Treasury ‘White Paper on Tax’ seized upon by an Abbott Government Considering Regressive ‘Reforms’

 

The Abbott Government's 'White Paper' on Tax could see big changes to superannuation and the overall tax mix.  But the Paper seems oriented towards the Government's Ideological preference for 'small government', 'low tax' and 'simple/regressive tax' as opposed to a progressive tax system. Labor and the Greens need to enunciate a comprehensive alternative - also informed by a progressive ideology of equity and fairness.  Tristan Ewins looks at the alternatives.

Tristan Ewins

31/3/2015

The Federal Australian Treasury’s White Paper on tax reform seems to have been received well by the Abbott Conservative Government. 

Amongst other suggestions, it urges slashing the Company Tax rate to make Australia a more attractive place for investment.   

But arguably decreased Company Tax is not the answer and will only lead to further ‘corporate welfare’. 

The white paper complains that 70 per cent of Commonwealth tax revenue is drawn from personal and company taxes.  But what is the alternative?  A higher GST?  More user pays?  More austerity in the context of an-already stunted social wage and welfare state? 

Dividend Imputation, Corporate Taxation, Corporate Welfare

On the good side, Gareth Hutchens of ‘The Age’  (30/3/2015) notes arguments have arisen for the potential rescission of Australia’s regime of Dividend Imputation. (tax breaks on share dividends; ostensibly to make up for ‘double taxation’)

For a start, lower Company Tax rates dilute arguments about the unfairness of ‘double taxation’.  Australia’s Company Tax rate has been reduced markedly since the Keating Government which introduced the dividend imputation system.  Countries such as the UK and France – which once had imputation – have now dropped the measure.  It no longer appears ‘necessary’ either for ‘fairness’ or ‘competitiveness’.

To clarify: Nicholas Gruen of ‘The Age’ pointed out in 2012 that the cost of Dividend Imputation to the Australian people (as represented in the Government) of over $20 billion a year!  

The result of falling Company Tax, dividend imputation and other pro-corporate measures has been much lower levels of tax paid by business, and the effective consequence of ‘corporate welfare’, in tandem with other effective corporate subsidies. 

For instance David Holmes  at ‘The Conversation’ has noted– “the fuel tax credit scheme to the mining industry”  which delivered $2 billion in corporate subsidies for mining corporate interests in 2011 alone; and a total of over $5 billion all up.

But it goes much further than this.  Corporate welfare can also be interpreted as taking the form of a falling minimum wage and a falling wage share of the economy. In Australia specifically the wage share fell by about ten percentage points since 1959.  (see the associated graph via the hyperlink above)  That means higher levels of exploitation of working people by business. That is, Australian workers are subsidising corporate profit through lower relative wages.

Further, there is an assault on welfare rights to ‘make room’ for effective corporate tax subsidies; and ‘punitive welfare’ , ‘work for the dole’ etc, effectively reduce the bargaining power of workers because of an insecure and desperate ‘reserve army of labour’.

Also consider the proliferation of ‘user pays’ measures. (for example for access to transport infrastructure;  school ‘levies’; a higher cost of living re: water and energy etc)  User pays mechanisms can only spread as a consequence of lower taxes.  What we do not pay for collectively as tax payers, we will pay for (and usually we will pay more) in our capacity as private consumers.   

Declining levels of corporate contributions (via tax) to the construction of infrastructure, and the development of skills which the corporates benefit from – means the burden is increasingly paid by workers, consumers and individual (private) tax payers.  More corporate welfare!

Privatisation of communications, energy and water utilities and assets such as state-owned banks also saw an end to progressive cross subsidies. At the same time – progressively from the 1980s and 1990s - a more regressive tax mix (including the GST) ‘began to bite’.

Importantly, the argument that rates of corporate and personal income tax must fall because of ‘competition’ does not apply to all companies and individuals.  Many companies cater to Australian markets and Australian consumers.   The threat of capital flight is not universally applicable; and contributing to a ‘race to the bottom’ on corporate tax will result in spiralling and out-of-control corporate welfare.  Global action is necessary to stop the existing ‘race to the bottom’ on tax. 

