Officially our lives are mostly better

That's what the ABS finds when it attempts to look beyond GDP

Our lives are - almost - better than ever; so much so that we’re spending an increasing amount of time out of the country.

The latest Bureau of Statistics annual measure of the quality of our lives shows things are getting better across a range of fronts that extend beyond the financial.

We are more healthy, more educated and more likely to be in work than a decade ago and we earn more and have more saved. But our productivity is going backwards along with our air quality and biodiversity.

The ABS admits there’s much about our standard of living it can’t yet measure. It would like to be able to report on social cohesion, democracy and governance and the quality of our land, oceans and rivers, but it hasn’t yet found an encompassing measure for each. It lists them as important in Measures of Australia’s Progress 2011 and says it’s still looking for a way to way to turn each into a number.

The number it uses for health is life expectancy at birth. An Australian girl born today can expect to live 83.9 years, 2.1 years more than a a decade before. A boy born now can expect 79.3 years, 3.1 years more than a decade ago.

The measure for education is the proportion of people aged 25 to 64 years with a vocational or higher education qualifications... It has climbed from 50 to 63 per cent over the past decade driven mainly by a jump in the proportion with a university degree from 18 to 27 per cent.

The Bureau finds the unemployment rate the most useful measure of the likelihood of being in work. Even after increasing in recent months it is still far lower than it was a decade ago at 5.3 per cent, down from 6.8 per cent.

Income per person has soared 22 per cent above inflation in the past decade, even after tapering off in response to the global financial crisis. Wealth per person has climbed from $285,700 to $308,500 after adjustment for inflation - a jump of 8 per cent.

The Bureau’s encompassing measure for housing - rental affordability for low income earners - has stayed roughly flat for the past decade. The proportion of gross household income handed over in rent remains steady at 28 per cent.

Productivity - regarded as steady in the Bureau’s last update published a year ago - is now clearly heading down. The Bureau says its broadest measure, multi-factor productivity, is going backwards at the rate of 1 per cent per year.

The indicator thought to best point to biodiversity in native plants, animals and organisms is the number of threatened fauna species. It has climbed from 332 to 432 over the past decade. Just under half are listed as vulnerable and around two-fifths endangered or critically endangered.

Greenhouse gas emissions - the indicative measure of air quality - have climbed 13 per cent over the decade to 2009 from 483.2 million tonnes of carbon dioxide equivalent to 545.8 million tonnes. The good news is that they have slipped below their peak of 550.8 million tonnes in 2008.

Separately-released figures show we are fleeing the country as never before. A record 664,900 of us left Australia for short-term holidays or work in August, meaning that if each remained out of the country for a month all through August 1 in every 34 Australians would have been outside the country.

Departures were nowhere near matched by visitors coming in. Only 491,000 visitors came this way in August. Visitor numbers haven’t hit 500,000 since last November.

Published in today's SMH


IMPROVING

HEALTH
Life expectancy of newborn up 2.6 years

EDUCATION
Proportion of 25-64 year olds with higher qualifications up from 50% to 63%

WORK
Unemployment rate down from 6.8% to 5.3%

INCOME
Real national income per person up from $37,400 to $45,600

WEALTH
Real national net worth per person up from $285,700 to $308,500


STAYING STEADY

HOUSING
Rental affordability for low income households unchanged


GETTING WORSE

PRODUCTIVITY
Multifactor productivity sliding since 2003-04

BIODIVERSITY
Number of threatened fauna species up from 332 to 432

ATMOSPHERE
Greenhouse gas emissions up 13%


ABS Measures of Australia's Progress, Changes over past decade



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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..."

Continued here

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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Henry's great tax forum speech

'A visionary idea needs to become
so well accepted it seems banal'

Wednesday morning, checked against delivery:


"I sense there is a strong desire on the part of most participants
to take the debate to the next step. To take that next step,
we need better, and more widely shared, information.
Impressionistic, anecdotal, ideological, overly abstract or
theoretical propositions are not going to deliver what is
needed in this next phase.

In putting together our report on Australia’s Future Tax
System, Jeff Harmer, John Piggott, Heather Ridout, Greg Smith
and I stressed the importance of a better-informed public
debate. It is for this reason that we framed four specific
recommendations relating to monitoring and reporting on
the system. First, we recommended that the government
should, every five years, publish a Tax and Transfer Statement
that analyses and reports on the overall performance and
impact of the system, including estimates of efficiency costs
and distributional impacts. Second, we recommended that
all governments in this federation make freely available for
analysis and research data on existing taxes and transfers
including confidentialised tax unit records. Third, we
recommended that government support one or more
institutions to undertake independent policy research relevant
ot he Australian tax and transfer system. And fourth, we
recommended that tax expenditures and spending decisions
be treated symmetrically by government, both Commonwealth
and state, in budget decision-making. Implementation of these
recommendations, or some variant of them, would go a long way
to enhancing the quality of the debate on tax matters.

The awareness that we needed a better information base
also influenced our thinking about the level of specificity
of our recommendations. In many cases we stopped short
of articulating a precise recommendation, or of making
an especially challenging recommendation, because we
considered that a better public understanding of an issue, or
set of interrelated issues, was required. The Allowance for
Corporate Equity (ACE) proposal is but one example.

The understanding that new ideas take time for absorption
and influence was in part responsible for our emphasizing
that there was no imperative for government to seek to
legislate, immediately, a comprehensive tax reform package
to implement all of the report’s recommendations. We never
imagined this.

As we said in our report: ‘this Review has aimed to set the
strategic directions for the future architecture of the Australian
tax and transfer system. It has not produced a one-off tax policy
package, and it has not advanced the detailed design or timing
of measures. Indeed it is neither possible nor desirable to
make all of these changes too quickly.’

There are other, practical, reasons for taking such a measured
approach to the implementation of reforms, and we set out six
of these in our report.

