How about this time we try, just try, to report on budgets and tax differently?
- Written by Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University
There are just five weeks until the budget, and the usual lists of winners and losers.
Among last year’s winners were said to be single parents, renters and first home buyers. Among the losers were said to be vapers, truckies and consultants.
It’s also how we talk about tax: winners and losers.
On budget night when the changes to the Stage 3 tax cuts are re-announced, we will be told they will make Australians earning less than A$146,000 better off than they would have been, and Australians earning more than that worse off.
It’s terribly predictable, but it’s also worse than that.
It’s part of a way of thinking and reporting that makes changes that could actually help us all but impossible.
Making that point passionately in Canberra last week (and apologising for his own role in it) was Ken Henry, the government’s chief economic advisor as head of the treasury between 2001 and 2011, and the head of the 2009 Henry Tax Review.
Confessions of a gun for hire
Here’s Henry’s confession. Shortly after he joined the treasury as a tax expert in the lead up to the 1985 tax summit convened by Treasurer Paul Keating and Prime Minister Bob Hawke, he was taken aside by his treasury bosses and told that arguments about making Australia better weren’t going to fly.
His bosses told him:
all anybody would want to know is what was in it for them, how many dollars they were going to get – and that’s also all the newspapers would want to know, that’s what they would be printing on their front pages.
What would matter would be the immediate “overnight” estimates of who would win and who would lose. Beyond not costing the government money, nothing else would matter – not how the changes would affect society by funnelling people into doing some things and not others, and not what they would do over time to the people who won or lost on the night.
So, presumably with a heavy heart, Henry developed a computer model that spat out nothing more than immediate winners and losers and ignored what the changes would do to Australia over the longer term.
Winners and losers are (almost) beside the point
Henry says looking back it is easy to understand “why we did what we did”.
“But I can’t escape the sense that, in developing the tools that facilitated squabbles over the distribution of gains and losses among the households of Australia in 1985, we were participating in a conspiracy against future Australian households.”
Henry did it again in 1991, helping build a much more precise version of the model whose exaggerated precision was used by Keating as prime minister to kill off Opposition Leader John Hewson’s plan for a raft of tax changes including a 15% goods and services tax and to end Hewson’s political career.
But it worried Henry. He says Hewson’s package was a genuine attempt to break out of the winners and losers mindset and argue for changes on the basis they would benefit society.
Then in the late 1990s Henry dusted off the model again and used it in the opposite way – to help the Howard government get its 10% GST over the line.
‘A conspiracy against future Australians’
Henry’s confessions tell us about more than the flexibility needed to serve the government of the day. They tell us the thing that matters most, making Australia work better, can’t really be spoken about.
Confessions on tax reform. Ken Henry.
Lukas Coch/AAP
And the more it is not spoken about – the more people are merely told what’s in it for them – the harder that is to change.
Here’s what Henry says really matters, and what he says he tried to address in his 2009 tax review.
The things we ought not to celebrate, and ought to tax heavily, are plunder, dumb luck, and a “finders keepers” approach to resources, including mineral resources.
The things we ought to avoid taxing are income from work, the normal rates of return for businesses, and transactions. They are the things we need more of to build our living standards.
We need less tax on wages and ordinary profits, and more on unreasonably large profits, windfall capital gains, wealth and the use of land and natural resources.
By lightly taxing the things that take from the rest of us (such as the superprofits earned by companies with some sort of monopoly) and heavily taxing the things that give to the rest of us (such as the effort put in by workers and businesses) we are bequeathing to our children a weaker Australia.
What’s winning matters as much as who’s winning
As Henry puts it, Australia’s young people are being screwed – not necessarily by what the tax system is doing to them today (although what negative gearing and capital gains tax breaks are doing to home prices can’t be helping) but by the way we are choking attempts to build the economy they’ll inherit.
He says we’ve got to level with them and level with ourselves, which is also the argument of Mixed Fortunes, the book detailing the history of tax reform in Australia by former treasury official Paul Tilley that Henry launched.
It’s an argument the journalists in the audience (I am one) and the lone politician in the audience (Assistant Treasury Minister Andrew Leigh) should take to heart. I’ll still report on winners and losers next month, but I’ll also aim to go deeper – to report on what’s winning as well as who.
Read more: Former treasury head Ken Henry says we need 'big bang' tax reform rather than incremental change
Authors: Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University
