Editorial: As momentum finally builds, Treasurer Jim Chalmers must act on the tax reform
For once, there could be some momentum behind those calls, with Treasurer Jim Chalmers sounding a positive tone and saying the right things ahead of a highly-promoted economic reform roundtable, for which there are high hopes.
'Of course we are interested in ways to simplify the tax system.,' he said during the week.
'Ideally, people will come with views about how we simplify the tax system and where that fits more broadly into our efforts on productivity.'
The Productivity Commission has also published submissions to its inquiry into economic dynamism and resilience, including from the nation's biggest company, the Commonwealth Bank, which is urging a greater clampdown on multinational tax avoidance.
'It will be critical that we find mechanisms to ensure that multinationals do not profit-shift offshore, but instead contribute to Australia and pay their fair share of tax,' the CBA said. 'This is particularly true for software-based businesses, which continue to grow significantly faster than the economy.'
Australia's tax take — the way government funds its spending on services the nation enjoys and needs — has been for too long now too reliant on personal income taxes compared to other forms of revenue. In the 2023-24 financial year, income tax was $331.5 billion, with the strong labour market pushing that figure 11.7 per cent higher compared to the year before.
Productivity Commissioner Danielle Wood, in her former capacity as head of the Grattan Institute think tank, previously explained various taxes cost the economy in different ways — that some come at the cost of economic activity and some cost the system more than they actually collect.
Stamp duty on property purchases remains the bugbear of many academics, but few State governments will willingly accept reform in that area given how much revenue it yields.
With a projected decline in the number of workers, Australia needs to reform its tax system to ensure it's effective beyond relying on income tax. This concern is even more acute when considering the big expenses facing the country: Medicare, the NDIS, aged care and defence, and when considering the Federal Budget is in structural deficit.
To this end, a raft of options should be on the table, with big business, key lobby groups and research institutes attending the reform roundtable next month. Though tempting to just write it off as another gabfest (and the Treasurer, should this eventuate, will rightly be condemned) the potential is too great given how genuine tax reform has not been implemented for decades.
While a sugar tax may be controversial, it's an idea worth considering, as are broader changes to cut tax concessions that don't add to the economy.
The Treasurer must seriously commit to action following the talks, and ensure the tax system is fair and equitable for coming generations. The worst outcome from yet another political talkfest would be maintaining the status quo.
Responsibility for editorial comment is taken by Editor-in-Chief Christopher Dore.
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Australian Council of Trade Unions attacks businesses for employee burnout
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The Advertiser
7 hours ago
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You know what's a bigger issue than productivity? This culture of entitlement
As we get closer to the productivity roundtable that the government hopes will solve all problems, various players are tipping their hand as to what they want the focus to be. Unfortunately, many commentators on the left have indicated the focus should be squarely on increasing taxation - both to close the existing budget deficit and to fund additional government spending. It has been clear for some time that the Treasurer is sympathetic to calls for an expanded role for government. His much-cited essay on the future of capitalism outlined a vision of government returning to the centre of the economy, using taxpayer funds to direct and shape economic priorities. This is a bad idea; both on its merits, and in terms of its negative impact on productivity. The fact is government has been steadily growing in both its expenditure and regulatory dimensions for years now and each of these are a drain on productivity. Focusing on expenditure, a full tally for all levels of government shows expenditure at 38.3 per cent of GDP in 2023-24 and it is likely to have been higher in 2024-25, perhaps approaching 39 per cent. The same measure before the coronavirus pandemic was usually in the range 34-35 per cent of GDP. Pandemic-era spending led to a spike above 40 per cent for two years. However, true to the then-government's word, most of that spending was temporary. The huge deficits of that era did leave a legacy in the form of ongoing interest expense on the resulting public debt. But otherwise, the pandemic can't be blamed for expenditure now being about 4 percentage points of GDP higher than before it. That is a massive $100 billion plus, every year. These increases have happened mainly at the federal level, although a good portion of the additional expenditure amounts to the federal government effectively bankrolling state expenditures and responsibilities. An examination of program expenditure points to the seeds of increased federal spending being sown long ago. Looking back to 2012-13 we see the rapid growth of expenses on disability support (the NDIS), aged care, child care, schools, public hospitals, pharmaceutical benefits and medical benefits - all programs that have been boosted by new policy initiatives since 2012-13 to roll out new social benefits or enhance existing ones. The welfare state has been on a roll, but in addition defence and funding of state infrastructure projects have increased rapidly, as has debt interest expense as a result of the budget deficits. All these programs