To get the situation in perspective: Company Tax (now 30 per cent)  has been reduced by approximately 20 percentage points since the time of the Hawke Labor Government. 

The cost to the Australian people of this is tens of billions in revenue annually - which might otherwise have been directed towards infrastructure and education (which the corporate world benefits from after all), as well as health, social services and welfare. 

Even though a return to the ‘high water mark’ of corporate tax may not be possible, an increase to levels enjoyed by other advanced economies might be doable, and would make a big difference.  (nb: US Company Tax goes as high as 39 per cent; Japan 37 per cent and France 34 per cent – see HERE)

Furthermore, arguably most Australians are not so ‘mobile’ as the proponents of lower income tax suggest either.  Taxes also contribute to the quality of infrastructure and services which underscore the desirability of living in particular country. This includes the professionals which some say are likely to ‘pack up and leave’ if progressive income taxes remain.   Indeed the quality of education, services and infrastructure also acts as a ‘pull factor’ for investment and skilled labour.

Income Tax and GST

Treasury is also pressing for lower income taxes and a higher, less discriminate GST.  (eg: apply it also to education and food)

But because apparently an increase in GST is rejected by the Andrews Victorian Labor Government we might hope for a more equitable alternative.  

Unfortunately, though, it is more likely we will simply see further austerity.

The Treasury white paper apparently complains that only Denmark relies more on income and company taxation than Australia.   But ‘just because other people are doing something’ is not a strong argument to follow suit.  More appropriate would be to consider what –if anything – is wrong with the Danish tax system and economy.

Wikipedia states of Denmark that:

It has the world's lowest level of income inequality, according to the World Bank Gini (%),^[8] and the world's highest minimum wage, according to the IMF.^[9] As of January 2015 the unemployment rate is at 6.2%, which is below the Euro Area average of 11.2%.^[10] As of 28 February 2014 Denmark is among the countries with the highest credit rating.

So Denmark has a strong economy.  It has chosen ‘a different path’, say, compared with the Anglosphere. But its path of high, progressive taxes, labour market regulation and strong social welfare works! 

Finally the Treasury White Paper has considered the threat of bracket creep, and apparently the Abbott Conservatives are considering an increased GST as an alternative.

Bracket Creep refers to workers being pushed into higher tax brackets as a consequence of inflation, and (only nominally) increasing wages.  Both Labor and Liberal governments have a history of dealing with bracket creep by returning the proceeds to tax-payers through tax cuts.  Though even under Labor arguably this has sometimes been dealt with in a regressive way.   Higher brackets have been eliminated or cut - or raised so high as to minimise their progressive impact - and restrict strongly progressive taxation to only the most wealthy of all.  Arguably this is to the benefit of the upper middle class and the wealthy; and to the detriment of working people, including the working poor.  It means the working class and the poor pay more proportionately; and that those in need suffer with the constriction of the social wage and welfare.

But this is not an honest Liberal-National Federal Government.  Joe Hockey made the ingenuous claim, for instance, that Australians pay 50 per cent of their income in tax.  

As Ben Phillips explained at ‘The Conversation’:

“ Nobody in Australia pays 50% of their income as personal income taxation. According to NATSEM modelling, around 3.5% of those who have a tax liability actually face a top marginal tax rate of 49 cents in the dollar. Around 25% of taxpayers are paying a top marginal tax rate of at least 39 cents in the dollar.”

To summarise – Australia’s income tax system involves several brackets.  Higher brackets and rates only apply after specific thresholds are met. So as Phillips insists: NO-ONE is paying 50 per cent of their income in income tax! 

Hockey is not stupid.  Surely he understood this.  Apparently he was attempting to tap into populist anti-tax sentiment through a deceptive and false argument.

But depending on your notion of ‘the good society’ tax as a whole needs to go up; and the tax and spending mix also needs to be reformed.

Negative Gearing, for instance, benefits upper middle class investors; but does not create much in the way of new employment.  And important social programs demand higher levels of social expenditure.