We noted that there are critical links between tax and transfer
policies and the other, mainly regulatory and spending, policies
of government, and that the future implementation of many
tax and transfer policies depends upon developments in this
broader fabric of policy. That point will, I am sure, emerge
in the discussion this morning. We noted that the scope
of desirable reforms is so broad that it is simply inevitable
that some elements be implemented before others. We
noted that markets, businesses and households need time
to adjust to policy change, and that point was made eloquently
by several speakers yesterday. We noted that time-consuming
intergovernmental agreement, especially in respect of financial
implications, would be required to implement many of the
review’s recommendations. We noted that tax reform should
not be pursued independently of fiscal and macro-economic
circumstances: ‘policies that suit the long run…. may not
necessarily be best implemented in these atypical times’. And
we made the point that current policy settings have been
capitalised in asset prices, at least to some extent, and that any
policy change has to confront adjustment costs.

The point that reform should not be pursued in one ‘big bang’
package is worth reprising on an occasion such as this.

More important is the general point that good policy outcomes
are more likely where there has been high quality debate...

Good policy outcomes are much more difficult to secure where
visionary ideas, big challenges and creative approaches are
floated for the first time in the announcement of a policy
decision. A better outcome will usually be achieved when the
visionary idea is so well accepted that it seems banal; where
the challenges are so broadly accepted that everybody is
worried sick by them; and when approaches to dealing with
those challenges appear merely natural.

Still, 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. Or consider the difference between so-
called ‘normal profit’ and its alternative, ‘super normal profit’.
A tax on the former should be expected to affect the pattern of
real economic activity, while a tax on the latter should not.
Our review took for granted that this point was well
understood. The authors of the Mirrlees Report in the UK
appear to have made the same judgement; the distinction
between normal returns and above-normal returns is
fundamental to several of their more important
recommendations. But I have to say, in retrospect, in the
Australian setting, rather less should have been taken for
granted.

There should be no expectation either that public debate will
focus on the more important things. In the almost two years
since the release of our tax report, up until yesterday, I can’t
recall any serious public discussion of the need to reform the
worst of the taxes levied in this federation of ours: royalties,
insurance taxes, motor vehicle taxes and conveyancing stamp
duties. While yesterday’s discussion among informed policy
makers and informed policy analysts was very encouraging,
in the absence of an informed public debate, it is very unlikely
that the preconditions for successful reforms in these areas
exist.

Yet the case for reform in these areas is getting stronger as each
day passes, particularly given the impediment that these
pose to Australia’s structural adjustment in response to
extraordinary external developments. Facing a different, though
no less challenging, set of structural adjustment imperatives in
the UK economy, the authors of the Mirrlees Report have also
argued strongly for the removal of similar transactions taxes.

Even when the preconditions for good policy outcomes have
been established, implementation will still prove difficult. We
shouldn’t kid ourselves on this point. Tax reform, like any other
genuine reform, is hard - especially when an articulate vested
interest can argue that it will be made worse-off. It is an
unfortunate fact of life that public commentary – and, let’s be
frank, I am thinking particularly of our media here – finds it
impossible to distinguish the national interest from vested
interest. That’s a fact of life. But it’s always been thus.

So what should we do? We should do what we are doing. We
should talk, we should listen, we should discuss, we should
argue; in short, we should debate. Not because there can be
any reasonable expectation that, at the end of the day, we will
all agree on everything. We won’t. Our interests are not common.
But that doesn’t mean we can’t find common ground.

We should debate these matters so that the public at large has
a better understanding of where each of us is coming from;
so that serious commentators are better placed to record
the substance of discussions instead of being captivated by
their form; and so that our politicians – the people who have
volunteered to take decisions in the national interest – have a
realistic understanding of where the national interest lies. This
is not a small point. Effective democratic government depends
upon it.

Reflecting on the enormous economic reform program
undertaken in Australia from 1983, there can be a temptation
to think that it was universally supported; that there was no
vested interest in opposition to it. That temptation should
be resisted. It’s simply not true. The truth is that there was no
element of the reform program that wasn’t opposed by somebody;
no element that wasn’t opposed by some powerful vested interest.
And, by the way - apart from our truely absurd luxury car tax - I
can’t recall any tax policy reform initiative of the past 28 years that
enjoyed bipartisan political support. There must have been others,
of course. But the significant measures that participants of
this forum would identify as serious reforms were all hotly
contested in political debate. A more accurate assessment
of the history of tax reform in Australia is that successive
governments have exploited windows of opportunity, against
persistently adversarial political opposition. The fact that they
have had some success owes a great deal to their courage and
tenacity. But, no matter how courageous or tenacious, even the
best of them would not have attempted serious reform without
being able to build on the groundwork of a reasonably well-
informed public debate.

In this forum, we are starting to put in place the groundwork
for the next several phases of serious tax reform.

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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Kochie, Newstart, Super, the whole damn summit

Kochie...

Negative gearing was already on the nose. Then Kochie spoke.

Property manager Eddie Kutner of Central Equity Ltd had just finished putting the case for the rule that allows investors to write off losses made on rental properties against other income before selling the property and pocketing a capital gain taxed at only half their marginal rate. It was “a responsible part of providing accommodation, a very defensible proposition”.

Then Kochie spoke. Finance journalist David Koch is better known these days as the co-host of Sunrise on Channel Seven. He was at the summit as a community representative.

He drew breath.

“Negative gearing on an unproductive asset? Does it just go on for time immemorial or is it time to actually put some limits on it - to say, okay for the first five years, but if it’s not producing an income after that why are you there?”

“It’s done purely for the attraction of letting the taxman pay half. I’m not saying get rid of it all together, but there’s got to be a limit - it just can’t go on forever"...

“Somebody with money in a savings account gets taxed at double the rate. That’s the inequity of it, it skews things ludicrously for people who aren’t as informed as most of us here.”

Mr Australia had spoken. No-one returned to the topic. Earlier Grattan Institute economist Saul Eslake turned Ms Gillard and Mr Swan stony-faced when he said the practice transferred $4.5 billion per year from ordinary taxpayers to affluent ones.

“But there are now 1.7 million of them, and they vote,” he added. “Which is why the subject is off the agenda for both major political parties.”

