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It's not that taxing we can do better

Forget 'trickle-down' benefits, we need wholesale reforms

Forget 'trickle-down' benefits, we need wholesale reforms

TAX SUMMITS and forums raise visions of conservative economists arguing for reductions to company tax and the top income tax rate in the name of competitiveness and productivity which would be fine if the claimed benefits actually trickled down to the rest of us. All too often, they don't.

Tax reform should be about much more than this. Former Treasury secretary Ken Henry in 2009 declared the tax and transfer system to be our principal means of expressing societal choices about equity, making it "a reflection of the kind of society we aspire to be".

Ken Henry is right. We should aspire to more. We can make next week's Tax Forum something that benefits the vast majority of Australians by ensuring it promotes equity, opportunity and workforce participation. The forum should aim to encourage a far more inclusive vision of growth than that offered by "trickle down".

So what should the forum consider? I believe four major changes to our tax and transfer system provide much of the answer.

The first is to ensure that it encourages workforce participation. Our current social security laws are inflexible, based on the outdated assumption that the only options are full-time work or full-time unemployment. Some people will for a time need to build their lives around the best combination they can find of casual, part-time or infrequent work and social security benefits. Currently such people lose so much income when they get a job that work is not worth it. Instead of working some of the time, they end up working none of the time.

Two reforms that could help are letting people keep more of their benefits if they work, and allowing the retention of concession cards for 12 months after starting a job. We need to ensure the tax and transfer system supports people through the major transitions in their lives: from unemployment to work, and in and out of caring roles, education and training.

The second change would be to ensure that benefits provide a decent standard of living for everyone. While employment always is the best way out of poverty, too many of Australia's most disadvantaged citizens spend too long on the Newstart Allowance, which at $240 a week $130 less than the Disability Support Pension is pitiful. A modern social security system needs to recognise that periods of unemployment will be a fact of life in an open, flexible economy. Today Newstart Allowance provides a single unemployed person with 20 per cent of the average male wage. This is not the sort of divided society we want. The Newstart single rate should be increased.

The third reform is to ensure that disadvantaged Australians have the opportunity to save and build assets. Through tax concessions, mainly for housing and superannuation, the Australian government provides billions of dollars to encourage asset building, but this strategy is poorly targeted, benefiting mainly the top fifth of income earners. Those applying for Newstart Allowance, Sickness Allowance and Austudy who have "liquid assets" above $2500 must wait up to 13 weeks before accessing benefits, forcing them to run down their savings, yet no such requirements apply to people with significant share and property portfolios. This liquid assets test waiting period is inequitable and should go.

The fourth reform is to make sure that childcare subsidies provided through the tax system support the development of an early childhood education and care system that works for disadvantaged children and their families. While investment in early childhood education has increased particularly through the commitment to 15 hours of free preschool for four-year-olds, it could yield greater returns if this were extended to children at three. United States researchers estimate that a national two-year program of quality early education commencing at three could reduce poverty by between 5 and 15 per cent.

The other beneficiaries of affordable, quality childcare are women who want to work but find childcare too expensive or unavailable. Many countries provide universal early education and care from three. Shouldn't this be something a wealthy country such as Australia should aspire to as well, when the benefits for children and families are so clear?

So now the big question: how do we pay for all this?

The first thing any reformer should do is to look at tax breaks. Tax exemptions and concessions in Australia totalled more than $110 billion in 2008-09. This, in itself, is fine, but about 55 per cent of this went to concessions on housing and superannuation, benefiting many people who don't really need it. While tax concessions that support families to purchase a first home might be understandable, the use of the tax system to subsidise property investors with multiple properties is unjustifiable. Clearly, the discount rate on negative gearing for investment properties needs to be reduced, as does the discount rate of capital gains tax on investment properties.

These sorts of measures were first put forward by the cautious reformers from the Department of Treasury and are in the Henry Review. They deserve to have powerful champions at the forum. I believe most Australians, who will benefit directly in their wallets and indirectly through a more dynamic and equitable society, will support them.

Tony Nicholson is the executive director of the Brotherhood of St Laurence.


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