Wednesday, March 26, 2008

Labor's stupid promise on tax

Labor made one really, really stupid promise during the election campaign. Not to allow the tax take to increase as a proportion of GDP.

What if the economy booms? Will this mean it will have to cut tax, at exactly the time it should not? What if it needs to spend the income from its carbon tax (read: emissions trading scheme) on activities that assist in the adjustment to global warming?

Malcolm Turnbull, the otherwise accident prone Shadow Treasurer, has spotted the weakness and is zooming in on it:

The Opposition has stolen a march on the Treasurer Wayne Swan, commissioning a public inquiry into Australia’s tax system – a measure so far not contemplated by the Rudd Labor government.

The inquiry will be headed by Canberra economist Dr Henry Ergas, the Australian Vice President of the consulting group CRA International and a leading expert in telecommunications and regulatory economics.

Dr Ergas will examine all levels of taxation – federal, state territory and local – and seek submissions from the public.

Announcing the appointment in an address to the Committee for the Economic Development of Australia last night the Coalition’s Treasury spokesman Malcolm Turnbull said the Coalition would not return to government if in defeat it merely aped “the manners and rhetoric of the victors”...

“Deep in the DNA of true Liberals we know that every dollar the Government spends was earned by someone else and that this money –other people’s money – must be spent as prudently and effectively as possible.”

“There is no virtue, none whatsoever, just in spending taxpayers’ money,” Mr Turnbull said. “There is virtue in spending taxpayers’ money and achieving real results as long as the benefits exceed the costs.”

“The real benchmarks are not how much money can be spent on any given good cause, but how much can be done and how efficiently taxpayers’ money can be deployed. Put another way, we need more bang for less buck.”

The Treasurer Wayne Swan has so far declined to argue the case for widespread tax reform, concentrating his efforts instead on championing the personal income tax cuts tax cuts he promised during November election.

Mr Turnbull said last night that 92 per cent of those tax cuts had been photocopied from the Coalition’s election policy. He said that true tax reform, “like painting the Harbour Bridge” was never complete.

He said some of the billions of dollars to be raised by auctioning permits under the emissions trading scheme should be directed to encouraging Australia’s state and territory governments to cut some of their inefficient taxes, among them the stamp duties on insurance and property transactions.

But the man who will head up his tax inquiry, Henry Ergas has previously argued against “paying states to do the right thing”.

In an opinion piece published in January Dr Ergas argued that “bribing the States into doing the right thing diverts tax dollars to State governments that often make poor use of resources”.

Mr Turnbull said that the money raised from auctioning emissions permits should also be directed to ensuring that low income and pensioner households were not made “overall worse off by reason of the trading scheme.”

He signaled that he would hold the Labor government to its election promise not to allow tax revenue to increase as a percentage of GDP, and said that for that purpose he would regard the revenues from the emissions trading scheme as a tax.

“This means that the emissions revenues must be matched by a reduction in other taxes,” Mr Turnbull said.