Henry review to cut taxes — for the rich

Issue 

In May last year, federal Treasurer Wayne Swan announced the formation of the Australia's Future Tax System Review, to be run by Treasury secretary Ken Henry. When the Henry review reports to government in December, its recommendations are likely to leave the wealthy smiling and the rest of us grinding our teeth.

That there are real inequalities in the taxation system is self-evident. The rich can avoid paying their share of tax — legally.

Whether it's the 50% discount on capital gains tax; negative gearing, which allows property speculators to offset income against property costs (including interest); or the low tax paid on most share dividends, the wealthy get lots of tax exemptions.

The same is not true for those who work for a living. It's even worse for those who can't find a job — whether they are unemployed, disabled or single parents.

For those whose income is from wages, the only tax exemption they get is the tax-free threshold, now set at $6000 a year. There is also the low-income tax offset, but for those who earn $60,000 or less, the maximum $1200 rebate is available only for those who earn less than $30,000.

For those on benefits — the poverty trap is dire.

For sole parents, every dollar they earn above $166.60 a fortnight (plus $24.60 for each eligible child) reduces their benefit by 40 cents. With the lowest tax rate set at 15 cents in the dollar, taking effect when income reaches $112 a week, this means sole parents are in effect taxed at a rate of 55 cents for every dollar they earn above that! How's that fair?

But that's not the kind of inequity the Henry review will look at.

Cutting company tax

The public has already been given a taste for the kinds of reforms the Henry review will recommend. The federal government's decision to raise the pension age to 67 in the May federal budget was a Henry review proposal.

The review is expected to recommend a lowering of the company tax rate. It is already at a historic low of 30%, but the September 19 Sydney Morning Herald said it expected Henry to recommend it drop even further — possibly as low as 25%.

This would be almost half the rate companies paid in tax when the Hawke ALP government came to power in 1983.

Henry has also said that his panel is concerned with the "equity" of the taxation of savings.

Henry, like all neoliberal economists, thinks it is desirable to raise the level of Australian personal savings to make more funds available for private investment (as opposed to government spending).

In an October 1 speech, Henry said the taxation of savings, which are now treated the same as other types of income, discourages the kind of saving that Australia most needs.

"Is this the way in which the various forms of domestic saving should be taxed if we are to deal effectively with the looming economic, social and environmental challenges associated with population ageing and the probability of persisting, for many years into the future, with one of the highest rates of investment — in plant, capital equipment and
infrastructure — in the developed world?" he said.

Lower tax on savings = higher GST

Henry's answer is a simple one. The view that the wealthy should pay more tax than the poor is "old thinking". He said, "The logic of income from all sources being subject to a common progressive tax schedule is now widely accepted to be flawed.

"Proponents of comprehensive income tax argue that it is unfair that things like capital gains are taxed less than paid work: it should all be treated as taxable income."

However, Henry has a better idea.

"Would it be better to continue with the ideal of comprehensive income taxation that has had so much influence in Australian tax policy up until now, or to opt for an expenditure tax approach?"

In short, a lower tax on savings — to encourage "investment" — would be funded by a larger tax on consumption: a higher GST.

"The comprehensive income tax discriminates against taxpayers who save in the earlier stages of life, with those individuals paying a higher lifetime tax bill than people with similar earnings who choose to save less", Henry said.

Tax the rich!

But what about that part of the population who can't "choose to save" because their income barely pays for their expenses? Henry's logic is that they should pay more tax, so the wealthy can save and invest.

A more socially just solution is a completely comprehensive taxation system, in which income from all sources is taxed at a steeply progressive rate.

That way the government would be able to afford much needed social infrastructure, pensions and benefits, without having to turn to the private sector to fill the gap.

This kind of "old thinking", in Henry's parlance, was dropped by most capitalist governments after the world economy went into a deep recession in the mid 1970s.

The result was the triumph of neoliberalism, and with it, the temporary restoration of huge company profits, the growing financialisation of capital and the domination of world markets by speculators. The ravages unleashed by the latest global economic crisis are a direct result of this neoliberal orthodoxy.

Looking at the mess neoliberalism has created, might not it be time that some of Henry's "old thinking" became new again?