It was not true that the brief suspension of the practice by Treasurer Paul Keating in the mid-1980s led to an surge in rents. “It is simply not true no matter how often the defenders of negative gearing say it.”

Nine out of ten negative geared properties were existing units or houses rather than new ones. Rather than boost the supply of properties negative gearing pushed up the price of existing ones.

“The United States has never had negative gearing yet they have never had a rental vacancy rate of less than 5 per cent. We have negative gearing and we have never had a vacancy rate in rental properties of over 5 per cent,” Mr Eslake said.

Published in today's SMH and Age

Newstart...

So much as the Newstart unemployment benefit shrunk relative to actual living costs that the cheapest capital city accommodation now eats up all of it but $16.50 per day, the tax summit was told.

Former OECD economist Peter Whiteford of the Social Policy Research Centre at the University of NSW told the summit the cheapest one-bedroom accommodation in the Sydney region could be found at Wyong on the central coast.

In Melbourne equivalent would be Melton South on the north west fringe.

“If you had an unemployment payment and rent assistance, after you paid your rent you would have $16.50 a day for everything else and looking for work,” he said.

Fourteen years ago before Newstart and the pension were separately indexed the unemployment benefit was 91 per cent of the single pension. It’s now 65 per cent and projected to fall to 33 per cent unless its indexation rate is lifted.

Former productivity commissioner Judith Sloane said the gap had become “enormous”.

“We understand the dole was to be a short-term payment, but if people are unemployed for a long period, adequacy and the ability to find employment rbecomes important,” she said “What seemed like a good idea of having different indexation systems has led to an enormous gap that can’t go on.”

Australian Council of Social Service chief executive Cassandra Goldie said it would cost $1 billion to lift unemployment benefits to a more reasonable level.

Community services minister Jenny Macklin said she understood the concerns but hoped delegates understood “the budgetary issues that we face”.

Published in today's SMH and Age

Super...

Treasurer Wayne Swan has committed himself to work to remove one of the worst drawbacks of Australia’s superannuation system - what happens when super payments run out.

Summit delegate David Cox from Challenger Financial Services told the summit an increasing number of Australians were living longer than their superannuation annuities.

“If they have a superannuation balance $100,000 or so and are prepared to live modestly, it will last a long time. But if they want to live comfortably it is going to run out,” he said.

“The statistics are chilling. Even someone attempting to live comfortably on half a million will find it runs out before their life expectancy. The old age pension is not a very comfortable way to spend the latter part of your life.”

“Most people don't appreciate how long they are going to live. We would like to offer deferred annuities that would kick in after life expectancy, but the rules make it too difficult.”

“For $10,000 a 65 year old could buy an annuity that would pay half the pension on top of the pension after life expectancy. Our modelling shows it would save three per cent of age pension and age care costs.”

Mr Swan said he had heard the discussion and with assistant treasurer Bill Shorten would work with the industry “to do more in this area”.

Economic consultant Nicholas Gruen said the planned increase in super contributions from 9 to 12 per cent of salary would make it harder for young people to get the deposit for a house.

“It makes sense for people in their 20s and 30s to accumulate savings in the form of a housing deposit. I suggest that at some stage as we increase super we allow withdrawals from funds for housing deposits rather than the kind of Mickey Mouse system we have at the moment, where super makes it hard for people to save,” he said.

Published in today's SMH and Age

...the whole damn summit

Wayne Swan has ensured the two-day tax summit won’t go to waste.

By agreeing to set up a $1 million per year Tax Studies Institute linked to universities he has created a body that will prod him and his successors about the ideas raised at the summit for decades to come.

The Institute is a recommendation of the Henry Review - number 134 - but Ken Henry feels more strongly about it now.

He told the summit that while preparing the review his team had assumed that much of what was clear to them would also be clear to the public.

“I have to say, in retrospect, rather less should have been taken for granted,” he said.

The only way to get change that will stick is to talk and keep talking, to publicly pressure the government even when it has been convinced.

Rather than being foisted on the public as was the first mining tax, the next set of visionary ideas need to become “so well accepted they seem banal”.

The need to become so well understood “everybody is worried sick by them and the approaches to dealing with them appear merely natural.”

The big challenges will lie in lifting the tax take while cutting the company tax rate. The trade-off for people worried by a much lower company tax rate would be a dramatic reduction in tax breaks, most used by the well-heeled.

Melbourne University associate professor, Ann O’Connel suggested abolishing all fringe benefits tax arrangements and taxing everything as income. It wouldn’t have been possible in earlier years. But these days computer records make it easy to work out what every benefit is worth.

It will only happen if there is continual prodding from a body outside of government.

Without the Productivity Commission and its predecessors we would probably still be paying far too much for cars. With luck, the Institute will do the same for the way we pay tax.

Published in today's SMH and Age


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Labor takes aim at itself. The tragedy of its Parliamentary Budget Office.

Wednesday column

Never underestimate the ability of Labor to damage itself.

Never confuse the Australian Labor Party with the enlightenment philosopher Voltaire who while dying (according to Christopher Hitchens) was asked to renounce the devil.

“This is no time to be making enemies,” he is said to have murmured in reply.

Labor is facing political death and an unknowable number of years in opposition.

So what’s it about to do? Unfortunately for it, and for the political system, it is about to make life difficult for the opposition.

At issue are the rules that will surround the new $25 million Parliamentary Budget Office being set up at the insistence of the independents and the Greens as part of the price of putting Labor into government.

The PBO will grant to any elected political party and to any elected independent the sort of high quality economic and financial advice usually only available to the government.

Except during election campaigns. The Charter of Budget Honesty introduced by Treasurer Peter Costello in 1998 allows a flawed exception. The opposition can ask the departments of Treasury and Finance to cost its policies, but only once a campaign has started, only through the prime minister’s office, and not in confidence. As soon as the departments have completed costing an opposition policy they put it on their websites, whether or not the opposition even wants to proceed with it.

