and the system collapses. Think Greece.

  • Keith Kennelly says:

    Malcolm in the Shadows is now the conductor on the express train to Greece.

    He twirls the baton instead of holding the brake.

    • Andrew Campbell says:

      Andrew Campbell

      Here’s another possibility … what about

      4. Death Duties

      Since every parcel of land in Australia is defined by a piece of paper (a Title Deed); and when that land (and property)is transferred to another there’s a process already in the government hands (wills, probate); why not (say) take 10% of every transfer after death that’s over (say) $2,000,000?

      How about a discussion about the pros and cons of death duties …

      But then, pigs might fly …

  • Jody says:

    I’m opposed to Death Duties on the grounds that unless young people inherit money they’re never likely to be able to afford their own homes in Sydney. And that’s where the work is.

  • en passant says:

    Death duties? Good idea, so why not personally demonstrate how your plan will work.
    Your children will thank you

  • Geoffrey Luck says:

    Some bad economics and poor logic here! Why should “young people” be helped to afford their own homes in Sydney? Who says they can’t afford to get into a home? Why do they need to do it instantly, before building up some equity? No, they can’t afford to bid at auction for inner-city houses, but who in the past did? Apart from that, many young people prefer to live in an apartment, even with a family, because it frees them from the burdens of home maintenance, and allows them to live more centrally. Apparently Jody would like to force retirees out of the family home to free up housing for the undeserving young, and save money wasted on the pension. Read Judith Sloan demolishing that argument!

    Whether superannuation should be taxed – in or out – can be argued, but up till now superannuants have had a good ride. For quite some time, concessional terms for saving, and the tax-free benefits of payouts has been considerably more advantageous than it was say, twentyfive years ago. Until the Abbott government clamped down (I was a strong lobbyist) their returns were not even counted as income in tests for the very expensive Commonwealth Seniors Health Card. Even now, previous entitlements have been grandfathered.

  • kotali61@bigpond.com says:

    Those that suffer most if taxes are not increased are the employees of the government (who mostly generate the ideas for more spending) and the Canberra real estate agents who live in fear of cuts to the public service.

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