Category: Tax and public expenditure

Rethinking tax policy for Australia

John Quiggin96 Comments

The title of this post is taken from that of the recent Treasury Discussions Paper on Tax, entitled Re:Think. Sadly, as I point out in this Guardian piece, there’s very little evidence of rethinking from Treasury. Most of the paper could have been lifted straight from the Asprey Review of 1975, and the sensitivities of the current government have ensured a step backwards from the Henry Review, with carbon taxes and resource rent taxes now off limits.

Undeterred, I’m going to start on my own review. I’m going to try something a little different in blog terms. This post will be updated whenever I get a chance, both with new material and in terms of publication date so that each new version will appear at the top of the homepage, hopefully with the comments being carried with it. I’m putting in some headings, and starting off with an idea I mentioned recently, that of a tax on bank profits

Aggregates: Revenue, expenditure, budget balance, debt and net worth

Revenue options

* A tax on the super-profits of banks, reflecting their privileged position. Tax base $29 billion. Possible revenue $5-10 billion, or 0.3-0.6 per cent of national income/GDP.

* Reforming the treatment of negative gearing “Quarantine” business losses for individuals, at least with respect to housing investments, and allow them only to be used as an offset against capital gains. Revenue estimate: rising over time to $5 billion a year, or 0.3 per cent of national income/GDP.

Expenditure requirements

Negative gearing

John Quiggin17 Comments

As I mentioned a while back, I’m planning a series of posts on tax policy. Since debate about “negative gearing” has been spurred by the suggestion that Labor might restrict it, this seems like a good time to cover the topic.

I’ll give my summary upfront, then go on. The problem is not negative gearing in itself but its interaction with the concessional treatment of capital gains. There are a variety of solutions, but the best is probably to “quarantine” business losses for individuals, at least with respect to housing investments, and allow them only to be used as an offset against capital gains.

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Goodbye to CPD

John Quiggin30 Comments

Like Mark Bahnisch, Eva Cox and a number of others, I’ve resigned as a Fellow of the Centre for Policy Development. It’s a sad day, since CPD has done a lot of great work, and I’ve enjoyed being involved in it. But the leadership of the Centre has taken a decision to move to the right in the hope of being more relevant to the policy process. The most recent outcome has been a paper on tax policy that broadly accepts the Treasury view of the issue, and pushes for a broadening of the GST base, which means taxation of fresh food. This isn’t a new or innovative idea. Rather, it has been part of rightwing orthodoxy for decades. CPDs endorsement allows its advocates to claim some “left” support. That claim obviously gained credibility from having Fellows like Mark, Eva and me. So, we had no alternative but to resign.

I should clarify that, apart from a nice title and a publishing outlet, I wasn’t getting any direct benefit from being part of CPD. So, I’m making a statement rather than a sacrifice.

Identity Crisis

John Quiggin32 Comments

In the latest issue of Gerard Henderson’s Sydney Institute Quarterly, Adam Creighton, economics correspondent at the Oz, “explains why most Australians pay no net tax”. That’s a striking conclusion, so I checked it out. Creighton has discovered that most Australians get about as much back in transfer payments and public services as they pay in taxation. The poor get a bit more, and the rich a bit less.

To save Creighton some work in future, can I suggest he consider the budget identity constraint “Expenditure = Income”. Since the government spends on services and transfer payments roughly the same amount as it raises in tax revenue[1], it’s obvious that, for the average Australian the same identity must hold, with income renamed as “tax paid” and expenditure as “transfer payments and public services”.

Next up: Why there is no net travel into the CBD

fn1. Taking account of the seignorage from inflation, returns on assets, intertemporal transfers through debt etc, this rough equality becomes an identity. Please, no arguments about deficits, and especially about MMT. The point of this post is a really simple, and doesn’t need this kind of complication.