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May 2, 2010
The Henry Review runs to over a thousand pages of detailed analysis and 140-odd recommendations on achieving a more efficient and fairer tax system. The objective was to lay out a blueprint for long-term tax reform. The Rudd Government's response. There is little relation between the two.
Rudd + Swan have squibbed on tax reform to make it fairer and more efficient in the context of the aging of the population, a growing shortage of workers, and increasing globalization. No surprise there, as this lack of courage and risk-taking is what we have come to expect on reform from the Rudd Government. Politics rules.
The "tax reform" package announced today by Treasurer Wayne Swan is really just a new resource rent tax that squeezes the miners plus the long-term increase of compulsory super contributions based on a 12% compulsory levy and accelerated depreciation for small business. Some of the super tax is going into the new infrastructure fund, which is about getting better road, rail and port facilities to help dig up our minerals and ship them out to booming Asian economies. There is zilch for the environment or climate change here. No surprises there either.
Of course, the politics is that Rudd 's main game is getting re-elected--political survival. Then in their second term the "we don't do brave" Rudd Government will address the next phrase of tax reform---that's the promise. It's a 10-year reform agenda. There is good coverage at TaxWatch.
The radical change to income tax, including a $25,000 threshold and a two-step tax scale, has gone into limbo, its fate left to much later. So have proposals for family-payments reform, because it's all inter-related.
Most of Henry's reform plans are either shelved or ruled out. Moreover, the 12 per cent target won't be achieved for nine years--the first increase is just 0.25 of a percentage point from July 1, 2013. Another 0.25 of a point will come from July 1, 2014. That is slow.
The core fairness issue is how to ensure that people living on low incomes, including those on income support, get a better deal out of the tax system; remove anomalies and poverty traps for people moving from welfare to work; and address the sustainability of social services, including how best to ensure adequacy and certainty of funding.
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You cannot call this tax reform. It looks more like something that would be announced in the May budget. There is not even welfare reform to address the high levels of marginal tax rates for those earning money from casual work whilst on some form of pension.
Is it a pathway to tax reform? Even that is unclear. We will get some indication from the May budget. Will the decisions on personal income tax, personal benefits, pensions, housing, welfare and aged care be announced in the Budget on 11 May?