together accounted for 35 per cent of federal own-purpose expenditure in 2012-13 but for 63 per cent of the dollar increase in annual expenditure up to 2024-25. Each item has its own story, and we wouldn't suggest that the growth was all avoidable. For example, some of it reflects population ageing and the increase in defence is a normalisation from a historically low level. However, the growth in social spending also includes wasteful and ineffective spending. That growth reflects the priorities of an earlier Labor government, and the subsequent Coalition government largely went along with it or felt they had to. Unfortunately, this political dynamic has created a situation where the main sources of growth in terms of employment and spending in the economy have been focused in areas that are relatively low productivity (the care economy in particular). To make matters worse, the current Labor government is doubling down on its previous spending increases in most areas. Aged care, childcare and Medicare are all areas where the government has unveiled substantial new spending commitments. The government has agreed to increase its share of Gonski school funding. And it has promised or hopes to go further with "free" TAFE and universal child care, while pressures for further increases in defence can be expected. READ MORE SIMON COWAN: Of course, this additional spending, though significant in its own right, is dwarfed by the growing costs of the NDIS. The CIS warned long ago that the NDIS was likely to grow far faster than had been predicted at the time. Despite these prescient warnings, both sides of politics have made only modest efforts to rein in the NDIS monster. Consequently, there are good reasons to be sceptical of rosy predictions of the NDIS cost-curve flattening (although staying at a level well above the growth of the economy) without substantial intervention. It should be noted as well, that despite the rapidly burgeoning costs, many participants and providers in the scheme report dissatisfaction with how the scheme is being managed. While increases in spending in individual programs and areas are the measure of the increase in the size of government, this is not the root cause. The bigger issue is the culture of dependency and entitlement has taken root in the population and political behaviour has become only too willing to accommodate and encourage it. We have reached a point where a sizeable proportion of the voting age population - perhaps more than half - is dependent on government directly or indirectly through social benefits and employment for most of their income. It is difficult to see the current government reversing this trend without a major change of mindset. While there is some hope for the broader centre left of politics in movements like the "abundance agenda", left-wing parties across the Western world have become the parties of higher taxes and bigger government. Despite the political difficulties, the economic and social consequences of the growth in government spending and dependency on government will have to be faced one day. The economic consequences include the unrelenting pressure for more deficits and more debt, which will make the economy more vulnerable to future crises and the government less able to respond. Governments' insatiable appetite for revenue also creates more pressure for taxes to rise, which in turn saps incentives for work, saving and investment - and thereby potentially compounds the problem of weak productivity growth. The simple fact is that people respond to incentives. When the incentives encourage innovation, investment and ingenuity, people respond by increasing productivity. Our living standards grow. However, when the incentives encourage us to fight over the distribution of the pie, even as it shrinks, the rot of entitlement and waste sinks in. Turning this around will require more than a summit. As we get closer to the productivity roundtable that the government hopes will solve all problems, various players are tipping their hand as to what they want the focus to be. Unfortunately, many commentators on the left have indicated the focus should be squarely on increasing taxation - both to close the existing budget deficit and to fund additional government spending. It has been clear for some time that the Treasurer is sympathetic to calls for an expanded role for government. His much-cited essay on the future of capitalism outlined a vision of government returning to the centre of the economy, using taxpayer funds to direct and shape economic priorities. This is a bad idea; both on its merits, and in terms of its negative impact on productivity. The fact is government has been steadily growing in both its expenditure and regulatory dimensions for years now and each of these are a drain on productivity. Focusing on expenditure, a full tally for all levels of government shows expenditure at 38.3 per cent of GDP in 2023-24 and it is likely to have been higher in 2024-25, perhaps approaching 39 per cent. The same measure before the coronavirus pandemic was usually in the range 34-35 per cent of GDP. Pandemic-era spending led to a spike above 40 per cent for two years. However, true to the then-government's word, most of that spending was temporary. The huge deficits of that era did leave a legacy in the form of ongoing interest expense on the resulting public debt. But otherwise, the pandemic can't be blamed for expenditure now being about 4 percentage points of GDP higher than before it. That is a massive $100 billion plus, every year. These increases have happened mainly at the federal level, although a good portion of the additional expenditure amounts to the federal government effectively bankrolling state expenditures and responsibilities. An examination of program expenditure points to the seeds of increased federal spending being sown long ago. Looking back to 2012-13 we see the rapid growth of expenses