Oppositions face an unenviable choice. They can either submit their policies to the prime minister’s office ahead of announcing them (running the risk of alerting the prime minister)* or they can submit them afterwards (running the risk of the departments publishing numbers that make them or their policies look silly).

Faced with such an awful choice oppositions of both stripes have avoided the entire process.. either by not submitting their policies at all or by submitting them too late.

In 2007 Labor’s shadow treasurer Wayne Swan tried a variant. He announced his tax policy and submitted it for costing, punting Treasury would agree with his numbers. He was confident because he had made sure his policy was the same as the government’s (for all but one of tax rates) which the Treasury had already costed. He got his tick but he had to photocopy something Treasury had already costed in order to get it.

In 2010 Joe Hockey and Andrew Robb didn’t take the risk. They found an excuse to abandon Treasury and Finance and used instead two little-known Perth accountants. It must have been an excuse because they began negotiations with the Perth accountants months before the campaign and the events they said made them go private.

After the election as part of the negotiations with the independents Robb and Hockey did submit their policies to Treasury and were rewarded with findings they had double-counted income, measured the wrong time period in calculating income, spent more than the entire contents of some funds, counted as income the sale of an asset but not counted as lost income the dividends that would be lost, and so on.

They came across as a pair of bumbling incompetents. The two Perth accountants are the subject of a separate ethics and professional standards investigation by the Institute of Chartered Accountants. At issue is whether they allowed what was essentially an exercise in checking the maths to be presented as an audit or endorsement.

Private accountants should never again be put in that position. Shadow treasurers such as Wayne Swan should never again feel they have to photocopy a government policy rather than develop their own.

It is in all of our interests to give oppositions access to the same high quality costing process as governments. The access has to be confidential. Developing a policy is an iterative process. Ideally an opposition or a government comes up with idea, sketches it out, perhaps get surprised at how much it costs (or doesn’t cost) fine tunes it, sends it back for another costing and so on until the polciy and costing are final.

The new Parliamentary Budget Office will enable oppositions to do that. For the first time oppositions will be able to put up ideas to an official costing organisation in confidence and keep coming back until they get it right.

Except that they won’t, once the campaign starts. Unhelpfully, the provisions of the government’s bill remove confidentiality with the issue of writs. After the campaign starts (exactly the time oppositions might need to fine tune their policies) consultation becomes a one-shot game. An opposition can submit a policy to the PBO, but it won’t know what the PBO makes of it until just before the finding is published on the PBO website.

No opposition will take that risk, at least about something risky. Joe Hockey has already said he won’t use the process. Nor should he. It is loaded against the opposition.

It can easily be fixed. All that’s needed is an amendment that would allow confidential consultations during the campaign as well as during the rest of the year. It’d be in Labor’s interest as well as the Coalition’s. It’ll be in opposition soon enough. Swan, Hockey or whoever occupies the shadow treasurer’s chair could iterate with the PBO as much as they want until they get the policy right, knowing the PBO would release only the final costing and not embarrass them.

Hockey moved an amendment to that effect in the House of Representatives. It was defeated. But all is not lost. The Greens are prepared to save the day and negotiate on confidentiality in the Senate. Their only condition is that all parties putting themselves up for office be required to release official costings of all of policies worth more than $100 million, also a good idea.

There’s a chance sense will prevail. We have a rare opportunity to get things right, to set up a system that will work for both sides of politics forever. Labor shows every sign of shooting itself in the foot. I’m not confident Hockey won’t either. But we’re close, very close.

Published in today's SMH and Age


* Correction. I have discovered oppositions cannot submit their policies to the prime minister’s for costing ahead of announcing them. They can only submit after announcing. The system is even worse than I thought.


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What an about-face. The Reserve is about to cut rates.

SMH

Don't doubt it

The Reserve Bank board is all but set to cut interest rates at its next meeting Melbourne Cup Tuesday.

Members who met in Sydney yesterday felt the economy was weak enough to justify an immediate cut. They held off wanting to be sure they could ‘tell a credible story’ about inflation.

The next inflation figures are due on October 26, six days before the Melbourne Cup day meeting. The Bureau of Statistics has revised down the previous underlying rate from 2.7 to 2.5 per cent. It has cut the quarterly rate from 0.9 to 0.7 per cent.

The Bank believes weak international and domestic conditions have cut inflation further in the past three months. Businesses taking part in its liaison program have told it they are no longer as concerned about wage pressure. Some have told it they now expect lower wage growth this year than last.

In a statement released after the meeting Reserve Bank governor Glenn Stevens said “taking into account all the recent information, the path for inflation may now be more consistent with the two to three per cent target in 2012 and 2013, abstracting from the impact of the carbon pricing scheme”.

A low inflation story will allow the Bank to cut its cash rate by 0.25 percentage points in November and perhaps by a further 0.25 points in December from what it regards as its present mildly restrictive level of 4.75 per cent to something more neutral...

A cut of 0.50 points would bring down a typical standard variable mortgage rate from 7.8 to 7.3 per cent, slicing around one hundred dollars off the monthly cost of servicing a $300,000 mortgage. A cut of 0.25 points would slice $49 from the monthly cost of meeting a $300,000 mortgage.

Futures trading late yesterday was pricing in three interest rate cuts of 0.25 per cent by December. The Australian dollar dropped to a one-year low 94.65 cents.

“I think that the Bank has gone from thinking that things were too strong a couple of months ago, to being around trend now,” said UBS interest rate strategist Matthew Johnson.‘‘If there’s a further deteriorating, they’ll ease.”

Published in today's SMH and Age


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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


BRIGHT IDEAS

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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This Tax Summit, how's it look?

That's the panarama mode on my Nokia.

It's now live streaming here.

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Today's tax summit - your user-friendly guide:

Why are we having it?

Because Kevin Rudd and Wayne Swan botched their last big attempt at tax reform. Rather than seek opinions about how mining should be taxed, they released details of their Resource Super Profits Tax with the Henry Review on May 2, 2010 and declared they wouldn’t back down. They did back down, one of them lost his job and in September 2010 mining entrepreneur Twiggy Forrest had a word in the ear of independent MP Rob Oakeshott as he was deciding who he would support to to form the next government. As part of the price for his support Oakeshott demanded a tax summit.

