[Land-and-Labor] Ken Henry's tax review is gathering dust...

[Lev Lafayette]

Ken Henry's tax review is gathering dust, but its ideas could kick-start
Australia's economy

Ten years ago to this day, Ken Henry handed then-treasurer Wayne Swan a
wish list of tax reforms to set Australia up for the 21st century.

...

A decade later, the Henry Tax Review still sits gathering dust.

Precious few of its 138 recommendations have been implemented, with those
that have often bastardised beyond recognition.

The near-total lack of reform has left the architect of the review shocked.

"I am today absolutely stunned that so little has actually been
implemented," Dr Henry told The Business in an exclusive interview marking
a decade since his review.

...

Without the money to sell some of the more difficult reforms, the Rudd
government decided to proceed with one large tax change that would raise
much-needed revenue but target only a small group — the Resource Super
Profits Tax.

What it didn't count on was the mining industry's financial resources
mounting a ferocious PR campaign that struck fear into the heart of the
electorate ahead of a looming election.
Taxing a gold mine never easy

Even the more politically palatable of Ken Henry's tax review suggestions
— the mining tax — fell victim to a campaign by vested interests.

The result was a new prime minister leading a minority Labor government,
and a much-amended mining tax negotiated with the big industry players.

The other major tax reform of the Gillard government — a carbon tax — also
departed from the Henry Review.

...

Workers paying the price for lack of tax reform

...

By 2024-25, the Coalition's legislated personal income tax cuts will see
the 37 per cent tax bracket eliminated, leaving only three rates: 19 per
cent, 30 per cent and 45 per cent.

In some ways that fits with recommendation two of the Henry Tax Review, to
simplify tax rates so that most taxpayers have a constant tax rate on
extra dollars earned — what economists call their "marginal tax rate".

But lower-income earners will be the ones hit most by the transition from
19 per cent to 30 per cent tax rates for every dollar they earn above
$41,000 — often the people who are working part time and also stand to
lose government benefits or incur extra childcare costs for extra hours
worked.

Overall, the biggest beneficiaries of the tax cuts are unambiguously
higher-income earners.

..

GST increase 'will have to happen'

However, while Dr Henry argues income tax must fall further, he also
believes the Commonwealth and states will need to increase their revenue
to fund the rising cost of services for an ageing population with fewer
workers.

So what are the alternatives?

Although it was specifically excluded from his tax review by the Rudd
government, Dr Henry says a broader GST "will have to happen".

...

Land tax to replace 'diabolical' stamp duties

Dr Henry said another reform that would enhance the allocation of
resources would be replacing property transfer stamp duties with a
broad-based land tax.

Like almost all economists, Dr Henry has nothing but scorn for stamp duty,
describing it as "a diabolical tax".

"This is a terrible tax, property stamp duties, it's completely
indefensible and it can be replaced, we know how to replace it," Dr Henry
said, referring to the ACT's move to phase out stamp duties in favour of
land taxes over two decades.

"It would be a good reform for all of the states and all of the
territories, it would deal with a lot of the volatility in their budgets
but it would also be a productivity-enhancing reform."
Why your rates should treble

Stamp duties are one of the most inefficient taxes going around while land
taxes, such as council rates, are one of the most efficient. Economists
say we should get rid of the former and increase the latter.

The director of ANU's Tax and Transfer Policy Institute, Professor Bob
Breunig, recently explained to RN's The Money exactly why stamp duties are
so "diabolical".

"Taxing them is going to reduce the number of transactions. We want people
to be able to transact houses," he argued.

"We want older people to be able to downsize. We want younger people with
kids to be able to move into bigger houses in neighbourhoods with schools
and we want people who change jobs to be able to move houses and be able
to get a new job."

In contrast, Professor Breunig said "land taxes are very efficient".

"If you're a corporation and I tax you, you might move your corporate
headquarters to Singapore [which has lower tax rates]," he explained.

"If you're an individual and I tax you, you might work less. Or you might
try to hide some of your income in a scheme.

    "If I tax the land, the land doesn't do anything. It doesn't move to
Malaysia, it doesn't stop working hard.

"So, it's a tax in which there's very little negative economic
consequences, so we think it's very efficient."
Tax reform will hurt, but 'everybody's going to lose' without it

Many of these reforms will be intensely unpopular — indeed, Labor lost the
last election proposing a much less ambitious suite of tax changes.

Labor proposed restricting negative gearing on property to existing
investments and newly built properties, while also halving the capital
gains tax discount and limiting access to franking credit refunds on share
investments.

While Ken Henry said Labor's proposals did not follow the recommendations
from his tax review, he argued they were "well motivated" and they would
have been "better than the present system".

There's still hope that Ken Henry's review will be dusted off.

https://www.abc.net.au/news/2019-12-23/henry-tax-review-ten-years-on/11817328



-- 
Lev Lafayette, BA (Hons), GradCertTerAdEd (Murdoch), GradCertPM, MBA (Tech
Mngmnt) (Chifley)
mobile:  0432 255 208
RFC 1855 Netiquette Guidelines
http://www.ietf.org/rfc/rfc1855.txt
For liberty and commonwealth http://isocracy.org