Wednesday, March 17, 2010

Wednesday Column: Swan, Rudd and Tanner are stuffing things up big-time

Swan, Rudd and Tanner are their own worst enemies.

Days ahead of releasing a 900-plus page tax review that will demand sober consideration and recommend changes that will make some people worse off as well as others better off they launch an assault against what they're calling "a Whopper - the Big Mac of taxes".

"We've discovered what was under the budgie smugglers - a big new tax," the Treasurer told parliament yesterday. "It should send a chill down the spine of every business in this country."

Multiplying the annual cost of Tony Abbott's paid parental leave plan by enough years to get a double figure ahead of the billion Swan declared it "a $10.8 billion tax which will harm the economy and risk family budgets".

There was no acknowledgement that the billions would be paid into family budgets or of the truism that one man's tax is another woman's benefit.

Labeling the proposed 1.7 per cent levy a risk to investment, growth and jobs "passed on at the supermarket, passed on at the petrol station and passed on at the local bank" Swan called on the Opposition to heed the advice of the OECD that corporate taxes were "the most harmful for growth".

Heaven knows how he expects the Opposition to respond to the Henry Review's endorsement of a Resources Rent Tax that would push up the headline rate facing coal and iron ore miners from 30 to 40 per cent...

The idea has already been put before the Cabinet. In just the last financial year it would have raised an extra $7 billion to $8 billion, about enough to fund Australia's universities.

It has much to recommend it. The switch from royalties to a profit-based tax would give Australia a better return from its mineral wealth when times were good and see it sharing more of the pain when times turn bad.

The broad principle has received cautious approval from the Minerals Council of Australia.

But it'll be murdered if at the election it's labeled a Whopper, a Big Mac, "a risk to investment, growth and jobs passed on at the supermarket, passed on at the petrol station hidden in a budgie smuggler".

Even if the Treasurer calls for a mature debate. Even if he points out - belatedly - that taxes redistribute resources rather than remove them. Even if he points out that you can't change anything about the tax system without making someone somewhat worse off, at least in relative terms and at least in the short term.

The Henry Review also endorses a national disability insurance levy on wages. We'll doubtless be told it's a tax on employment, that it will be "passed on to consumers whether it is through major supermarkets like Woolworths and Coles, petrol stations via Shell and BP or Telstra" - words used by Finance Minister Lindsay Tanner to deride Abbott's proposed parental leave levy.

The review has found that tax breaks for super are a mess. High earners get income tax concessions worth 31.5 percentage points, middle earners 24.5 points and low earners next-to-nothing. It suggests straightening out the mess, but that will create (vocal) losers as well as winners.

Labor will be accused of "flipping and flopping" on super given that it set up the system just as as Kevin Rudd accused Tony Abbott of flipping and flopping on parental leave.

And then there's the recommended consideration of road user charges, or "taxes on driving" as they will be called. We'll be told they'll "harm the economy and risk family budgets," to use the Treasurer's phrase.

Labor's triumvirate has scored quick and dirty points at an indeterminate cost.

Their approach and the imminent election make it likely many of the good ideas in the Henry Review will remain no more that - good ideas.

As it happens Abbott's paid parental leave proposal has a lineage almost as impressive as the government's which was sourced from the Productivity Commission.

It was Option 5 in the Human Rights and Equal Opportunity Commission's 2002 report "Valuing Parenthood".

Employers would pay "a levy based on total salaries paid by the organisation, in
order to avoid disincentives to employ women".

Small businesses "could possibly be exempted from the levy".

The advantages as seen by the Commission were that it would "recognise the benefits to employers of maintaining women's labour force attachment, create direct workforce incentives for women to be employed prior to childbirth and to return to work and reduce disincentives to the employment of women that may arise if employers were required to directly fund paid leave".

The disadvantages were the potential to create an imbalance between those women in and out of the workforce and that it would be "in effect a new tax, paid by all employers".

It wasn't perfect, but no scheme is. The Commission found the type of unfunded scheme proposed by the government would provide "limited recognition of the benefits to employers of maintaining women's labour force attachment" and would mean "increased cost to government".

Both Commissions found there was no easy way for Australia to do what was generally done overseas which was to bolt parental leave on to the system of social security contributions. We don't have such a system.

The Commission shed light too on Kevin Rudd's claim that for 12 years the Coalition "did absolutely nothing" about parental leave.

It said it was Labor that knocked back the maternity leave provision of the United Nations convention on the elimination of of discrimination against women shortly after taking office in July 1983. It remained in office for 13 years.

But there's no point dwelling on the past. We need a sensible discussion about tax and transfer payments now.

What are the chances?

Published in today's SMH and Age

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