Crucial priority areas which need substantial public funding include:

·         Full implementation of the National Disability Insurance Scheme as well as ‘lifting up’ the standards and resource base for state schools; Extend the NDIS to apply to aged disability pensioners

·         A big public investment in a National Aged Care Insurance Scheme: to provide for the needs of aged Australians both at home and in care

·         Investment in a comprehensive Medicare Dental Scheme

·         Implement Programs to ‘Close the Gap’ on both Indigenous Life Expectancy and Life Expectancy for the Mentally Ill

·         A big investment in new Public Housing stock – solving the housing affordability crisis by increasing supply

·         Fair Welfare and amelioration of Poverty – Raise all welfare payments by at least $35 a week on top of the current indexing arrangements; Thereafter implement fairer indexing arrangements for Newstart, Sole Parents and Student Allowance;  Relax criteria and significantly slow the withdrawal of payments for disability pensioners attempting to re-enter the work-force; Eliminate welfare poverty traps

·         Restructure the Higher Education Contribution Scheme (HECS); raise the repayment threshold and lower interest on debt; suspend all debt for former students who acquire a disability which interferes with or prevents work

·         Public investment in public infrastructure – Including the National Broadband Network – with Fibre to the Home Broadband

At a crude estimate these items would likely cost over $50 billion a year to implement in the context of an economy valued at around $1.6 Trillion.

Options to fund include Company and Income Tax reform, and withdrawal of Dividend Imputation;  but also the following

·          reform of Superannuation Concessions for the wealthy and the upper middle class*

·         cut Negative Gearing and plough the proceeds into Public Housing;

·         implement an Inheritance Tax;

·         Restore the original (Rudd-inspired) Mining Tax

·         Increase and progressively restructure the Medicare Levy

·         Implement a banking sector tax on super profits

·         Implement progressively-structured infrastructure levies on business and individual taxpayers– to provide for communications, transport, energy-related and water and sanitation related infrastructure – without regressive user pays mechanisms or inefficient/wasteful private finance

·          Implement a progressively structured Aged Care Levy

The Treasury ‘white paper’ on taxation seems to largely comprise a ‘wish list’ for Liberals pursuing an ideological ideal of small government, low taxes, and high levels of inequality. (which the Liberal ideologues put down to ‘merit’)   Labor and the Greens need to develop their own responses.  And hopefully this post will contribute meaningfully to that process.

 

*It should be noted, however, that even $1 million in accrued superannuation will  provide a relatively modest retirement income of $33,000 a year.  (compared with a Single Aged Pension of just over $22,000 and in the case of a couple roughly $17,000 each)  This is far from grandiose – though assuming the recipients’ home is owned it provides relative comfort compared with those fully dependent on the Aged Pension.   (more than $10,000/year additional income)  But The Australia Institute has suggested that cuts in Superannuation Concessions  - which cost taxpayers tens of billions annually – could instead be channelled into a more robust Aged Pension – lifting the full Single Rate to just over $26,000/year, and just under $40,000/year for couples.   The rate at which the Aged Pension is withdrawn could also be slowed, benefitting those with smaller superannuation accounts – and especially women – as a consequence of interrupted working lives and the devaluing of ‘feminised’ professions.  
 

Responding to Simon Crean on ALP unity and Government Policy

above: Victorian Labor MP, Simon Crean

Today veteran Labor MP Simon Crean helped facilitate a spill of the Labor leadership once yet again.  Without the numbers, and with Rudd refusing to contest the spill, Gillard was re-elected unopposed.   But Crean has raised issues that are crucial for the Party as the May Budget approaches.  Unfortunately, the author, Tristan Ewins, finds he cannot agree with Crean when it comes to reform of superannuation concessions and other fiscal reforms which might well be necessary to pay for NDIS and Gonski. 

(initiatives that will ultimately cost over $20 billion a year in the context of a $1.4 Trillion economy)

(nb: Also I have corrected a rather large typo as well!!!; So apologies to anyone who may have been shocked by the apparent argument I supported infrastructure privatisation!  Rest assured that is NOT the case!  I did not catch the typo until after I rushed to publish with the events unfolding rapidly around us...)

