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Sunday, January 25, 2015

Debate on Low-Tax and Small Government Flares yet Again

Recent Claims by Joe Hockey that Australians pay about half their income to the Government through the tax system has once more spurred a broader debate about tax reform - and the falsehoods spread by the Conservatives and Economic Liberals to rationalise their Ideology.

Tristan Ewins
January 25th, 2015
Recently  debate has arisen once more about rates of tax in this country.  Again Joe Hockey has come out with totally unfounded claims that individuals on average pay half of their income in tax.

 In response ACOSS chief executive Cassandra Goldie has argued that in fact middle income earners pay only 11 per cent of their income in personal tax, and higher income groups only about 20 per cent.  

Peter Martin of ‘The Age’ further explains how:  ACOSS [arrived] at the figures by including all household income in its total, including untaxed or lightly taxedIncome washed through superannuation, family trusts and negatively geared properties.”

Martin also explains how:

The bottom one-fifth of households pay 3 per cent of their income in personal tax, the next group pays 7 per cent, middle group 11 per cent, the second-top group 15 per cent and the top group 20 per cent…

But [this] progressivity vanishes when other forms of tax are included. Including the goods and services tax and other consumption taxes such as petrol and tobacco excise, the lowest earning household pays 24 per cent of its income in tax and the highest earning household only a little more at 28 per cent.”

So the existing system is also barely progressive when taken as a whole; and the Conservatives want to dilute or reverse this even more!

And today Gareth Hutchens of ‘The Age’ has also questioned the facts surrounding Joe Hockey’s claim that increased taxation through bracket creep is ‘the only alternative’ if Labor does not support the Conservative government’s austerity agenda. 

Crucially: improper reliance on bracket creep and increases in the GST and other regressive taxes and charges – including user pays mechanisms - are not the only alternative.

The Liberals’ offensive against any and all forms of progressive  redistribution rests upon their commitment to a classical liberal economic philosophy which naturalises the inequalities in wealth, income and power that arise under capitalism. Employers rather than workers are seen as ‘the real wealth creators’.  Workers are seen as freely entering into contracts with employers.   Their bargaining power as relates to skills in the marketplace are recognised; but the influence of trade unions in improving that bargaining position of workers is not. Differences in recompense based on demand and supply in the labour market are also ‘naturalised’.  Because of this ‘naturalisation’ government intervention in the economy is rejected outright – except for instance in cases where this paradigm is enforced – for instance through impositions against the industrial liberties of organised labour.  Hence the Conservatives and economic libertarians press for ‘simpler’ tax and lower tax because that means less redistribution.

There is also the question of peoples’ own liberties in their capacities as consumers. This issue is raised by the Conservatives and economic liberals and deserves a considered response.  There is the question of whether or not we are better off to determine our own ‘needs structures’ freely through consumption.

Very few socialists today would aspire to abolishing ‘the market’ in its entirety. Most socialists today would recognise the place of ‘the market’ as a medium by which workers and citizens in their capacities as consumers hold corporations accountable through the play of market signals.  Importantly, though, this entails the organisation of people in their capacity as consumers – both to improve the quality of information they can access as consumers – but also improving their market power through collective bargaining as consumers.

But there are problems with this ‘market utopia’.  Information is not perfect. Consumers are not sufficiently organised.  There are monopolies and oligopolies which minimise the effective role of competitive market forces and signals. And there is the possibility of consumers prevailing to the expense of the more poorly organised  workers. That is: the prospect of more – not less –exploitation.  

ALSO where there is intense competition there is the problem of investment in ‘the means of production’ growing so disproportionate compared with recompense through wages that the market is no longer able to absorb these costs – or provide sufficient consumption power to absorb what is produced.

But if all this is true what are the alternatives?

Firstly Labor should support a progressive restructuring of the tax system as a whole.  That must mean winding back superannuation concessions for the well-off – a good proportion out of about $50 billion in total by 2016-17. In total superannuation concessions  cost about as much the entire aged pension budget. It could also mean partially withdrawing dividend imputation (tax breaks ostensibly to negate ‘double taxation’) - justified on distributive grounds – and with exemptions for ‘small investors’.  