on disability support (the NDIS), aged care, child care, schools, public hospitals, pharmaceutical benefits and medical benefits - all programs that have been boosted by new policy initiatives since 2012-13 to roll out new social benefits or enhance existing ones. The welfare state has been on a roll, but in addition defence and funding of state infrastructure projects have increased rapidly, as has debt interest expense as a result of the budget deficits. All these programs together accounted for 35 per cent of federal own-purpose expenditure in 2012-13 but for 63 per cent of the dollar increase in annual expenditure up to 2024-25. Each item has its own story, and we wouldn't suggest that the growth was all avoidable. For example, some of it reflects population ageing and the increase in defence is a normalisation from a historically low level. However, the growth in social spending also includes wasteful and ineffective spending. That growth reflects the priorities of an earlier Labor government, and the subsequent Coalition government largely went along with it or felt they had to. Unfortunately, this political dynamic has created a situation where the main sources of growth in terms of employment and spending in the economy have been focused in areas that are relatively low productivity (the care economy in particular). To make matters worse, the current Labor government is doubling down on its previous spending increases in most areas. Aged care, childcare and Medicare are all areas where the government has unveiled substantial new spending commitments. The government has agreed to increase its share of Gonski school funding. And it has promised or hopes to go further with "free" TAFE and universal child care, while pressures for further increases in defence can be expected. READ MORE SIMON COWAN: Of course, this additional spending, though significant in its own right, is dwarfed by the growing costs of the NDIS. The CIS warned long ago that the NDIS was likely to grow far faster than had been predicted at the time. Despite these prescient warnings, both sides of politics have made only modest efforts to rein in the NDIS monster. Consequently, there are good reasons to be sceptical of rosy predictions of the NDIS cost-curve flattening (although staying at a level well above the growth of the economy) without substantial intervention. It should be noted as well, that despite the rapidly burgeoning costs, many participants and providers in the scheme report dissatisfaction with how the scheme is being managed. While increases in spending in individual programs and areas are the measure of the increase in the size of government, this is not the root cause. The bigger issue is the culture of dependency and entitlement has taken root in the population and political behaviour has become only too willing to accommodate and encourage it. We have reached a point where a sizeable proportion of the voting age population - perhaps more than half - is dependent on government directly or indirectly through social benefits and employment for most of their income. It is difficult to see the current government reversing this trend without a major change of mindset. While there is some hope for the broader centre left of politics in movements like the "abundance agenda", left-wing parties across the Western world have become the parties of higher taxes and bigger government. Despite the political difficulties, the economic and social consequences of the growth in government spending and dependency on government will have to be faced one day. The economic consequences include the unrelenting pressure for more deficits and more debt, which will make the economy more vulnerable to future crises and the government less able to respond. Governments' insatiable appetite for revenue also creates more pressure for taxes to rise, which in turn saps incentives for work, saving and investment - and thereby potentially compounds the problem of weak productivity growth. The simple fact is that people respond to incentives. When the incentives encourage innovation, investment and ingenuity, people respond by increasing productivity. Our living standards grow. However, when the incentives encourage us to fight over the distribution of the pie, even as it shrinks, the rot of entitlement and waste sinks in. Turning this around will require more than a summit. As we get closer to the productivity roundtable that the government hopes will solve all problems, various players are tipping their hand as to what they want the focus to be. Unfortunately, many commentators on the left have indicated the focus should be squarely on increasing taxation - both to close the existing budget deficit and to fund additional government spending. It has been clear for some time that the Treasurer is sympathetic to calls for an expanded role for government. His much-cited essay on the future of capitalism outlined a vision of government returning to the centre of the economy, using taxpayer funds to direct and shape economic priorities. This is a bad idea; both on its merits, and in terms of its negative impact on productivity. The fact is government has been steadily growing in both its expenditure and regulatory dimensions for years now and each of these are a drain on productivity. Focusing on expenditure, a full tally for all levels of government shows expenditure at 38.3 per cent of GDP in 2023-24 and it is likely to have been higher in 2024-25, perhaps approaching 39 per cent. The same measure before the coronavirus pandemic was usually in the range 34-35 per cent of GDP. Pandemic-era spending led to a spike above 40 per cent for two years. However, true to the then-government's word, most of that spending was temporary. The huge deficits of that era did leave a legacy in the form of ongoing interest expense on the resulting public debt. But otherwise, the pandemic can't be blamed for expenditure now being about 4 