tag:theconversation.com,2011:/uk/topics/tax-forum-1462/articlesTax Forum – The Conversation2016-01-26T12:34:49Ztag:theconversation.com,2011:article/536692016-01-26T12:34:49Z2016-01-26T12:34:49ZIf you want Google to pay more tax, change the law<figure><img src="https://images.theconversation.com/files/109175/original/image-20160125-19645-1bf7av2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Fotos593 / Shutterstock.com</span></span></figcaption></figure><p>Globalisation – and the global economic crisis – have contributed to the erosion of national tax bases and in recent years some of the biggest multinationals, among them Apple, Vodafone, Amazon, Google, Starbucks and Microsoft, have been scrutinised for their aggressive tax planning practices. Using (among other techniques) transfer pricing, inter-company lending, royalty payments for licensing agreements, cost-sharing agreements and offsetting group losses, multinational groups can achieve very low effective tax rates. </p>
<p>The ability to shift profits into low or no-tax jurisdictions with little corresponding change in business operations has also been criticised. Fuelled by <a href="http://www.theguardian.com/business/taxavoidance,">media attention</a> the reporting of these practices has in some countries led to <a href="http://www.mirror.co.uk/news/uk-news/tax-avoidance-soars-35billion-under-2362328">public outcry</a> and politicians seem to have jumped on this bandwagon.</p>
<p>Google’s £130m tax deal with HMRC is the latest instalment in a “UK vs Google” saga. Google’s encounters with the UK’s parliamentary public accounts committee had already been recorded in a report: “<a href="http://www.parliament.uk/business/committees/committees-a-z/commons-select/public-accounts-committee/news/tax-avoidance-google/">Tax Avoidance – Google</a>. At the time, the committee questioned how Google, which generated US$18 billion (£12.6 billion) in revenue from the UK between 2006 and 2011, could only pay the equivalent of just US$16m (£11.2m) of UK corporation taxes in that same period. </p>
<p>The company used the now-defunct <a href="http://www.economist.com/news/finance-and-economics/21625876-irish-government-plans-alter-one-its-more-controversial-tax">"double Irish” structure</a> to achieve these low effective tax rates. Central to Google’s tax planning was the position that sales of advertising space to UK clients took place in Ireland. The public accounts committee found this “<a href="http://www.parliament.uk/business/committees/committees-a-z/commons-select/public-accounts-committee/news/tax-avoidance-google/">deeply unconvincing</a>” back in 2013. But arguments against Google’s position relied on concepts of morality and fairness rather than clear tax rules – and this is the problem. </p>
<p>Google has now agreed to pay £130m in back taxes. To put this into context, consider that Google made more than £3 billion in UK sales in 2013 alone. Some (mainly the chancellor of the exchequer and HMRC) <a href="http://www.mirror.co.uk/news/uk-news/downing-street-refuses-back-george-7242096">see this as a big success</a>, while <a href="http://www.bbc.co.uk/news/uk-35390692">others have labelled it</a> as “derisory” and “a sweetheart deal”.</p>
<p>These stories provide fertile ground both for the government and the opposition to raise the stakes: the government is arguing that it is doing more to curb tax avoidance than previous (Labour) governments and the opposition is arguing that this government is not doing enough.</p>
<h2>Letter of the law</h2>
<p>What underpins the whole anti-Google, anti-Starbucks, anti-Vodafone rhetoric is the idea that multinationals should follow the spirit and not just the letter of the law – and pay taxes accordingly. This is buttressed by an overriding concept of “tax morality” or “tax justice” which trumps the actual legislation. </p>
<p>By contrast, what underpins the comments of those who defend the tax planning practices of these multinationals is the idea that legality and illegality is determined according to whether or not they complied with the law. If people disapprove of tax planning practices, whether perceived to be aggressive or not, but still legal, then they should press their governments to change the relevant tax laws.</p>
<p>You can understand why words like “morality”, “fairness” and “justice” are attractive in this context, but the reality of the situation is that most of these instances of aggressive tax planning (or stateless income, <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1791769">as coined in the US</a>) are not technically illegal. In other words, current domestic tax laws and the vague non-binding principles of international tax law seem to facilitate such tax planning – some might even say, encourage it.</p>
<h2>New initiative</h2>
<p>What has clearly emerged in the last few years of “tax crusades” is the inadequacy and unsuitability of existing principles of international tax law to deal with the internationalisation of business. Some argue that existing tax rules on jurisdiction in particular need to be adapted to new business models such as digital. Others argue that existing principles are sufficient but there is discord as to how tax authorities ought to apply them. </p>