Who’s invited?

Just about the most high-powered group of tax experts ever assembled, representatives of special interest groups and some entertainers. Channel nine’s Ross Greenwood and channel seven’s David Koch score invites as “community representatives”. Among the tax experts are Ross Garnaut, Saul Eslake, John Freebairn, Neil Warren, Deborah Cobb-Clark and Chris Evans - not all of them household names, but all of them the specialists who have thought most deeply about the topic. NSW will be represented by Treasurer Mick Baird, Victoria by Treasurer Kim Wells. Nick Greiner and John Brumby return to the limelight by virtue of the membership of the government’s GST distribution review panel. Independent MPs Rob Oakeshott, Tony Windsor, Andrew Wilkie, Nick Zenophon will be present as well as Greens senators Bob Brown and Christine Milne, DLPsenator John Madigan and National MP Tony Crook who sits on the crossbenches. Notably absent will be any member of the opposition. Treasurer Swan says they would have been welcome had they been prepared to be constructive. Swan and Gillard will open the summit, Swan will close it...

What will happen?

It’ll function like a like TV show, streamed on the web. Hosts Michael Pascoe and Paul Clitheroe will take turns hosting discussions about business tax, state taxes, social and environmental taxes, welfare payments, personal tax and governance of the tax system. Standing in the centre of the Great Hall of Parliament House with delegates seated around them in concentric circles, they start the discussion and invite delegates to speak. Different delegates will be seated at the front for each session - those with the most to say. Mr Swan says “no topics have been banned from discussion; participants that mention the mining tax or the goods and services tax won’t have their microphones cut off”. But there are no sessions to deal with consumption tax, mining tax or superannuation - the topics the government would rather not have discussed. Anyone who wants to discuss those topics will have to do so in a session devoted to something else. There will be no communique, just a transcript - no set of recommendations with which to bother the government.

Who to watch:

Former Treasury boss Ken Henry will kick off day two with a ten minute talk about the Henry Review. Also worth watching will be Greg Smith, a former senior Treasury official who crafted many of the chapters of the Henry Review sitting alongside Dr Henry and Heather Ridout of the Australian Industry Group who also worked on the Henry Review. Smith and Ridout know about as much as Henry and are freer to speak, not being government employees.

Dangerous ideas:

Surprising alliances are being formed. The Business Council is arguing demographics mean we will have to be prepared to pay more tax, the sort of line that once would have been the preserve of the Council of Social Service. ACOSS itself is arguing for an end to excessively generous benefits such as the Senior Australians Tax Offset, the sort of line that would have once come from business. The bottlers of Jacob’s Creek, Penfolds and Wolf Blass have broken ranks with the rest of the wine industry and are calling for wine to be taxed per unit of alcohol as is beer, an idea that might have found traction this week were it not for the Treasurer’s trick of ensuring there’s no place at the summit for the discussion of consumption taxes.

Ideas that might get up:

Keeping the whole thing going. Academics and business groups are calling for an ongoing tax reform commission or commission of budget integrity to continue to prod this government and the next long after the summit is over. Eventually we will need unpopular medicine such as an increased GST the argument goes. When the time comes it’ll be better for the arguments to come from a body independent of government with research clout.

Published in today's SMH and Age

Tax Forum Program Sep2011


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Governor Stevens is so good at his job, he gets a personal loading of...

..one quarter of a million dollars.

No joke. On top of his salary. He not only gets paid for doing his job, but also gets paid extra for being the right person for the job.

How much extra?

It's here, in Treasury FoI documents.

Special Minister of State Gary Gray split his pay into two because the total salary (set by the RBA board) couldn't be justified by the Remuneration Tribunal.

Stevens will continue to get his pay and margin.

His successor will have to get by with just the pay: $850,000.

Stevens himself thinks he is paid like anyone else:

Here's how he explained it (tersely) to the House economics committee:

"I take what I am given, like anyone else in the country"

Everyone else in the country does not sit on a board with remuneration committee members who dole them out government funds in excess of government guidelines. Just as well for Stevens. He would face truly massive inflation if everyone did.


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The Economist: Which governments take the biggest chunk from a $100,000 salary?

The Economist, September 29, 2011

You really wanted to know, didn't you.

Of course, tell some of the delegates to the tax summit that and they won't believe you.

It starts Tuesday, 8.30 am.



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Gold for Australia (in the Ig Nobels)

Yes, it's Ig Nobel time again.

This year my old mate Dave Rentz has won gold for Australia. His improbable research found that certain kinds of beetles try to mate with certain kinds of beer bottles.

There was also gold for Australia in a finding that people make better decisions about some things, but worse decisions about others, when they have a strong urge to urinate.

Aussie Aussie Ig Ig Ig!

Enjoy.

PHYSIOLOGY PRIZE: Anna Wilkinson (of the UK), Natalie Sebanz (of THE NETHERLANDS, HUNGARY, and AUSTRIA), Isabella Mandl (of AUSTRIA) and Ludwig Huber (of AUSTRIA) for their study "No Evidence of Contagious Yawning in the Red-Footed Tortoise."

REFERENCE: 'No Evidence Of Contagious Yawning in the Red-Footed Tortoise Geochelone carbonaria," Anna Wilkinson, Natalie Sebanz, Isabella Mandl, Ludwig Huber, Current Zoology, vol. 57, no. 4, 2011. pp. 477-84.


CHEMISTRY PRIZE: Makoto Imai, Naoki Urushihata, Hideki Tanemura, Yukinobu Tajima, Hideaki Goto, Koichiro Mizoguchi and Junichi Murakami of JAPAN, for determining the ideal density of airborne wasabi (pungent horseradish) to awaken sleeping people in case of a fire or other emergency, and for applying this knowledge to invent the wasabi alarm.

REFERENCE: US patent application 2010/0308995 A1. Filing date: Feb 5, 2009.