percentage points of GDP higher than before it. That is a massive $100 billion plus, every year. These increases have happened mainly at the federal level, although a good portion of the additional expenditure amounts to the federal government effectively bankrolling state expenditures and responsibilities. An examination of program expenditure points to the seeds of increased federal spending being sown long ago. Looking back to 2012-13 we see the rapid growth of expenses on disability support (the NDIS), aged care, child care, schools, public hospitals, pharmaceutical benefits and medical benefits - all programs that have been boosted by new policy initiatives since 2012-13 to roll out new social benefits or enhance existing ones. The welfare state has been on a roll, but in addition defence and funding of state infrastructure projects have increased rapidly, as has debt interest expense as a result of the budget deficits. All these programs together accounted for 35 per cent of federal own-purpose expenditure in 2012-13 but for 63 per cent of the dollar increase in annual expenditure up to 2024-25. Each item has its own story, and we wouldn't suggest that the growth was all avoidable. For example, some of it reflects population ageing and the increase in defence is a normalisation from a historically low level. However, the growth in social spending also includes wasteful and ineffective spending. That growth reflects the priorities of an earlier Labor government, and the subsequent Coalition government largely went along with it or felt they had to. Unfortunately, this political dynamic has created a situation where the main sources of growth in terms of employment and spending in the economy have been focused in areas that are relatively low productivity (the care economy in particular). To make matters worse, the current Labor government is doubling down on its previous spending increases in most areas. Aged care, childcare and Medicare are all areas where the government has unveiled substantial new spending commitments. The government has agreed to increase its share of Gonski school funding. And it has promised or hopes to go further with "free" TAFE and universal child care, while pressures for further increases in defence can be expected. READ MORE SIMON COWAN: Of course, this additional spending, though significant in its own right, is dwarfed by the growing costs of the NDIS. The CIS warned long ago that the NDIS was likely to grow far faster than had been predicted at the time. Despite these prescient warnings, both sides of politics have made only modest efforts to rein in the NDIS monster. Consequently, there are good reasons to be sceptical of rosy predictions of the NDIS cost-curve flattening (although staying at a level well above the growth of the economy) without substantial intervention. It should be noted as well, that despite the rapidly burgeoning costs, many participants and providers in the scheme report dissatisfaction with how the scheme is being managed. While increases in spending in individual programs and areas are the measure of the increase in the size of government, this is not the root cause. The bigger issue is the culture of dependency and entitlement has taken root in the population and political behaviour has become only too willing to accommodate and encourage it. We have reached a point where a sizeable proportion of the voting age population - perhaps more than half - is dependent on government directly or indirectly through social benefits and employment for most of their income. It is difficult to see the current government reversing this trend without a major change of mindset. While there is some hope for the broader centre left of politics in movements like the "abundance agenda", left-wing parties across the Western world have become the parties of higher taxes and bigger government. Despite the political difficulties, the economic and social consequences of the growth in government spending and dependency on government will have to be faced one day. The economic consequences include the unrelenting pressure for more deficits and more debt, which will make the economy more vulnerable to future crises and the government less able to respond. Governments' insatiable appetite for revenue also creates more pressure for taxes to rise, which in turn saps incentives for work, saving and investment - and thereby potentially compounds the problem of weak productivity growth. The simple fact is that people respond to incentives. When the incentives encourage innovation, investment and ingenuity, people respond by increasing productivity. Our living standards grow. However, when the incentives encourage us to fight over the distribution of the pie, even as it shrinks, the rot of entitlement and waste sinks in. Turning this around will require more than a summit. As we get closer to the productivity roundtable that the government hopes will solve all problems, various players are tipping their hand as to what they want the focus to be. Unfortunately, many commentators on the left have indicated the focus should be squarely on increasing taxation - both to close the existing budget deficit and to fund additional government spending. It has been clear for some time that the Treasurer is sympathetic to calls for an expanded role for government. His much-cited essay on the future of capitalism outlined a vision of government returning to the centre of the economy, using taxpayer funds to direct and shape economic priorities. This is a bad idea; both on its merits, and in terms of its negative impact on productivity. The fact is government has been steadily growing in both its expenditure and regulatory dimensions for years now and each of these are a drain on productivity. Focusing on expenditure, a full tally for all levels of government shows expenditure at 38.3 per cent of GDP in 2023-24 and it is likely to have been higher in 2024-25, perhaps