Further – it could entail an active restructuring of the income tax system – as opposed to ‘passively’ waiting for bracket creep to ‘do its work’. ‘Passive’ reliance on bracket creep for lower and middle income tax thresholds would have a regressive distributive effect. (which is why Hockey is willing to consider it despite his preference for ‘ever smaller government’) But restructuring and altering income tax scales and rates could allow bracket creep to work for higher income earners, delivering billions while actually reducing income tax for those on low incomes. A new top income tax rate could also be established for the millionaires.  Restoration of a robust ‘resource rent’ tax for mining could deliver billions; as could ‘super profits’ taxes in crucial areas such as banking. Finally: with modest increases in corporate tax we could signal our desire to end the ‘race to the bottom’ that results in effective ‘corporate welfare’.

If an incoming Labor Government succeeded in raising at least $45 billion in new Commonwealth revenue (in today’s terms) through these and other measures in its first term upon retaking government it would be in a strong position to deliver on Australian taxpayers needs in education, health, transport, communications, welfare and more.  Specifically it could fund big initiatives such as the National Disability Insurance Scheme progressively; And could also provide for another area of critical need – for a National Aged Care Insurance Scheme. Without austerity.

In response the Conservatives and economic libertarians would insist that public provision ‘rejects the market’ which is the proper arbiter of all goods and services.

 But Labor must reject such claims for several very practical reasons; as well as for the sake of economic justice.

Firstly ‘collective consumption’ as taxpayers can often secures for us ‘a better deal’ than in our capacities as isolated private consumers. Private infrastructure means user pays – which hits low and middle income citizens hardest.  It also involves higher rates of borrowing – with the cost structures passed on to consumers.  Finally it  means private profit margins and dividends – which demand that as much income be extracted from consumers as is possible. And in the case of private toll roads, for instance, can mean the exclusion of public transport investment to artificially support the particular private investors.

Competition in place of ‘strategic and natural public monopoly’ also passes on increased underlying cost-structures to consumers.  A ‘hybrid’ economic system which delivered those efficient cost structures on would mean more consumption power – not less.  Business actually gains from this. Both through cheaper infrastructure and services – but also through the increased consumption power of workers and citizens.

Hence there is ‘the bottom line’ that tax-payers would have more to spend in the areas where choice is most important as a consequence of strategic ‘collective consumption’; including ‘social insurance’ for instance.  And frankly ‘market forces’ do not necessarily make enough of a difference when it comes to roads and rail; or in the provision of water and energy; or in areas that are properly the reserve of ‘natural public monopoly’. (eg: energy, water, communications, and transport infrastructure)  Often it all comes down to a contest as to which provider can most efficiently fleece consumers with unintelligible deals and plans foisted upon people who would much rather take ‘the basics’ for granted.  And in areas like Education – ‘market choice’ just sorts us out on the basis of our capacity to pay.  That is, on the basis of class. And that is unfair.

But if ordinary people secure a ‘better deal’ through collective consumption in these areas that frees up more money for determining our needs structures in the areas where that really counts.  For instance, including but not limited to the consumption and other participation in culture, sport, fitness, social activity and art.  

The time has come to question neo-liberal shibboleths around ‘small government’ and ‘the market’.  An alternative is possible which delivers a better deal for the general public in our capacities as workers, citizens and consumers.  But which has also learned from the mistakes of the old socialism which thought it could supersede ‘the market’ entirely.



  1. Some good points Tristan, similar to my arguments in the past. I'd throw in an annual wealth tax of 1% on the top ten percent of wealth holders, limiting rental property losses to being offset against rental income, gift and death duties one states worth more than $2 m, getting rid of the fifty percent exemption for capital gains held for more than 12 months, abolishing various business tax concessions which amount to up to $10 bn in revenue forgone etc etc. There would be no budget deficit (a scare story to justify attacks on social welfare) with enough left over, combined with your suggestions, to increase spending on public education, health and transport and do something serious about climate change.

  2. Tristan perhaps there is a level of government spending which is too high; however, the legislated mix of spending and the mix of taxes both affect the levels of distributive justice that citizens receive ...

    Too paternalistic a spending policy could have the local party neighborhood committee decide upon the color scheme for one's front door, and the types of flowers planted in the garden.

    Too liberal a government policy on education spending encourages lots of small semi-viable semi-religious schools and is economically inefficient: study the history of Victoria in the 1850's to 1870's to establish that secular but neutral education cheaper and better.

    Too concentrated a tax system on just one tax say personal income tax is unjust too.

    Tax policy prescriptions therefore for Australia: bring back death duties; maintain the sensible but smaller state taxes; enact a financial shares duty of 0.1%, state or federal, but paid to the state deficits; and do something about the tax evaders who thumb their noses at the general public ...

