Tax reform must transcend petty politics

Is it time to take tax reform out of the hands of our politicians and put it in the hands of an independent tax commission similar to the Reserve Bank of Australia? Tax reform is desperately needed to widen the tax base and eventually balance the budget. Proposals by the Coalition have been, at best, modest and without exception met with hysteria by the public and opposition.

Consider the following as we approach tonight’s 2013-14 federal budget.

The Coalition -- which campaigned on the idea of small government -- is advocating a range of additional taxes including a deficit tax on high income earners and a 3 cent rise in the fuel excise tax.

On the other hand, the Labor Party opposes everything. Opposition leader Bill Shorten has taken the Tony Abbott approach to being in opposition -- take the opposite position to every policy the government proposes and make a lot of noise.

The opposition inexplicably opposes not only a modest tax rise for wealthy Australians -- a policy it would traditionally support -- but also the fuel excise tax, which would partially offset the removal of the carbon tax.

There are perfectly legitimate reasons for arguing against the deficit tax (you don’t fix structural issues with short-term taxes for one), but ‘because the other bloke is doing it’ is not a good one.

The Greens also oppose the deficit tax -- though on the basis that it isn’t permanent -- but do support the fuel excise tax. Whether you support their policies or not it is at least nice to see some consistency and predictability among our political parties.

The public want everything but they don’t want to pay for any of it.

Does it sound a little nuts? You bet. But that is public debate on tax policy in Australia, where fear and hysteria triumph over sound decision making.

Unfortunately the hysteria makes it increasingly unlikely that either major party possesses the political courage to recommend major tax reform.

Nevertheless, the debate itself is incredibly important and every bit as important as the debate on government spending. I’d go as far as to say that it is too important to be left to our politicians.

Contrary to popular wisdom the main driver of the budget deterioration was not excessive spending but the sharp decline in tax revenue, which began following the onset of the global financial crisis and never really recovered. Our tax base has deteriorated and with an ageing population and declining terms-of-trade it is unlikely to recover to its pre-crisis levels.

In the long-term Australia will be unable to meet its obligations to the elderly, the sick and vulnerable without extensive tax reform. A declining tax base cannot co-exist with greater obligations -- something has to give, but so far the public debate has focused almost entirely on spending.

Unfortunately tax reform is difficult. The public hates the mere mention of new taxes and politicians know this.

Look at the outrage to the carbon and mining taxes -- two taxes with easily identifiable benefits to the budget and environment -- not to mention the reaction to a deficit tax that affects only a small share of Australians.

Is it that surprising that Treasurer Joe Hockey has desperately tried to convince the public that a levy is somehow different to a tax?

When was the last time that there was any bipartisan support for tax reform? Would it even be politically possible to pass an increase to the GST? Particularly when opposing it would all but assure election victory.

Recently former Liberal Party leader Dr John Hewson actually went far enough as to say that Australia should consider the introduction of an independent tax commission, similar to the Reserve Bank of Australia, to “analyse, develop, educate and deliver the reform packages it believes necessary over the next several decades.”

It is an idea that I support since we obviously cannot trust our politicians to have an honest, open and mature debate on tax reform. Contrary to their nature, tax reform requires politicians to think beyond the next election cycle; they need to take a medium-term approach to the economy and spending and assess the implications for tax revenue.

History suggests that medium-term objectives will be ignored if short-sightedness can gain a few votes. History suggests that voters will reward this behaviour.

An independent tax commission would help to rectify this issue and remove some incentives that encourage short-sightedness from politicians. It would ensure that reform occurs when it is needed and isn’t delayed so that a political party can win or maintain office.

The long-term budget emergency cannot be solved through spending alone. But modest revenue measures will do little to offset the long-term budget pressures facing Australia. Australians need to get used to the idea that they may have to pay higher taxes if they want to receive the sort of services that they have grown accustomed to.

Australia needs broad-based tax reform but we lack politicians who are willing to think beyond the current election cycle. An independent tax commission could be a solution to this problem, a solution that could fix the budget black hole, improve the efficiency of the tax system and lead to a more mature and less hysterical discussion of public policy. Also has the added benefit of saving the public from rewarding behaviour that isn’t really in their long-term interests.