approaching 39 per cent. The same measure before the coronavirus pandemic was usually in the range 34-35 per cent of GDP. Pandemic-era spending led to a spike above 40 per cent for two years. However, true to the then-government's word, most of that spending was temporary. The huge deficits of that era did leave a legacy in the form of ongoing interest expense on the resulting public debt. But otherwise, the pandemic can't be blamed for expenditure now being about 4 percentage points of GDP higher than before it. That is a massive $100 billion plus, every year. These increases have happened mainly at the federal level, although a good portion of the additional expenditure amounts to the federal government effectively bankrolling state expenditures and responsibilities. An examination of program expenditure points to the seeds of increased federal spending being sown long ago. Looking back to 2012-13 we see the rapid growth of expenses on disability support (the NDIS), aged care, child care, schools, public hospitals, pharmaceutical benefits and medical benefits - all programs that have been boosted by new policy initiatives since 2012-13 to roll out new social benefits or enhance existing ones. The welfare state has been on a roll, but in addition defence and funding of state infrastructure projects have increased rapidly, as has debt interest expense as a result of the budget deficits. All these programs together accounted for 35 per cent of federal own-purpose expenditure in 2012-13 but for 63 per cent of the dollar increase in annual expenditure up to 2024-25. Each item has its own story, and we wouldn't suggest that the growth was all avoidable. For example, some of it reflects population ageing and the increase in defence is a normalisation from a historically low level. However, the growth in social spending also includes wasteful and ineffective spending. That growth reflects the priorities of an earlier Labor government, and the subsequent Coalition government largely went along with it or felt they had to. Unfortunately, this political dynamic has created a situation where the main sources of growth in terms of employment and spending in the economy have been focused in areas that are relatively low productivity (the care economy in particular). To make matters worse, the current Labor government is doubling down on its previous spending increases in most areas. Aged care, childcare and Medicare are all areas where the government has unveiled substantial new spending commitments. The government has agreed to increase its share of Gonski school funding. And it has promised or hopes to go further with "free" TAFE and universal child care, while pressures for further increases in defence can be expected. READ MORE SIMON COWAN: Of course, this additional spending, though significant in its own right, is dwarfed by the growing costs of the NDIS. The CIS warned long ago that the NDIS was likely to grow far faster than had been predicted at the time. Despite these prescient warnings, both sides of politics have made only modest efforts to rein in the NDIS monster. Consequently, there are good reasons to be sceptical of rosy predictions of the NDIS cost-curve flattening (although staying at a level well above the growth of the economy) without substantial intervention. It should be noted as well, that despite the rapidly burgeoning costs, many participants and providers in the scheme report dissatisfaction with how the scheme is being managed. While increases in spending in individual programs and areas are the measure of the increase in the size of government, this is not the root cause. The bigger issue is the culture of dependency and entitlement has taken root in the population and political behaviour has become only too willing to accommodate and encourage it. We have reached a point where a sizeable proportion of the voting age population - perhaps more than half - is dependent on government directly or indirectly through social benefits and employment for most of their income. It is difficult to see the current government reversing this trend without a major change of mindset. While there is some hope for the broader centre left of politics in movements like the "abundance agenda", left-wing parties across the Western world have become the parties of higher taxes and bigger government. Despite the political difficulties, the economic and social consequences of the growth in government spending and dependency on government will have to be faced one day. The economic consequences include the unrelenting pressure for more deficits and more debt, which will make the economy more vulnerable to future crises and the government less able to respond. Governments' insatiable appetite for revenue also creates more pressure for taxes to rise, which in turn saps incentives for work, saving and investment - and thereby potentially compounds the problem of weak productivity growth. The simple fact is that people respond to incentives. When the incentives encourage innovation, investment and ingenuity, people respond by increasing productivity. Our living standards grow. However, when the incentives encourage us to fight over the distribution of the pie, even as it shrinks, the rot of entitlement and waste sinks in. Turning this around will require more than a summit.
Sky News AU
15 hours ago
- Sky News AU
Australians should be ‘very afraid' of the Treasurer's economic roundtable
Sky News host Steve Price says Australians should all be 'very afraid' of what might come of next month's economic reform roundtable. Australia's ailing productivity will be the subject of the roundtable led by Treasurer Jim Chalmers next month where leaders across business, politics and unions will discuss the nation's poor growth. Economic and productivity reform was a lower priority during the Albanese government's first term, despite slow growth and the country sitting in a per capita recession.
