What should a real Labor Budget look like?

To that end we need to dramatically alter the taxation system, which presently encourages debt financing of industry and by default makes Australian industry subject to the whims of international finance.

A key step is to create industry investment funds under the control of trustees comprised of equal representation of workers and employers.

These funds would operate on a voluntary basis where up to 15 per cent of pre tax income can be deposited into the industry funds. Each entity that deposits funds would be guaranteed a return of official interest rates +2 per cent.

This capital would be available for socially responsible investment in Australia to advance the entities’ commercial interests. In other words capital from this fund could not be used to purchase corporate jets or be used on swanky executive retreats. However it could be used on research and development, purchasing new technology, and so on. The guidelines would be broad to give appropriate flexibility but firm enough to ensure the funds are utilised for increasing the long term welfare of the entity.

To this end the contributions, earnings and any capital gain from these funds would be tax free. The establishment of the fund would enable a rationalisation of depreciation schemes and other investment schemes with tax implications.

The funds would be required to keep an actuarial determined reserve, with the surplus available to be invested to improve physical and human infrastructure associated with the industry.

Resources boom and tax reform

The failure of the Howard/Costello government to make structural reform to resource taxation will haunt future generations of Australians.

Taxation of resources is based on a simple flat levy on either the quantity or market value of the resource. On significant projects this leads to a massive under taxation and for marginal projects a significant over taxation to the point the projects may become unviable.

So in the boom periods resource companies enjoy supraprofits.

What is required is the introduction of a resource rent tax system. Essentially calculations are made as to what is a reasonable rate of return and profits above that rate are subject to taxation. The administrative costs involved would require that the scheme be administered by the Commonwealth. The Commonwealth would reimburse states in untied grants what their previous royalty regimes would have raised and the additional revenue would be placed in an infrastructure fund to invest in water, energy, transport and ICT with an emphasis on improving infrastructure in mining regions or to facilitate the opening of mining regions up for development.

Negative gearing

The drain on revenue due to negative gearing is the major stumbling block in funding the ageing population but it is the elephant in the room that no one wants to discuss.

Estimates place the drain between $7 billion and $10 billion a year and it is growing. A real Labor Treasurer would address this revenue drain before contemplating denying ordinary working people access to the age pension for another two years.