MEDICINE PRIZE: Mirjam Tuk (of THE NETHERLANDS and the UK), Debra Trampe (of THE NETHERLANDS) and Luk Warlop (of BELGIUM). and jointly to Matthew Lewis, Peter Snyder and Robert Feldman (of the USA), Robert Pietrzak, David Darby, and Paul Maruff (of AUSTRALIA) for demonstrating that people make better decisions about some kinds of things — but worse decisions about other kinds of things‚ when they have a strong urge to urinate.

REFERENCE: "Inhibitory Spillover: Increased Urination Urgency Facilitates Impulse Control in Unrelated Domains," Mirjam A. Tuk, Debra Trampe and Luk Warlop, Psychological Science, vol. 22, no. 5, May 2011, pp. 627-633.

REFERENCE: "The Effect of Acute Increase in Urge to Void on Cognitive Function in Healthy Adults," Matthew S. Lewis, Peter J. Snyder, Robert H. Pietrzak, David Darby, Robert A. Feldman, Paul T. Maruff, Neurology and Urodynamics, vol. 30, no. 1, January 2011, pp. 183-7.


PSYCHOLOGY PRIZE: Karl Halvor Teigen of the University of Oslo, NORWAY, for trying to understand why, in everyday life, people sigh.

REFERENCE: "Is a Sigh 'Just a Sigh'? Sighs as Emotional Signals and Responses to a Difficult Task," Karl Halvor Teigen, Scandinavian Journal of Psychology, vol. 49, no. 1, 2008, pp. 49–57.


LITERATURE PRIZE: John Perry of Stanford University, USA, for his Theory of Structured Procrastination, which says: To be a high achiever, always work on something important, using it as a way to avoid doing something that's even more important.

REFERENCE: "How to Procrastinate and Still Get Things Done," John Perry, Chronicle of Higher Education, February 23, 1996. Later republished elsewhere under the title "Structured Procrastination."


BIOLOGY PRIZE: Darryl Gwynne (of CANADA and AUSTRALIA and the UK and the USA) and David Rentz (of AUSTRALIA and the USA) for discovering that a certain kind of beetle mates with a certain kind of Australian beer bottle

REFERENCE: "Beetles on the Bottle: Male Buprestids Mistake Stubbies for Females (Coleoptera)," D.T. Gwynne, and D.C.F. Rentz, Journal of the Australian Entomological Society, vol. 22, , no. 1, 1983, pp. 79-80


PHYSICS PRIZE: Philippe Perrin, Cyril Perrot, Dominique Deviterne and Bruno Ragaru (of FRANCE), and Herman Kingma (of THE NETHERLANDS), for determining why discus throwers become dizzy, and why hammer throwers don't.

REFERENCE: "Dizziness in Discus Throwers is Related to Motion Sickness Generated While Spinning," Philippe Perrin, Cyril Perrot, Dominique Deviterne, Bruno Ragaru and Herman Kingma, Acta Oto-laryngologica, vol. 120, no. 3, March 2000, pp. 390–5.


MATHEMATICS PRIZE: Dorothy Martin of the USA (who predicted the world would end in 1954), Pat Robertson of the USA (who predicted the world would end in 1982), Elizabeth Clare Prophet of the USA (who predicted the world would end in 1990), Lee Jang Rim of KOREA (who predicted the world would end in 1992), Credonia Mwerinde of UGANDA (who predicted the world would end in 1999), and Harold Camping of the USA (who predicted the world would end on September 6, 1994 and later predicted that the world will end on October 21, 2011), for teaching the world to be careful when making mathematical assumptions and calculations.


PEACE PRIZE: Arturas Zuokas, the mayor of Vilnius, LITHUANIA, for demonstrating that the problem of illegally parked luxury cars can be solved by running them over with an armored tank.

REFERENCE: VIDEO and OFFICIAL CITY INFO


PUBLIC SAFETY PRIZE: John Senders of the University of Toronto, CANADA, for conducting a series of safety experiments in which a person drives an automobile on a major highway while a visor repeatedly flaps down over his face, blinding him.

REFERENCE: "The Attentional Demand of Automobile Driving," John W. Senders, et al., Highway Research Record, vol. 195, 1967, pp. 15-33. VIDEO

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Your guide to Tuesday's Tax Summit

We're in trouble mate

Penny Wong didn’t tell the half of it. In an attempt to contain expectations at next week’s tax summit she this week released frightening projections showing the budget would be at least $80 billion short by the middle of the century unless something could be done to raise more tax.

Much of the pending explosion in spending is unstoppable. Prime Minister Gough Whitlam set the ball rolling on his election in 1972 when he promised to lift pensions to 25 per cent of average weekly male earnings. John Howard’s Treasurer Peter Costello set the trajectory in stone when he legislated in 1997 to guarantee the single pension rate would never fall below that benchmark, meaning in future it would rise by the escalator rather than the stairs.

As a result pension payments are set to climb from 2.7 per cent of GDP to 3.9 per cent by mid-century. They are already the Commonwealth’s second-largest cost after grants to the states. In today’s dollars the extra cost per year will exceed $46 billion.

A decade later Costello cut off at the knees one of the means of paying for the extra spending. In 2006 he exempted entirely from tax superannuation benefits paid to the growing number of Australians aged 60 and over. During the “benefits phase” even the earnings made within the funds pay no tax. Grattan Institute economist Saul Eslake describes this as the one of the worst tax decisions of the past 20 years, an honour for which he says there is a fair bit of competition.

Demographics make the generosity impossible to undo. By mid-century one in every four Australians will be aged 65 and over. One in every three voters will have a very keen interest in keeping payments and concessions high.

Health and aged care costs will more than double as a proportion of GDP. We can’t stop the process and we wouldn’t want to. The richer we get (and we’ll earn twice as much in real terms by the middle of the century) the keener we will become on government health spending. The surveys show it.

