Here’s a novel reform idea – tax the rich

Cutting company tax rates reflects Labor’s continuing acceptance of a neoliberal agenda when it comes to tax reform. AAP

The introduction of the Minerals Resource Rent Tax into federal parliament marks the next step in Labor’s neoliberal tax reform agenda.

Another example, the carbon tax, is poised to pass through the Senate soon.

The carbon tax is a pricing mechanism, born of the mistaken idea that the market can solve the environmental problems that are systemic to a society organised around production for profit.

It is designed to ensure the long term tax burden of climate change falls on labour, not capital.

The end result of the carbon tax will be to lock in gas-fired power stations for decades and spur coal gas seam exploration (CSGE) even more.

That is why independent MP Tony Windsor has picked the wrong target in linking his vote for the Minerals Resource Rent Tax to the government taking some sort of action on (not against) CSGE.

He should have opposed the carbon tax and the explosion (excuse the pun) of CSGE it has and will continue to encourage.

Henry Review

Last May the Government released the Henry Tax Review and its 138 tax reform recommendations.

The decline of social democracy as any sort of guiding principle or practice for Labor saw

The ALP Government adopted only a few of these recommendations - I would argue as a consequence of the decline of social democracy as any sort of guiding principle or practice for Labor - one of which, the Resource Super Profits tax, destroyed Kevin Rudd as Prime Minister.

The RSPT’s mini-me successor, the Minerals Resource Rent Tax, is a capitulation to the vested interests of mining capital and rent seeking.

Ken Henry at least realised that the wealth of the 1% requires some sort of social spending on services for the 99% - such as public health, education and transport - as well as the creation of a sense of equity, even if wealth is in fact being distributed increasingly unequally to the richest sectors of society.

For that reason, and given the demographic, economic and environmental challenges facing Australian capitalism, Henry made recommendations about broadening the base for income taxes, an increased reliance on consumption taxes (such as increasing the GST and including fresh food, health and education) and a move to taxing resource rents and increasing reliance on land taxes.

The mantra of cutting company tax

The recently concluded Tax Forum shows the likely direction of both the major parties of neoliberalism.

Cutting company tax rates is the mantra and that was certainly the case at the Tax Forum and from both the Government and the Coalition.

Cutting company tax rates has a fine pedigree of success. Just ask Ireland, with a much lauded company tax rate of just 12.5% on trading income - before its economy imploded.

The search for a more effective income tax base for companies in which only those earning super profits are taxed looks like it might be the new Holy Grail for neoliberalism.

Given that 60% of companies were non-taxable according to the latest ATO tax statistics, one wonders then why a proposal like the allowance for corporate equity (ACE) is necessary.

Such an allowance would give a nominal deduction against assessable income calculated on the value of the company’s assets, to which a certain rate of return is applied.

This effectively means that companies earning less than the set rate of return would pay no tax.

If that rate of return, for example, were the low risk average corporate bond rate, or long term government bond rate, it could be set at around 7%.

Many companies do not earn this rate and so would pay no income tax. The question would then be: how do you make up for the shortfall in company revenue?

Choice of the 1%

If the choice for the 1% is cuts to social spending or taxing those whose rate of return is above the fixed rate, which one do you think the parties of neoliberalism and their cheer squads across, business, academia, the media and public service will opt for?

Treasurer Wayne Swan, has asked the newly formed Business Tax Reform Group to look at the ACE option and report back to him by the end of next year on it and other business tax reform options, for example cutting company tax rates.

More long term, neoliberal governments may be forced to look at expanding the mini-me resource rent tax. They may look more closely too at the Henry Report recommendations for a broad based land value tax.

Such a tax is efficient compared to other taxes, and simple (assuming there are few exemptions). It would capture economic rents. It would however probably see government lose office because it would include owner-occupied land.

The growing equality gap

Yet it is an important part of the Henry analysis because it allows the ongoing shift of the burden of tax from capital to labour to occur, even if it captures some value from the rich.

The Occupy movement has highlighted the incredible disparity in wealth around the world.

According to the ACTU, the richest 20% of Australians possess over 60% of the wealth.

The poorest 20% own around 1% - and the gap is growing.

Tax could be one of a number of mechanisms for redistribution of our wealth from the rich to the poor. Nothing in the current tax reform debate steps outside the boundaries of neoliberalism and market based solutions and will in fact accelerate the wealth transfer from labour to capital.

The time has come to challenge the dominance of the 1% in setting tax policy and law. Tax the rich.