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Thursday, 5 November 2015

Fairness in Our Taxation System

We are currently hearing allot about our taxation system at the moment. Seems like the so-called national conversation is happening. Something that was very much absent in the previous incarnation of our federal government. But if this is what a national conversation looks like, then I am slightly underwhelmed by its process, let alone by its potential outcomes.

What I am really hearing is a government process of softening and filtering, where the discourse from government, frontbenchers and backbenchers alike, is really targeted at preparing the broader electorate for what perhaps could be a forgone conclusion. Perhaps I am getting very cynical about politicians, but then again, the last few years have probably prepared me well for higher than ordinary levels of cynicism.

One of the key descriptors in this 'debate' that is racing down the highway, is 'fairness' and 'equity' in our tax system. I feel that these words are being overdone with a sense that the more the word is used, the more it appears to be self-evident and the true driver of the 'tax debate".

Not so. Espousing these words and yet truly applying all considerations with regards tax to blowtorch of fairness and equity, would actually mean that our superannuation tax system would change drastically, as would our somewhat outdated and 'unfair' capital gains tax provisions. As would also, the strange array of corporate incentives that tend to allocate taxpayer largesse to the most inappropriate corporate beneficiaries.

It appears that fairness and equity must apply primarily to the GST, which by-the-way, it never can given the nature of what the GST targets and how it is calculated. Fairness and equity, however you define this, must apply to a complete rewrite of our tax system, not just elements thereof. From a sceptics perspective, it very much appears, despite whatever our politicians tell us, that the GST is the headline act, but there is much more that needs to be considered before placing at further risk, the most vulnerable in our community.

I suspect that the current debate, especially from the government's perspective, reflects deep underlying beliefs in a system or process that has been clearly debunked by an influential list of well regarded economists, the theory of 'trickle-down economics'.  Just to rehash, this theory espouses the notion that extra wealth being generated at the top of the wealth tree eventually makes its way down to the roots of the tree where we all benefit and live happier ever-after in an environment of growing economic prosperity. The only problem, and it is indeed a small problem that our government has an obvious ideological problem with in terms of recognising it to be a problem, is that it does not work.

This has been proven by the International Monetary Fund, where in its 2015 report entitled "Causes and Consequences of Income Inequality: A Global Perspective" wherein they state, in part, 
"...we show why policymakers need to focus on the poor and the middle class. Earlier IMF work has shown that income inequality matters for growth and its sustainability. Our analysis suggests that the income distribution itself matters for growth as well. Specifically, if the income share of the top 20 percent (the rich) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20 percent (the poor) is associated with higher GDP growth. The poor and the middle class matter the most for growth via a number of interrelated economic, social, and political channels." 

If we are going to continue down this facade of fairness and equality, perhaps the message is clear - focus our attention on the poorer and the middle class - that is where we are going to get the biggest 'bang for our buck'!

Shall we now continue with the so-called national conversation? If you can't find it, its in the press where all things fair and equitable are discussed.

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