Thursday, October 06, 2011

Tax forum. Were the unionists "stupid," or acting in bad faith?

Harry Clarke reports back

"I have been attending the Tax Forum in Canberra for the past two days. I made a submission to this Forum on congestion pricing on roads and I made a presentation based on this submission in the Environmental and Social Taxes session. To be honest this was the only session at the Forum where I had expertise. I must say too I was disappointed with the session. Many wrong views (particularly from the ACTU/AWU) were presented and, because there were many participants who wished to talk, these erroneous views were left unrefuted and the discussion was relatively diffuse. Paul Howes, National Secretary of the AWU, thought that a binding case against congestion taxes was that they were regressive. Of course, so too are taxes on cigarettes, booze, carbon, gambling, fat etc etc. The standard counterargument is that one should not evaluate the equity implications of particular environmental or social taxes but at the impact of the overall tax/transfer mix. This is a crucial – and well-recognised point – because these individual taxes have revenue implications. Indeed all redistributive objectives can be carried out by means of the income tax.

Generally I found the trade union representatives at this meeting were among the least interesting of the various groups who attended. I couldn’t work out if they were intrinsically stupid or just outlining a preconceived union viewpoint in bad faith - certainly they were not engaging with those who showed their views were wrong. A number of other attendees of various political persuasions made the same observation. I recalled with sadness the reasons I abandoned Labor in the mid- 1970s. These unionists embodied a kind of bullying stupidity that must constrain the Labor Party and Australian politics.

The other sessions on corporate taxes, state taxes, personal taxes and tax administration were much more interesting to me because they introduced me to broader areas where I had less expertise. Again the union representatives did not distinguish themselves either in terms of intelligence or good faith. They are a bunch of reactionaries. On corporate taxes these representatives did not seem to understand the idea of effective tax incidence.

Almost everyone in public finance agree that in an open economy with freely mobile capital that the corporate income tax falls primarily on labour creating a case – from the viewpoint of labour – for cutting corporate taxes to levels comparable to those of our major trading partners to increase investment and drive up labour productivities and hence wages. The ACTU dinosaurs saw arguments for cutting the corporate tax rate as a move that disadvantaged labour by giving a greater fraction of income to profits. They refused to even engage with the alternative consensus scientific view. These unionists act in ways that disadvantage Australia and their own members..."

UPDATE: Ken Henry made similar points at the forum:

"It can be very hard, even for a seasoned policy adviser, to
know what is a new idea and what is well understood, what is
unexceptional. Consider, for example, the discussion we had
yesterday about the incidence of the company income tax in
Australia. The question of the incidence of the company
income tax has exercised the minds of public finance
academics since 1960, if not a good deal earlier. But in the case
of a relatively small, open economy like ours, there is simply no
debate in the academic community, there is a strong consensus
among tax academics that the incidence of the tax falls
predominantly on labour. Indeed in an academic conference that
proposition would be considered so obvious that it would
excite no interest at all. Yet, remarkably, we had no such
consensus yesterday...

A final point. In thinking about tax and transfer system
requirements for the Australia of the future, it certainly makes
sense to identify a set of high-level objectives against which
various proposals might be assessed. This is the approach the
review panel took. But we should not fall into the trap of thinking
that absolutely every element of the system has to ‘tick all the
boxes’ against those various objectives.

For example, I heard a number of times yesterday that
all taxes, every tax, should be fair, should be equitable. That
proposition makes no sense. Instead, as other speakers noted,
the fairness of a tax and transfer system should be assessed in
respect of the incidence of the system as a whole. More importantly,
there is a very strong argument for insisting, as the review panel did,
that equity objectives be pursued only through the personal
income tax and transfer system – taking full account, obviously,
of the incidence of the various other components of the tax
system, but not affecting their design. I know that many of you will find
that proposition too confronting. But, as we go through today’s
discussion, I would ask that you keep it in mind. Because if we could
secure agreement on this proposition we would have a very
powerful motivator for addressing tax system complexity. The
implications for the Australian tax system would be profound."

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