How business can bypass the pollies on tax reform

While politicians dither on tax reform, an alliance between social services leaders and major business groups is set to shake up the tax debate.

Watching Clive Palmer and Annabel Crabb cook dinner together on the ABC’s Kitchen Cabinet on Tuesday was an experience full of strong flavours, a perfect blend of horror and fascination.

But it was worth persisting with, because somewhere between the charred steak and coconut sandwich dessert, Palmer’s defining political motivation was explained.

Without a hint of self-doubt, he gave his conspiracy-theory view of Australian politics. Both sides offer very similar policy platforms, he said, and are essentially in cahoots to make sure more democratic forces don’t bring about unwanted reform.

Palmer, of course, sees himself as the avenging angel sent to disrupt this cosy power-sharing duopoly.

He’s certainly disrupting. But is that what Australia needs in the midst of a once-in-a-generation structural adjustment to cope with the end of the mining boom?

Well, yes and no. Palmer’s overall agenda is not at all clear, and in particular he does not seem to have much interest in balancing the budget. He’s helping block university fee deregulation and welfare reforms, for instance.

On the other hand, his ‘both sides are the same’ thesis is not completely off the mark.

We have a Coalition government aiming to keep the federal tax take at 24 per cent of GDP and hence trying to balance the budget via ‘unfair’ welfare, pension, health and education cuts.

And we have a federal opposition promising to fund all the areas being cut, without any credible plan to bring tax revenues up to the level that would do so (To Labor GST means ‘good scare tactic’, December 2) -- something more like 25 or 26 per cent GDP -- as occurred under both the Hawke and Howard governments.

Clive Palmer is not the only tectonic plate in motion, however, and the Coalition and Labor will soon find the ground moving beneath their feet.

That’s because the Australian Council of Social Service, whose member charities are picking up the social services shortfall as the labour market deteriorates, is going straight to the heart of the matter.

It has formed an alliance with the Business Community Tax Reform group to knock both sides’ heads together and convince them that a broken tax system is causing social problems, economic problems and obvious fiscal problems.

And since the BCTR includes all the major business groups in its membership -- such as the BCA, ACCI and COSBOA -- it brings with it significant expertise and lobbying power.

The BCTR and ACOSS are holding a closed-door conference on December 15 to get this stalled debate moving again. 

A BCTR spokesman told me this week that that the move “bypasses politicians”, because it will be charity leaders and business people standing side by side who will front TV cameras to demand a grown-up solution to the fiscal crisis.

That solution won’t be ‘unfair’ cuts, nor a simple hiking of rates on existing ‘inefficient’ taxes.

Instead, both bodies are putting all tax options on the table, including the GST.

It has to be said, that ACOSS is not a fan of GST increases. It would much rather go to more obvious sources of revenue to help plug the budget holes: scaling back negative gearing, use of trusts, and capital gains tax concessions, reducing superannuation tax concessions, and looking at other indirect taxes such as  broad-based land tax.

That is entirely rational; all those things need fixing.

However, what ACOSS’s starting point overlooks is just how difficult those things will be to achieve. A powerfully intransigent voting bloc of middle-aged and older Australians don’t want to touch those sacred cows, even though they are pushing an unbearable tax/housing/jobs environment onto their own children.

It’s for those reasons that ACOSS will have to listen very carefully to what the BCTR representatives say about the GST.

While raising the GST rate or broadening its base is ‘regressive’, it is also a tax that is paid across the voting spectrum, and therefore does not target specific groups with vested interests.

ACOSS published a letter in the national press on Wednesday saying: “We have serious concerns about increasing taxes on consumption which impact on low incomes disproportionately. Past experience shows that compensation packages are high risk and should not be assumed to be the 'simple answer' to these concerns.”

That’s true enough: compensating low, or no-income people for a GST hike is a delicate and ‘high risk’ challenge.

However, it is probably less challenging that tackling the tight knot of twisted policies that are disadvantaging younger Australians.

Among other things, the current tax system has squeezed young Australians out of the housing market, produced an artificially bloated the housing finance sector, turned a progressive income tax system into a regressive hodge-podge of tax-minimisation, and has contributed to growing youth unemployment via too-high company taxes.

That has created too many individual vested interests for a politician to challenge, but nonetheless holds the entire economy back.

If ACOSS thinks politicians can pick apart that ball of misery in the next few years, good luck to them.

For my money, GST reform would be a better, simpler start to broadening the tax base. It would then be the job of ACOSS and its members to ensure that the ‘high risk’ of leaving vulnerable Australians out in the cold is avoided.