Tax reform talk heats up after Treasury FOI error, and that might just suit Jim Chalmers nicely

Australia Broadcast Center

a day ago

"Tax should be raised as part of broader tax reform." It's the kind of headline that typically has treasurers ducking and weaving.
It certainly had the opposition salivating over an early opportunity to draw some political blood after its own crushing election defeat.
"What Mr Albanese needs to explain to the Australian people is what those higher taxes are," Liberal Leader Sussan Ley opined.
But, confronted with the accidental release of typically confidential parts of his department's Incoming Government Brief, the treasurer didn't flinch.
"I'm pretty relaxed about it, to be honest," was Jim Chalmers' response.
No denial, and not even really any concerted attempt to distance the government from what is as close to independent as Treasury advice ever gets (although the treasurer is decamping this week to the G20 meetings in South Africa).
Chalmers instead chose to own the leaked advice on tax reform.
"We have made it clear that we need to build on the progress we've made in repairing the budget so that we can make the budget even more sustainable," he told reporters.
"So, the priorities which are being reported today are the sorts of things that I have mentioned before, including at the National Press Club."
For those who missed it, having emerged from an election campaign where Labor played small target and saw its political rivals decimated across the country, the treasurer stood up in a room full of journalists saying he was "personally willing to grasp the nettle".
"No sensible progress can be made on productivity, resilience or budget sustainability without proper consideration of more tax reform."
The treasurer sounded like he could have been reading straight from his department's brief.
A happy accident for Chalmers?
With the rebadged Economic Reform Roundtable just a month away, confirmation that Treasury would like to see both the tax take rise and spending fall to finally fix a long-term structural hole in the budget adds further urgency to the task.
Economist Nicki Hutley believes the treasurer will not only be relaxed, but even "happy" that the headings around tax reform got out into the public domain.
"It helps to promote the conversation ahead of what is a very important round table," she told me.
"And the more those issues, particularly challenging ones like tax reform, are aired prior to the round table, the better it is."
So, what did we learn about Treasury's views on tax reform?
Probably not a huge amount that we couldn't guess.
It thinks we need to raise more revenue and spend less.
It also thinks those tax increases shouldn't come from workers or businesses, which are already carrying too much of the burden.
Although, on the latter point, it seems the nation's biggest company disagrees, breaking ranks with virtually every business lobby group.
"We do not believe that lowering the company tax rate should be a priority, provided there is no change to Australia's imputation credit regime," the Commonwealth Bank noted in an official corporate submission to the government's Productivity Commission.
"While we, and no doubt other large companies, would welcome a lower company tax rate, we believe there are other priorities which should lead the productivity reform agenda."
Regardless of whether income and corporate taxes go down or stay the same, that really leaves those sitting on wealth as the prime targets for more taxation — whether that's through their superannuation, trusts, housing or consumption.
The two big hints in the leaked headings are "building on your reforms to superannuation tax" and "reforming the indirect tax system to support budget repair and the fiscal sustainability of Commonwealth and state governments".
CBA backs 'superannuation cap'
As much as those who hold large superannuation balances, and those who profit from managing them, decry the frequently changing rules around the sector, while it remains an attractive tax shelter for the very wealthy super will continue to be an obvious target for reform.
As my colleague Ian Verrender eloquently pointed out, the Albanese government's current proposal to up the tax paid on income from balances above $3 million goes only a little way towards evening the ledger with the wage slaves who still work for a living.
In another statement sure to ruffle feathers across the top end of town, CBA put forward a far more radical proposal in its Productivity Commission submission.
"Uncapped superannuation concessions appear to be unsustainable," the Commonwealth Bank noted.
"We would support a superannuation cap, set at a level that encourages aspiration, and set well above the level where there is dependence on the state for support in retirement."
So forget taxing earnings on super balances above $3 million at a mere 30 per cent.
What CBA is proposing is that you simply won't be allowed to hold a huge amount inside super, and presumably, earnings on any wealth you hold above that super cap will be taxed at your marginal tax rate.
The level of assets at which the part pension cuts out for a single non-home owner is currently $962,500, so let's say the super cap was set at $2 million, more than double that.
Such a change might see a person with $4 million in super savings, currently complaining about paying perhaps $15,000 a year extra in tax under Labor's existing proposal, paying an extra $26,000 with part of their earnings likely subject to the top marginal tax rate of 45 per cent.
As with all these things, there's no complete absence of self-interest here. The big four banks have all reduced their exposure to superannuation and wealth management after a series of scandals, although CBA does still own a sizeable chunk of Colonial First State.
And the tax-advantaged super system is siphoning money away from the place most retirees in my grandparents' generation stuck their savings — the bank, where interest earnings are taxed like income from wages.
Capping super balances may shift some of the savings from the wealthy back into the banking system, expanding the pool of cheaper deposit funding for the banks.
Nonetheless, it is surprising to see Australia's biggest bank voluntarily weigh into the tax debate.
"The Henry Review remains the most comprehensive assessment and blueprint for tax reform in Australia," CBA observed.
"It is a sensible starting point from which to launch a national conversation."
A starting point we've now been stuck at for more than 15 years.
Will Chalmers dare look at the GST or land taxes?
Treasury's call for "reforming the indirect tax system" is one area where there's a bit more ambiguity as to exactly what it might be recommending.
An obvious, although controversial, target would be raising the rate of the GST or broadening the base of goods and services the tax applies to.
While excluded from Ken Henry's otherwise comprehensive tax review due to instructions from then-treasurer (and Chalmers' former boss) Wayne Swan, most economists have long argued that the exclusions from the GST negotiated by John Howard to get it past the Australian Democrats in the Senate should generally be ditched.
That would, they argue, not only raise more revenue but reduce the economic distortions caused by the tax and also make compliance much easier for businesses.
Pradeep Philip from Deloitte Access Economics says the extra revenue could, as was promised when the GST was first introduced, also be used to eliminate a range of other inefficient state taxes.
"We know that while the GST is a highly regressive tax, it is also an incredibly efficient tax," he told The Business.
"What's really important in this tax reform debate is to not have piecemeal tax changes, but to have true reform.
"And if reforming the GST could see us get rid of inefficient taxes, particularly at the state and territory level, then that could be a really good boost for the Australian economy."
The other area few are mentioning is land tax.
It's the economists' holy grail, one of the few things that almost all economists, from the most progressive to conservative and in-between, can agree on as a good idea.
Land can't be moved or hidden and, thanks to land title registries, we know exactly who owns it. It's easy to confiscate and sell if the tax isn't paid. And taxing it doesn't reduce the supply of it — if anything, it pushes people to sell land they aren't using efficiently.
But, despite the economic consensus, the general feeling is that Australians won't stomach a land tax, even though we already effectively pay one via council rates and even if it was set at a level to simply replace the revenue collected by economically destructive stamp duties on real estate transactions.
In his Press Club speech, Jim Chalmers said, "this is about testing the country's reform appetite".
A proposal to tax all land, including the family home, would certainly reveal just how hungry Australians are for serious productivity-enhancing economic reform.
Read the headings of Treasury's policy advice on tax and productivity in full