Is Australia a ‘high taxing’ nation? What is the responsible answer?

• apply a system of “tax credits” to lower income earners while paying for the difference through a progressive restructuring of the PAYE income taxation system so as to come up with a result that is “revenue neutral”. Combined with the indexing of the bottom two income taxation brackets to eliminate bracket creep, such reform could move to eliminate poverty traps in the process of moving from welfare to work. Tax credits are superior to lifting the tax-free threshold as they target assistance to those most in need while denying tax relief to the wealthy;
   
• apply a 4 per cent “infrastructure tax” upon business with the aim of improving transport, communications, education and training, and other vital social and economic infrastructure necessary to our international competitiveness. Such a tax would still leave overall corporate tax rates in Australia lower than the US rate;
   
• restructure the Medicare Levy on a progressively scaled basis, with a highest bracket of 4.5 per cent and a low bracket of 1.5 per cent (four brackets in all in alignment with PAYE income tax rates - themselves restructured after the introduction of tax credits for low income earners) and introduce an Education Levy on the same basis. By making a directing link between taxation and priorities of expenditure, it is much easier to argue for increases in such taxation rather than arguing for increases in PAYE income taxation;
   
• introduce wealth and inheritance taxes for those with assets of $1 million and higher;
   
• repeal capital gains tax concessions;
   
• remove dividend imputation (refunds on the taxation shareholder dividends as compensation for company tax). As mentioned in a previous contribution of mine, in 2002 the wealthiest 20 per cent of Australians owned 90 per cent of all shares. This, if anything, should provide a rationale for this move in the interests of distributional justice and equity;
   
• impose a 1 per cent media diversification levy on all commercial media with the intent of raising capital for a “Media Diversification Fund”, with the purpose of achieving “equal opportunity of expression”. This was originally conceived of by John Matthews in his pamphlet, A Culture of Power; and
   
• introduce a “Tobin tax” on international financial transactions at the rate of 0.1 per cent with the intent of substantially improving government revenue and moving to tame financial market fluctuations.

Such programs ought not to be seen as being a drag on Australia’s “economic competitiveness”. High taxing Finland and Sweden are, after all, the first and third most competitive economies in the world. Furthermore, we ought to be sceptical of claims that “high taxation” is leading to a “brain drain” in Australia. This, certainly, is not the case in Western Europe and Scandanavia. Such claims are generally not backed by thorough research and ignore other causes for Australia’s diaspora - such as a simple desire to experience the world or to be “closer to the centre of world events”.

By comparison with Scandinavian and West European rates of taxation, the tax suggestions made in this paper are modest - but nevertheless they provide an ample starting point in the long road towards enhanced economic competitiveness, greater social equity and better social outcomes.

The alternative is to continue along the present course of never-ending neo-liberal “reform” with smaller government and lower taxes leading, in turn, to what John Kenneth Galbraith referred to as “private affluence” and “public squalor”: ever increasing levels of private consumption alongside the deterioration of public services and institutions.

Rather than moving towards residual and second-class systems of public health care and education alongside heavily publicly-subsidised private systems, further accentuating class divisions, we need, like the Scandinavians to move towards the principle of universality and “solidaristic” taxation. This necessarily involves thorough-going tax reform.

The “safety net” approach to social services including health that emerges as a consequence of cuts in taxation, so favoured by the conservatives, merely invites the resentment of an “aspirational” class which enjoys benefits such as private health insurance, and does not wish to share in the costs of a system it does not use. This “vicious cycle” leads only to further tax cuts, further budget cuts, and the further marginalisation of public services and those who depend upon them. This is a process of “divide and rule”, and the conservatives are thoroughly culpable for the social crises they reap as a consequence of such policies.

Taxation, ultimately, is not merely about the budget bottom line. It is about the kind of society we build for ourselves: inclusive or exclusive, humane or barbaric, egalitarian or divisive. The Labor Party needs, now, to break with the politics of opportunism on tax, returning, once more, to represent its core support base, and to popularise tax reform among the broader community on the basis of improved social services provided universally to all Australians.

Watching Kim Beazley at the National Press Club recently, the Labor leader seemed to promise everything - including tax cuts to those on $60,000 a year and higher. Pitching his address to so-called “middle Australia” - supposedly those on about $55,000 a year - Beazley had little to say on how Labor’s taxation policies would benefit those on lower incomes.

As On Line Opinion writer, Andrew Leigh argued in March, “income of the median Australian adult is just $26,000 per year”. How will these people benefit from Beazley’s tax cuts, and how will Beazley afford significant improvements in social services while maintaining his established commitment to a budget surplus throughout the economic cycle?

You can’t afford significant boosts to expenditure in vital areas without progressive tax reform including tax increases in some areas - and this is the message that needs to become the “common sense” of the ALP well before the next election, with or without Beazley as leader.