Business Council figures released this morning show Wong understated the full looming budget horror. Bundling state and Commonwealth obligations together Access Economics has told the Council we are on track to need an extra 5 per cent of GDP in tax by mid century. That’s an extra $195 billion per year by then in today’s dollars. The combined state and federal tax take will have to climb from 28.5 per cent of GDP to 33.5 per cent. We’ll have to pay one-sixth as much again as a proportion of GDP.

Tax cuts, in aggregate, are a pipe dream. Every delegate attending next Tuesday’s summit has been asked to spell out ahead of time “how your proposals will be financed over the short and longer term”...

INCOME TAX

The best way to raise more tax would be to make it more pleasant. Ken Henry and his tax review designed a simplified income tax scale that looks a thing of beauty. Gone would be rebates, offsets and multiple rates that make the present scale look like a city skyline. For a second-earner with two teenage children considering returning to work the effective marginal rate is 20 per cent on the first dollar earned climbing to 70 per cent, then settling in at over 50 per cent at middle earnings before climbing briefly to near 100 per cent and slipping to 40 per cent.

The ups and downs are worse than unsightly. Women with children are far more sensitive to net earnings than other Australians in deciding whether or not to take up paid work. The ugliness matters.

Feeding it are a bewildering array of rules governing family allowances, the NewStart unemployment benefit, the Medicare levy, the low income tax offset, the senior Australians tax offset and so on.

Henry would sweep most of them away - he would abolish the Medicare levy - leaving the typical Australian with an essentially flat scale that took out no tax from the first $25,000 earned, then 35 per cent from anything else earned, and 45 per cent out of anything earned above $180,000. Calculations by the Melbourne Institute suggest the numbers would need to be tweaked in order to not to too much advantage high income earners. The Institute suggests instead a top rate of 46.5 per cent and an extra health or disability levy set as a proportion of the total tax paid.

Henry would fund the lower simpler tax scale by abolishing just about every tax break applying to income. Fringe benefits would be taxed as income, even if they were in the form of cars. Income earned by employees of charities would also be taxed as income, a reasonable sounding proposition opposed in papers prepared for the summit only by some charities and the Australian Salary Packaging Industry Association.

Both the government and the Coalition have at various times said they attracted to the Henry vision. It’ll attract support when it’s discussed on day two of the summit.

SUPERANNUATION

What won’t get support from the government - it’s not even listed for discussion at the summit in its own right - is Henry’s related set of recommendations about superannuation. Super is a benefit provided by an employer. Henry wants it taxed as one, at the recipient’s marginal tax rate, offset by a government contribution.

The review had contempt for the government’s determination to lift compulsory super contributions from 9 to 12 per cent. It found high income earners wouldn’t need the increase to live well in retirement and low income earners couldn’t afford it, because it would be taken from wage rises they would otherwise get and need.

In speeches ahead of the summit Henry committee member Greg Smith has derided the super guarantee as “lifestyle for 60 to 80 year-olds”.

“It’s not the problem. The problem is super-late aging; the experience of people aged over 80, and people of any age who need care,” he says.

By locking money away, directing it to funds on whose boards their union mates sit, the government has made it harder to raise taxes to fund the real needs it will have to meet. Smith suggests reworking super to make the funds themselves provide longevity and disability insurance.

INVESTMENT TAXES

Henry wanted income from investment taxed at a lower rate than income from labour. The theory - backed up by masses of international evidence - is that workers can’t easily escape being taxed whereas investors can.

Income from just about every form of investment would have been taxed at just 60 per cent the rate of tax from labour - a discount of 40 per cent. Treasurer Wayne Swan balked at the idea (it would have meant winding back the discount for income from capital gains from 50 per cent) and introduced a half-hearted measure that will cut by 50 per cent the tax on bank interest earnings, but only for the first $1000.

Henry didn’t recommend an end to negative gearing. It hoped its attempt to extend low tax to all investment classes would make the negative gearing of property less attractive. Others at the summit will push for the tax benefits of negative gearing to be quarantined to the asset being geared.

The review was certain beyond a shadow of a doubt Australia’s company tax rate would have to fall. As Smith put it this month: “The evidence we had was that cutting the rate of company tax would be the most helpful thing we could do.”

The lower the rate the more investment in infrastructure, the more capital per worker, the more produced per worker, the more wages can increase, or so the studies say.

Oddly one of Australia’s peak business bodies doesn’t get the argument. In its submission to the review the Australian Chamber of Commerce and Industry argued not for a cut to the company tax rate, but for a cut to the top income tax rate instead. It is at it again in submission to the summit saying while it “welcomes the proposed reduction in the company tax rate, it is considered necessary to further reduce the current high rates of personal income tax to better align with the company tax rate”.

The Australian Industry group is more in sync with the Henry Review (its chief Heather Ridout was a member) pushing in its submission for a cut in the company tax rate to 25 per cent as soon as possible.

With fellow member Smith, Ridout wants the government to commit to cut the rate to 25 per cent as soon as is needed; as soon as Australia’s fortunes flag.

Swan has announced a cut from 30 to 29 per cent. Among business organisations only ACCI is not pushing for Swan to go further.

There will be a push at the summit for the government to go further on its mining tax. The agreement with the big miners ahead of the election to tax the resource rents of only petroleum, iron ore and coal looks odd when the gold price is so high. Much will be said about its approach to consultation in its failed mining super profits tax and its successful by secretly negotiated mineral resource rent tax.

THE GST

The government tried to shut down discussion of the goods and services tax by restricting the terms of reference for the Henry Review and is trying again by not setting aside time for a session on consumption taxes at the summit. But it’ll be discussed anyway, if only because so many of the experts appearing at the summit agree that its a pretty bad tax that would be improved if it was bigger.

It costs the Tax Office $1.36 per $100 collected, far more than the average of all other taxes, and costs the businesses that collect it for the Office much more again. It ties up the High Court in silly debates such as whether Italian mini ciabatta is a “cracker” or “bread” and requires businesses to run two sets of accounts - one for the goods and services included in the tax and one for those arbitrarily exempted.

The exemptions are silly. The Henry Review points out the highest-earning Australian households spend six times as much on GST -free food as the lowest earners. Removing the exemptions would free up $6 billion, and the low-income households that were hit could be compensated.

