Wednesday, October 05, 2011

DAY ONE: Who'd have thought it? The tax summit gets somewhere.

Where’s the biffo? Get enough people in a room who care about something, and it seems they’ll agree.

Only half way through the two-day summit it is already groping toward agreement about the way forward, much like Kevin Rudd’s 2020 summit in which a small group of enthusiasts including Bernie Fraser and Lachlan Murdoch nutted out the idea for what became the Henry Tax Review on pieces of butcher’s paper.

There’s almost universal agreement that we will need more tax and need to close tax loopholes, including among some of the advisors who think of ways to drive trucks through them.

The proposition that we will need to cut company tax at the same time has agreement from almost everyone other than the delegates from the ACTU. Melbourne University expert John Freebairn explained with a twinkle in his eye that Australia competes with other countries for capital. If it gets it people work with “better machines, better buildings, better research and development, their productivity goes up, and they actually end up gaining from the drop in the tax on capital - not the capital owners, but labour"...

ACTU secretary Jeff Lawrence declared outside the forum there was “just not the evidence” to support the proposition. But the Henry Review presented pages of it. One study found that a 1 per cent hike in company tax would cut wage rates 1 per cent. Another that a 10 per cent hike in corporate tax rates would cut wages 7 per cent.

Ken Henry said he wasn’t sure everyone in the room would get it. But most seemed to.

Australian industry Group chief Heather Ridout who sat on the Henry Review with Dr Henry described her “education” during the process when it became clear to her that payroll tax, which she had always disliked actually fell on consumers and workers rather than her members.

Payroll tax turns out to be quite popular. Its the exemptions and different systems that cause problems. Land tax was also popular as a partial replacement for state stamp duties. The principle is the same as for company tax. Things which are footloose such as capital should be treated gently, things which are tied down such as land and labour should be taxed most harshly.

If Labor had managed such a summit before drawing up its mining tax it might have got a better reception. When Grattan Institute economist Saul Eslake suggested taxing miners more heavily and other companies less heavily for as long as the mining boom continued, no-one raised objections.

Published in today's SMH and Age


What’s being said at the summit

. Cutting corporate tax rates will boost Australian wage rates - Professor John Freebairn

. Tax-free on super for the over 60s has created more tax shelters than the Bahamas - Accountant Craig Leighton

. We could eliminate stamp duty tomorrow, we would just have to abolish the police, ambulance and fire services - Queensland Treasurer Andrew Fraser

. Why not impose a land tax on expensive properties in order to eliminate stamp duty on cheaper ones - Professor Julian Disney

. Why not increase company tax for miners during the boom in order to cut it for others - economist Saul Eslake

. Be bold and tax wine per unit of alcohol “despite its taboo status” - Indpendent MP Rob Oakeshott

Tax Forum Transcript

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