Shane Wright, 08 February 2016
COMMENT: If Scott Morrison is serious about tax reform, he will take on the legacy of Robert Menzies.
A 60-year-old Menzian tax dodge is emblematic of the issues at play in the entire tax system. How the Treasurer and Malcolm Turnbull deal with this dodge will show whether they want to embrace true tax reform or just play at the fringes.
In the 1954 election, Menzies faced the anger of South Australian grape growers by pledging to cut the excise on brandy.
In an election where coalition held power despite being out-polled by the ALP, those SA grape growers held plenty of sway that was parlayed into a cut in the brandy excise by 30 shillings a gallon.
This differential in excise between brandy and other forms of alcohol remained until the Whitlam government decided to get rid of it.
But then in 1979, with those SA (and now Victorian) grape producers demanding help, then agriculture minister Ian Sinclair took to Cabinet a proposal to reinstate brandy’s tax advantage.
Thirty-six years later that differential between brandy and other forms of alcohol is costing the country about $4 million annually.
The aim of the excise differential was to make brandy more competitive and boost sales. On that front it’s been an abject failure. Brandy consumption over the past 25 years has fallen by more than 50 per cent while local production is down by four-fifths.
It’s an example (and there are so many) of how our tax system has been warped over the decades by political whims.
Brandy excise is clearly not a major issue in itself. But dealing with this would be a sign that when it comes to tax, the Turnbull Government wants to address all the issues at play.
Morrison and Turnbull have tried to argue that the reason for tax reform is to improve the economy’s overall performance.
But they’ve quickly focused on the three big taxes — company, personal and the GST — as if they are the only keys to improving the national economy.
Sadly, they’ve been egged on by corporate interest groups whose sole aim appears to be reducing their tax burden and palming it off to someone else.
And then there are the welfare/union types of group that are more interested in raising revenue without a thought to what this might mean to the economy.
On all sides it shows a distinct lack of ambition, an inability to think outside ideological straitjackets and a genuine misunderstanding of tax now and into the future.
For instance, there has been not a whisper about a change that could dramatically improve all our lives.
The introduction of a standard tax deduction would free up economic resources, give Australians more time to enjoy their lives and boost productivity inside the Tax Office and across the accountancy industry.
In 2012-13 (the latest available figures) of the 12.8 million people who submitted a tax return, almost three-quarters did it through an accountant.
Now you might like to collect receipts in a shoebox or to create special files on the home PC to track how often you use it for work or leisure but to me it appears one of the biggest collective wastes of time carried out by Australians.
A standard deduction of $500 or $1000 or $1500 would cover the vast majority of those 9.4 million people who sat down with their accountant early in the new financial year to get their tax affairs in order.
Rather than paper work (or the Tax Office’s e-tax system), all we would have to do is reply to an ATO e-mail confirming a few details such as our wage and occupation. A couple of days later the standard deduction would turn up in our bank account.
Simple. That’s how tax should be for most of us.
Instead, the Government is looking at cutting the number of tax deductions available to people as a way of saving money so as to deliver a cut in personal income tax rates.
Why go through that process when you could slash a huge amount of red tape, make substantial savings in the ATO and free up elements of the accountancy industry?
While the debate goes around the company/personal/GST merry-go-round there are real issues about the sustainability of the Budget.
Labor will run into long-term budget issues with its dependence on ever-increasing excise on tobacco.
While the thrust of the policy is correct — making tobacco too expensive for young people — the party is now addicted to it as a Budget prop.
As fewer and fewer take up smoking, the whole aim of the policy, there will be less revenue in years to come.
An even bigger problem, for both sides, is what’s going on with fuel excise.
Research last year by the CSIRO said a combination of improved fuel economy in cars and the advent of vehicles not powered by petroleum meant excise would gradually fall even after the Abbott government’s decision to re-introduce indexation.
Its baseline estimates suggest a 15 per cent fall in excise revenue by 2050. If the uptake of electricity-powered cars takes off, the decline could be closer to 50 per cent.
Fuel excise collects twice as much as the taxes on tobacco.
Then there’s superannuation (ending Peter Costello’s own dodge of making superannuation income tax-free for people over 60 in the face of an ageing population should be in the tax reform paper) and the 50 per cent concession on capital gains tax (which, because of the way it interacts with negative gearing, is going to cost the Budget a bomb in coming years).
But the paper should also go a long way to encouraging or forcing the States to improve their tax base.
The work of John Howard and Costello to use the GST to end a string of horrendous State taxes rarely gets enough credit. Morrison and Turnbull could lay claim to that legacy by using their package to move the States away from taxes on insurance towards land taxes.
This could be done via direct payments such as those used by the Keating and then Howard governments to force the States into opening up their economies to competition (or by punishing States that don’t deliver real reform).
If the Government really, really believes that tax reform drives economic growth then it could argue any short-term Budget pain caused by this would be offset longer term as more activity brings in extra dollars.
That might be the real test of this reform package. It has to contain tax rises and cuts, deal with issues such as efficiency in how we pay tax, look at the States and Territories and be prepared to take a risk on the long-term benefits.
Oh, and get rid of Bob Menzies’ tax concession for brandy.
Extracted in full from the West Australian.