By Tristan Ewins

Today in a media interview Simon Crean put a strong argument against the constant destabilisation process going on within the Federal Parliamentary Labor Party.  As he argued, the prospect of an Abbott government is frankly “scary”.   The tens of billions in cuts Abbott would follow through with would result in unprecedented damage to Australia’s welfare state and social wage.   The stratification of our education system would continue apace to the point where constructing a constituency for revivifying the state sector would pose a very difficult challenge.  Punitive labour conscription policies for the unemployed.  would acquire previously unthinkable dimensions.  Finally, Paid Parental Leave under Abbott would be skewed towards the truly wealthy at a time when the entitlements of poorer Australians are under attack.   One way or another the ‘leadership question’ needs to be permanently resolved ahead of the May Budget.  Labor needs a progressive Budget the whole Party can unite around in May.

A few hours, however, it seems are a long time in politics!  Just moments ago there was a spill for the Labor leadership positions. Crean had been instrumental in bringing the spill about – but without Rudd contesting it, Gillard was re-elected party leader unopposed.

From this Labor activist’s position there are two crucial issues.

One – is that the leadership speculation and destabilisation must be ended finally and categorically.

Secondly, Labor must remain on the policy front foot – and not step away from its commitments to Gonski and NDIS. 

IN that context two questions raised by Simon Crean still remain problematic for this Labor Party activist.  Those questions concern infrastructure privatisation and treatment of superannuation concessions.  I am hoping that the options of removing superannuation concessions on the one hand; and of maintaining public infrastructure on the other - have not been sacrificed.  The consequence of forsaking reform of superannuation concessions in particular could potentially mean there would be insufficient funding for NDIS and Gonski….

Infrastructure privatisation?

Beginning with the matter of infrastructure privatisation: Simon Crean raised the issue of employing Superannuation funds to pay for basic infrastructure.  While this is far preferable to the kind of privatisation preferred by the Conservatives, superannuation funds would also seek maximum return for their investors.   Certain union-dominated superannuation funds might benefit, it is true: but potentially at the expense of the public more broadly in their capacity as consumers.

Also even the most robust superannuation funds will not achieve the credit rating of the Federal Government. 

In short, superannuation investment in infrastructure would be great for the superannuation funds, but an inferior deal for consumers and taxpayers. When it comes to infrastructure: roads, public transport, water and energy infrastructure etc – public sector investment still delivers a ‘better deal’.   It can raise funds more efficiently, and it can run on a ‘not for profit’ footing. 

Preferably infrastructure user tolls of any kind should be avoided – as usually tolls take a form approximating regressive flat taxation.   Servicing public debt sustainably over the long term would deliver the fairest outcomes;  but progressively-structured  taxes may have to rise as consequence.

Reforming the tax mix is a better option – and as we will soon argue there are a number of progressive options available.   But if tolls are introduced in any way, they should take the form of tolls on public owned infrastructure – as occurred for a period with the Westgate Bridge in Melbourne and the Sydney Harbour Bridge.   That is: they should comprise temporary measures, without the drawbacks of privatisation.   And if they are applied at all, they can potentially resemble progressive taxation with a ‘tiered system’ for public and commercial use, and for individuals and families in particular income brackets. Indeed, such a system could form part of a ‘quid pro quo’ between the Federal Government and the States. It would assist the Federal Government in freeing funds for Gonski and NDIS while at the same time maintaining a progressively structured model of infrastructure finance.

Superannuation Taxation?

The other potential ‘bogey’ Simon Crean raised was that of "taxes" on superannuation.  (a misnomer because the concessions comprise tax relief rather than taxes in of themselves) 

Admittedly it is true that a fear campaign has already begun on the theme of superannuation concessions.  The upper middle class is concerned their retirement lifestyle may be threatened; and while many struggle to make do on the Aged Pension alone, the upper middle class see an annual retirement income of over $50,000/year as a ‘right.’   A recent segment in the 7:30 Report presented the matter in a most unbalanced fashion. 