New Zealanders manage with a rate of 15 per cent and scarcely any exemptions. In Europe the rate usually exceeds 20 per cent.

The higher the rate the less the average cost of collection. The evidence is that unlike most taxes it doesn’t much change behaviour. We’ll still shop, even if the rate was doubled.

All of the GST goes to the states. Committing to remove exemptions and lift the rate over time would give the states the lifeline they’ll need to get them through to the middle of the century. Exemption-ridden payroll taxes, conveyancing and gambling taxes may not do it.

ANNOUNCEABLES

Don’t expect any announcements about the GST. In fact don’t expect many at all. There will be no communique when the summit ends Wednesday, just a transcript. The Treasurer will announce a change to the treatment of company losses - he has already flagged it. He might also announce that he is attracted to the idea of an ongoing tax reform commission, an idea that will be pushed very hard by the academics at the summit. The biggest outcome will be the process - two days in which all sorts of ideas can be aired in the near certainty they won’t get introduced tomorrow, but they’ll help prepare us for the years to come.

The delegates I’ve spoken to are optimistic. They think the process will be important.

Published in today's SMH and Age

What'll be proposed:

. Flatter, leaner income tax
. An end to tax offsets
. Fringe benefits taxed as income
. Earnings of trusts taxed as income
. Super payouts taxed as income
. Wider tax concessions for saving
. Tighter negative gearing rules
. Company tax rate of 25%
. Broader mining tax
. Wider and booster the GST
. Volumetric alcohol tax for wine
. ‘Robin Hood’ financial transactions tax
. Replacing stamp duties with land tax
. Revamping state payroll taxes

What'll be announced:

. More generous treatment of losses
. A commitment to continue the process

Two days of reality, TV

A quarter of a century on from Australia’s first and most recent tax summit convened by Bob Hawke on the floor of the old House of Representatives in the old parliament house this one will be jazzed up. Whereas the 1985 event went on for the best part of a week and had the feel of an academic conference as the guests presented prepared papers, this one will feel more like a television show - a particular television show.

Insight with Jenny Brockie airs on SBS Tuesday nights. It begins as a structured discussion with invited experts which is then broadened to the studio audience. The audience in the Great Hall of the new parliament house Tuesday and Wednesday will number 187, all of them invited guests. Those who are “experts” for each particular session will be seated down the front. The discussion will start with the experts and then broaden to whoever wants to have a say. It’ll be guided by two former television presenters, Paul Clitheroe and Michael Pascoe, who will take turns hosting. The whole thing will in fact be a television program, available to any broadcaster who wants it and streamed on the internet.

The Prime Minister and Treasurer will open proceedings Tuesday morning and Wayne Swan will close the event Wednesday afternoon. There are three other set piece speeches; one from assistant treasurer Bill Shorten, one from independent MP Rob Oakeshott who pushed for the summit, and one from Ken Henry himself first thing Wednesday morning. Each has been limited to ten minutes, which in Ken Henry’s case will be a pity.

Published in today's SMH and Age

Australia’s budget position is far worse than has been acknowledged. Governments of all kinds will need to raise an extra 5 per cent of GDP in tax by the middle of the century, almost twice as much as conceded by finance minister Penny Wong, according to Business Council research released this morning.

The projection assumes business as usual plus projected demands for health, aged care, superannuation concessions and pensions.

Minister Wong has previously pointed to a shortfall of 2.75 per cent of gross domestic product, worth more than $80 billion per year by the middle of the century in today’s dollars.

The research conducted for the Business Council in the lead up to next week’s tax summit puts the nationwide shortfall across state, local and federal governments at $195 billion per year when expressed in today’s dollars. Combined state, federal and local tax revenue would have to climb from 28.5 per cent of GDP to 33.5 per cent meaning the tax take would have to increase by one-sixth as as a proportion of GDP.

As an illustration of what that would mean today given the present size of GDP the consultants, Deloitte Access say it would mean handing over an extra $70 billion per year.

It’s as much as could be made by lifting the goods and services tax rate from 10 per cent to 24 per cent, by lifting the company tax rate from 30 to 67 per cent, or by lifting the middle income tax rate from 30 to 43 per cent and the top rate from 45 to 65 per cent.

The states, barely mentioned in Minister Wong’s briefing paper for summit delegates, will bear the bunt of Australia’s increased health spending.

Access quotes the NSW Treasury as saying its spending on health will almost double from 30 per cent to 55 per cent of its budget in two decades.

States get the bulk of their money from a goods and services tax which is failing to keep pace with economic growth, from exemption-ridden payroll taxes and from duties on conveyancing and gambling.

The Business Council submission suggests giving the states a guaranteed share of Commonwealth income tax in return for a commitment to abolish inefficient state taxes including those on insurance.

Aware of the gravity of the financial situation the Business Council does not suggest Australia’s overall tax take be lowered, a position it shares with the Australian Industry Group.

Both call for the for the establishment of a Commission of Budget Integrity or on ongoing Tax Reform Commission to map out ways to deal with the challenges ahead.

The Council of Social Service says older Australians are worried governments may soon not be able to afford pensions and aged care. It wants the Senior Tax Offset and tax-free super for the over 60s abolished and the savings put aside for future spending on growing needs.

It says while only one in five people over 65 pay income tax the wealth held by that group will climb from 22 per cent of household wealth to 47 per cent in two decades.

Uniting Care says absurdly generous superannuation tax concessions give more than a third of the benefits to the top five per cent of earners. “Meanwhile many older Australians, including those whose responsibilities have excluded them from accumulating savings, struggle to meet basic costs in retirement,” the submission says.

Oxfam will be arguing at the summit for a tiny ‘Robin Hood’ tax on wholesale financial transactions of just 0.05 per cent at a time. The idea will be considered in Europe as Australia’s summit commences on Tuesday. The Australian Bankers Association has rejected the idea saying it would cut returns to “mum and dad” shareholders.

Published in today's SMH and Age


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