    And spending requires economic restraint always. There is always a new idea to fund ...

  3. Thanks John - good ideas from you too - we seem to be agreed - now to convince the ALP! :) Andrew: I agree the tax system can theoretically go too far. But we're a long way from that. We're less that 30 per cent of GDP; compare with the Nordics at around 50 per cent. Also keep in mind increasing inequality in the labour market with deregulation - compared with past reliance on labour market regulation for equity purposes.... My aim is to see tax raised by 5 per cent of GDP or perhaps a little more over 10 years - and a big boost with the election of a Labor govt. (about 2.5 per cent of GDP - or about $45 billion. Priorities would be national aged care insurance, NDIS, public and higher education, health - and especially mental health - 'closing the gap on life expectancy'.... And a much fairer welfare system, Agreed spending needs restraint in so far as you don't want to waste money... But there's so much that absolutely NEEDS to be done.... Let's not underplay that either.. Thanks for commenting both - good to know people are reading. :)

  4. Getting infrastructure done is also crucial - and the public sector can do it a lot more efficiently as well... Getting value for money here is actually an argument in favour of more not less public investment.... More tax is crucial there as the alternative is privatisation and user pays that hurts both consumers and business...

  5. I wonder what analysis underlies proposals to reform the tax system?

    The proportion of GDP flowing into tax seems to be increasing in the long run and some nations are approaching 50%

    Now the problem here is that if we increase taxes from one point to another as band-aids that do not remove the cause, then we are doomed to repeat the exercise at a later date - and this is a continuous process.

    The only alternative is to worsen some other imbalance within capitalism. So (under capitalism) you can keep taxes constant but only by increasing injustice elsewhere. And when the economy ends up in the crisis Marx expected, capitalists will demand that the tax burden is shifted onto others.

    See: Http://

    I cannot accept Tristan's proposal to see tax raise by 5 per cent of GDP over a decade or so, unless it is spelt out how this resolves the conditions creating this need in the first place.

    I am not sure what "spending needs restraint" even means. If you have a dollar - you must spend it. The only other option is to hoard it which serves no one. Capitalists calling for restraint on spending are really crying for restraint on debt expansion.

    In general economic infrastructure (roads rail ports airports) can be funded by bonds covered by user charges. Removing this load from the present tax take may provide the needed additional expenditure for social infrastructure (schools, hospitals, aged and child care) which cannot be covered by full user charges.

    A socialist tax policy would only tax surplus and windfall gains. Workers cooperatives and workers themselves may also buy bonds.

    I suppose some want to propose tax changes to introduce a more humane form of capitalism and to palliate what they can't prevent. If this is so, then most would agree with any and many of the myriad adjustments that will be thoroughly undone when government's change. In any case such suggestions are based on having a viable capitalism system to tax in the first place.

    We have had over 60 years of such games. Surely, in the wake of the GFC and under the blanket of massive ongoing quantitative easing, we must rebase our concepts w.r.t. tax on firstly seeking an alternative economic policy somewhere between capitalism and socialism, such as Mondragon etc.

    A cooperative enterprise, without capitalist ripoffs, can provide most of the education and caring benefits capitalism only provides by taxation.

    If I was to push for urgent band-aids for capitalism - I would reintroduce the proposal for a carbon tax, but matched with a cut in GST (to outflank easy opposition from mindless journalists).

    It appears unfathomable that people looking at tax reforms never consider taxing foreign exchange. This is where I would start and it could be coupled with tax cuts for PAYE workers.

    Also I would imagine that the ATO has (or can get) an address for every tax file number. It should be possible to adjust tax treatments for those on double income households compared to single income households.

    Chris Warren

  6. Chris thanks for responding. I agree there are disproportionalities under capitalism which result in periodic crises and that increasing tax on its own is not going to resolve this. But for those who suffer under capitalism a 'hybrid' response can greatly mitigate that suffering and the associated injustices. Natural public monopolies can mitigate against capitalism's disproportionalities. And fair welfare not only eases the suffering of the poor, disadvantaged and marginal - it also strengthens the bargaining position of labour. All that said I am strongly in favour of promoting co-operative enterprise - which tax breaks, cheap credit and the like. There is a need for a more thorough alternative to capitalism - but we lack the means of getting there. What we do in the meantime is just as important because that is the actual stuff of peoples' lives. And that is just as important as the 'final objective'. (which itself is looking more unlikely with the entrenchment of corporate power and Ideology)