But is the theme of social class helpful for Labor?  Or is it a source of division, and hence electoral marginalisation?  And what does class conciliation really mean in a context where employers are opposing minimum wage increases, attempting to wind back penalty rates, and trying to prevent labour organisation?  Does it mean anything in the real world, or is it just an Ideology behind which social democracy has self-liquidated?

Already in another recent article we have noted that superannuation concessions have risen to prominence as a massive instrument for tax avoidance by the very wealthy – at the same time as user-pays mechanisms for the most basic infrastructure are being considered.  Specifically, superannuation concessions are currently around $30 billion, and will cost $45 billion perhaps as early as 2015.  And the top 5% income demographic alone is already receiving over $10 billion of those existing concessions. 

In that same article we also observed that – by comparison – then entire Aged Pension Budget was only $25 billion in 2012. 

This is more than ‘middle class welfare’. It is ‘upper middle class welfare’, and a subsidy for the wealthiest of all – the top 5 per cent – effectively paid for by everyone else. Despite Ideologies of class conciliation, distributive injustice is a glaring reality – which we must choose whether or not to facilitate and excuse – or whether to work for a more socially just alternative.  Tax avoidance and tax minimisation from the wealthy impacts upon the welfare and social services we all depend upon in Health, Aged Care, Transport, Welfare and so on.

In that same article this author demonstrated that by halving Dividend Imputation the government could bring in over $10 billion, and by removing superannuation concessions for the top 10 per cent income demographic Labor might recoup as much as $25 billion altogether. 

And elsewhere the Greens had argued that raising the Minerals Resource Rent Tax (MRRT) rate to 40 per cent, eliminating loopholes and removing “generous accelerate depreciation provisions” could raise $26 billion our four years. 

Finally,  based on statistics used by “Crikey’ last year, increasing Company Tax by one per cent could potentially bring in an additional $1.5 billion a year.  That kind of money could prove very useful come September if ploughed into Aged Care or mental health, for instance. It is about time to draw a line under decades of corporate tax cuts.  For decades now a regime of ‘corporate welfare’ has taken root, with lower taxation for Companies and wealthy private investors – at the same time as government struggles to pay for basic infrastructure and education expenses – which the corporate sector shares the benefits of.

The Bottom Line

The bottom line is as follows. 

Federal and State Governments are facing a ‘legitimation crisis’ stemming from their inability to pay for basic infrastructure, and their plans to revert to user-pays mechanisms on the understanding that real progressive tax reform is ‘unspeakable’.

And Labor is in a bind in so far as it is not yet proposing a concrete, fair and sustainable way of financing Gonski and NDIS -  policies which it is committed to and on which Labor’s credibility rests.

But if Labor implements reforms rapidly following the May Budget; and can establish that tax measures are aimed squarely at the upper middle class and the wealthiest of all – It can demonstrate that state-financed infrastructure, as well as Gonski, NDIS and Aged Care insurance are in the interests of the vast majority.  (Though arguably NDIS should involve a more broadly-based levy in addition – to establish the principle of ‘social insurance’.  A ‘mixed’ funding mechanism could also bring in additional revenue for Aged  Care – where user pays mechanisms and the often poor quality of care are a national disgrace.)

On the other hand, if the media is still speculating on the form of tax reform and superannuation reform by September, the uncertainty and fear mongering could be damaging. It was protracted speculation which left a lasting negative impression with regards the Carbon Tax even after implementation should have put paid to the fear campaign.

But even if superannuation concessions were revoked and that revocation locked in’ for only the top 5% income demographic – It would still yield a pool of over $10 billion.  And the modest measure of implementing 75% dividend imputation would yield over $5 billion.  Taken together, those measures would comprise a very good starting-point from which to fund NDIS and Gonski, even though further initiatives are also desperately necessary to fund far-reaching reform of Aged Care. 

The Greens’ proposals for reform of the Minerals Resource Rent Tax (MRRT) – bringing in about $6.5 billion a year - could be enough to provide for a strong suite of policies for Aged Care reform – including  removal of user-pays mechanisms for poor and working class families, and improvement in areas such as staffing, diversity and quality of environment, privacy, facilitated social interaction and so on.  Another option would be to establish National Aged Care Insurance with a Medicare-style levy – but with progressive tiers.

‘Middle Class welfare’?

Finally, there is the prospect of freeing funds through the further curtailment of ‘middle class welfare’.   Adam Creighton over at ‘The Punch’   has argued that “More than 11 per cent of households in the top 20 per cent of the income distribution – with incomes above $115,000 – receive some form of welfare payment from Canberra…”   He argues further that: “Family Tax Benefit B, which is paid to households with incomes up to around $175,000 a year, is the main culprit.” 

To elaborate: According to “The Australian’ “NATSEM's* modeling shows that removing [Family Tax Benefit B] from families with combined taxable incomes of $100,000 onwards would save about $500 million a year. “  That money could be employed to reverse the callous government policies for Sole Parents, with hundreds of millions to spare.

Further means testing could also apply to the Private Health Insurance Rebate, removing it entirely from singles in the $97,001-$130,000/year bracket and for families in the $194,001$-260,000/year bracket.  At an estimate, this could bring in additional hundreds of millions every year.

But it is VERY notable that these measures pale in comparison with what could be saved from more ambitious reforms of superannuation concessions for the wealthy,  and a partial curtailment of Dividend Imputation.” 

And over-targeting of welfare has the potential to narrow the demographic support base of the welfare state over time.  More broadly, there needs to be a balance between means testing of welfare, and the principle of universalism - for instance as embodied in Medicare.

Conclusion

When Labor’s credibility depends on the sustainable funding of Gonski and NDIS it simply doesn’t make sense to rule out two of the most effective and progressive means of paying for those programs. And Labor cannot afford more of the callous austerity that cost the government deeply in terms of a popular backlash against cuts to Sole Parents. Reform of superannuation concessions MUST stand; and reform of Dividend Imputation must also remain an option in providing the necessary funds for those programs. 

·         NATSEM = “the National Centre for Social and Economic Modelling

Superannuation and Dividend Imputation the Key for Delivering in the May Budget

Above:  Gonski is crucial in moving closer towards educational equal opportunity

 

If Labor wants to win in September it needs bold new initiatives – without ‘robbing Peter to Pay Paul’.  Reforming superannuation concessions and dividend imputation may provide Labor with the ‘warchest’ it needs to ‘break through;’ to disengaged voters.   Labor also needs to deliver in the immediate term as well – as voters may be sceptical of commitments only for the ‘distant future’.

 Tristan Ewins,  March 2013

As the May Federal Budget approaches and Liberal state governments increasingly move to sabotage the Federal Government’s Gonski proposals purely for political purposes – it seems increasingly likely that if Gonski is to succeed the Federal Government must ‘pick up the entire tab’.  The National Disability Insurance Scheme (NDIS) will also involve a heavy cost, and Labor simply cannot deliver without progressive reform on the revenue side.   More unpopular austerity – as in the case of Sole Parents – which saw disgust and cynicism amongst parts of the electorate – is not a viable option. And in any case it simply should not be part of the Labor ethos –‘to take from Peter to pay Paul’ – seeking to spin these matters to create only an illusion of overall progress.

Mark Kenny, writing for the Sydney Morning Herald explains how resort to superannuation investment has become a prime means of tax avoidance for high income groups.. Hence:

“High-income earners simply have greater scope to save and thus evade the 46.5 per cent marginal tax rate on income by sending it into super. The result is that what is saved on the aged pension budget through self-funded retirement winds up being less than what the superannuation policy costs in tax revenue foregone.”

(Read more: http://www.smh.com.au/opinion/politics/for-richer-or-poorer-class-warfare-opens-on-a-new-front-20130208-2e3jp.html#ixzz2MMN0j7MX)

Richard Denniss of the Australia Institute has been one of the most determined critics of the existing system of superannuation concessions. In August last year he put the argument that while those concessions cost the public $30 billion in late 2012, they will cost $45 billion as early as 2015.  This is well in excess of the entire Aged Pension budget – which was only $25 billion in 2012.  And in 2012 $10 billion of these superannuation concessions were going only to the top 5 per cent income demographic.    Denniss has argued:  “We estimate, for high income earners, up to 60 per cent of their lump sum is actually the contribution of the taxpayer.”    http://www.abc.net.au/worldtoday/content/2012/s3568235.htm

The ACTU, meanwhile, has urged the Government to target the top 10 per cent income demographic.  And were superannuation concessions revoked for that top 10 per cent group, at an estimate it could bring in over $15 billion -  enough for the government to fund Gonski and the NDIS without having to depend upon the Conservative states.  (nb: though NDIS will cost more over the years as the full program is phased in)   http://www.theaustralian.com.au/national-affairs/treasury/wealthy-in-wayne-swans-sights-on-superannuation/story-fn59nsif-1226572182403

Yet even as Tony Abbott and the Liberal Party condemn Labor for considering revoking concessions for some of the most privileged, they are committed to withdrawing superannuation tax breaks for low paid workers. Bill Shorten has pointed out that the restoration of a 15 per cent tax rate on these Australian workers will affect 3.7 million people, including 2.1 million women.  It could cost these workers $500 a year: which is not inconsiderable for those on low incomes.  This is blatant hypocrisy from Abbott.

See:http://ministers.treasury.gov.au/DisplayDocs.aspx?doc=pressreleases/2013/002.htm&pageID=003&min=brs&Year=&DocType

So what should Labor do?  Gonski and NDIS are potentially landmark reforms which appeal strongly to Labor’s base. Withdrawing superannuation concessions from the top 10% income demographic would make these policies affordable regardless of the Liberal states’ spoiler tactics.  And withdrawing Labor’s unjust policies on Sole Parent payments could moderate the backlash from this callous and self-destructive decision.

But arguably Labor needs a more robust electoral war chest in order to ‘break through’ to a cynical electorate which has already ‘turned off’ in parts of the country. 

Another area of potential reform is Dividend Imputation  - which the Henry Tax Review considered axing a few years ago.  Dividend Imputation seeks to eliminate so-called “double taxation” of investments by providing credits on dividends.  This is fine for small investors – but should the wealthy be receiving a massive tax break as a consequence?   Especially when the Company Tax rate has been cut again and again for decades. 

Writing for ‘The Age’ Nicholas Gruen pointed out late in 2012 that the Dividend Imputation system costs the government in excess of $20 billion a year!  That being the case he went so far as to suggest getting rid of the entire system; demonstrating that the benefits of the system in spurring additional investment are minimal anyway. A spare $20 billion annually – on top of rescission of superannuation concessions for the wealthy – invested in health, education, aged care, welfare, infrastructure, and foreign aid – could work wonders!  It could also help Labor balance the budget over the course of the economic cycle without further callous austerity.  (indeed, quite the opposite!)  http://www.smh.com.au/business/dividend-imputation--20bn-for-the-taking-20120917-262h2.html

Even were the dividend imputation rate only incrementally reduced, an initial reversion to a 75 per cent imputation credit could bring in over another $5 billion; and a 50 per cent rate – argued for in the early 1990s by economist, John Quiggin, could bring in over an additional $10 billion.  

Finally,  the Greens have argued for lifting the Minerals Resource Rent Tax (MRRT) rate to 40 per cent, eliminating loopholes and removing “generous accelerate depreciation provisions.”   This, they argued, could raise $26 billion our four years.   http://www.theaustralian.com.au/news/breaking-news/greens-disappointed-with-mrrt-result/story-fn3dxiwe-1226573649144

‘Doing the math’ this would translate into an additional $6.5 billion a year on average.  

Nonetheless it is quite possible that Labor has ‘done a deal’ with the miners. If so it is a fundamental matter of democracy that this ought be made known to the public. The alternative is the kind of ‘Iron Law of Oligarchy’ referred to by political scientist, Robert Michels – whereby political and economic elites determine agreements ‘behind the scenes’ – cutting ordinary citizens out of the equation.  (the anathema of democracy) Yet at the same time trust is an extremely valuable thing in politics – and even if Labor has made the wrong call on any deal, it would be understandable were they to remain true to that commitment. 

The Greens are thinking of ‘holding Labor over a barrel’ over the MRRT. And ideally the tax does need to revert to its original form as intended by the Henry Tax Review.  But if this is politically impossible the Greens must co-operate with a Labor Government that makes big progressive social initiatives possible through thorough-going reform of superannuation concessions and dividend imputation.

To put all this in perspective the Australian economy today is valued at approximately $1.4 Trillion. The Gonski package – crucial for the very viability of our state school system into the future – and to the opportunities of hundreds of thousands of students - will cost about $6.5 billion a year to implement.  And the NDIS – crucial to some of our most vulnerable Australians and their families - is assumed to being going to cost at least $15 billion a year when ‘fully operational’ in 2018.  (but only phased in gradually)

See: http://www.probonoaustralia.com.au/news/2012/11/campaign-rejects-ndis-cost-%E2%80%98scaremongering%E2%80%99#

But what else can Labor do to ‘break through’ ahead of September; with the May Budget perhaps being its last opportunity to bed down such major initiatives?

For a long time this author has argued for reform of Aged Care.  It is an issue that effects many of us. Even the younger among us will have family who may need care in the future.

The unnecessary acuteness of suffering experienced by many aged Australians is a matter of national shame.

For those needing low-intensity care there must be high quality, affordable options available.  The  2012-13 Aged Care Reforms proclaimed the end of  'Living Longer. Living Better.'  This must include those with low care needs as well as those needing high level care.

Residents in high intensity care need privacy – they need their own rooms if they so desire.  They need heating and air-conditioning, dental care, facilitated interaction, quality food, and ‘changes of scenery’ - perhaps including access to gardens.  In the future some of those who remain alert and in need of mental stimulation could do with access to information technology.   There are also problems with staff to patient ratios, including a need for more registered nurses.

More generally there is a need for more robust career paths for aged care workers; with better training being complemented with better wages and conditions.  This will also improve the quality of care experienced by aged residents.

For those older Australians wanting to stay at home – and well enough to do so –  there is a also need for regular interaction to ward away the loneliness from which so many suffer. And Families and Carers also need additional support in order to make home care viable.  Staying at home is only an option for many with significant support, and the Combined Pensioners and Superannuants Association has long argued support services here are under-funded.

A minimum additional annual $5 billion devoted to Aged Care would be a start (though certainly not the ‘final word’) in working towards these ends; while also beginning a phase-out of user pays mechanisms that hit average and working class families. Working class and middle income Australians should not be forced to sell their family homes (using the equity in the home - even incrementally,) with an effective regressive ‘flat tax’ in order to secure care for their loved ones.  All the more so while there are massive tax breaks for quite wealthy Australians that go into the tens of billions

The NDIS will care for some of our most vulnerable – but not all of them.  Care for the Aged is just as crucial.

In order to ‘break through’ to cynical Australians who have ‘switched off’ from Labor, the government needs big initiatives that capture the public’s imagination. The government needs to mobilise the welfare sector, labour movement and other social movements behind it with a raft of measures unprecedented in our time.  Yet another dilemma is how to find ways of actually delivering to the public between now and September in such a way as to avoid cynicism about ‘distant’ promises. 

By withdrawing superannuation concessions for the wealthy and reducing dividend imputation Federal Labor can amass a very substantial war chest.

One thing is clear.  Without substantial reforms bringing in the revenue for the coming May Federal Budget Labor will be left with very limited options.  ‘Business as usual’ will not win Labor the election.

The Policy of the Combined Pensioners and Superannuants Association can be found via the URL below;  They generally lead the way in campaigning for the rights of aged Australians, including those in need of care:

http://www.cpsa.org.au/index.php?option=com_content&view=article&id=41&Itemid=82