<p>The OECD/G20, in the context of its <a href="http://www.oecd.org/ctp/beps.htm">Base Erosion and Profit Shifting (BEPS)</a> project, has tried to find solutions to some of these issues through consensus – something initially thought of as nearly impossible. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/109178/original/image-20160125-19680-x14hdc.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/109178/original/image-20160125-19680-x14hdc.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=365&fit=crop&dpr=1 600w, https://images.theconversation.com/files/109178/original/image-20160125-19680-x14hdc.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=365&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/109178/original/image-20160125-19680-x14hdc.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=365&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/109178/original/image-20160125-19680-x14hdc.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=459&fit=crop&dpr=1 754w, https://images.theconversation.com/files/109178/original/image-20160125-19680-x14hdc.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=459&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/109178/original/image-20160125-19680-x14hdc.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=459&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The OECD launched its BEPS action plan on multinational tax minimisation in 2015.</span>
<span class="attribution"><span class="source">OECD</span></span>
</figcaption>
</figure>
<p>However, to the surprise of some, the OECD did meet its deadlines and produced recommendations for the issues raised in an <a href="http://www.oecd.org/ctp/BEPSActionPlan.pdf">action plan</a>. These recommendations were set out in the final reports it <a href="http://www.oecd.org/ctp/beps-2015-final-reports.htm">published in October 2015</a>. Whether the BEPS project will make it easier (and more transparent) for tax authorities to tackle aggressive tax planning <a href="https://theconversation.com/double-trouble-why-landmark-oecd-tax-reform-is-doomed-before-it-starts-48115">remains to be seen</a>. However the international tax community, through the OECD/G20, is making an effort to address existing problems and should be at the very least congratulated for its efforts and encouraged to continue.</p>
<p>The European Union has also been at the forefront of these developments. While most associate the European Union with open borders and market liberalisation – with member states’ budgetary concerns of secondary importance – the European Commission has seized on this unique political momentum to further its agenda. The various commission action plans and recommendations evince the inception of a strong <a href="http://www.ft.com/cms/s/0/dfd1f942-733a-11e5-bdb1-e6e4767162cc.html">EU policy against international tax avoidance</a>. The <a href="http://europa.eu/rapid/press-release_STATEMENT-15-5881_en.htm">recent state aid actions</a>, also spearheaded by the commission – which prevent national governments from giving corporations “an unfair competitive advantage” – seem to corroborate this.</p>
<p>Whether or not one agrees with the EU’s – some would say slightly overkill – approach, it should nevertheless remain a priority for those working in tax to address the inadequacy of the existing rules with new or refined rules and principles – not with the injection of vague notions of morality and fairness. The UK has made a valiant attempt to (partially) address the problems with its <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/385741/Diverted_Profits_Tax.pdf">Diverted Profits Tax</a> also known as “Google Tax”. This legislation broadly allows HMRC (under certain circumstances) to tax the profits of multinationals arising from business activities taking place in the UK when there is no taxable presence, because of contrived arrangements diverting these profits from the UK.</p>
<p>While this unilateral stance has been criticised for going against the spirit of multilateralism in the BEPS project, it is a welcome example of rules – some would say imperfect rules – filling in the gaps of the international tax system. The enemy is not just complacency – it is also uncertainty and vagueness.</p><img src="https://counter.theconversation.com/content/53669/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Christiana HJI Panayi does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Pointing the finger at multinationals for tax minimisation won’t change things – international tax law needs to changed.Christiana HJI Panayi, Senior Lecturer in Tax Law, Queen Mary University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/37172011-10-05T19:52:07Z2011-10-05T19:52:07ZMissed anything from the Tax Forum? Catch up here…<figure><img src="https://images.theconversation.com/files/4138/original/henry.jpg?ixlib=rb-1.1.0&rect=135%2C96%2C4023%2C2689&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Ken Henry at the Tax Forum: talkfest or useful? </span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>So the Tax Forum is done and dusted. Was it simply a talk-fest? Or a useful exchange of ideas? We’ll have to wait and see.</p>
<p>In the meantime, if you missed anything, don’t despair: we’ve collected some of Australia’s best academic thinking on taxation reform for you here.</p>
<hr>
<p><strong>Frank Stilwell, Professor in the Department of Political Economy, University of Sydney</strong> suggests a Warren Buffett-style overhaul to tax the wealthy and other good ideas:</p>
<p>“Buffett has pointed out that he pays a smaller share of his total income in tax than his secretary does. This is largely because incomes from labour are taxed more highly than incomes from capital.</p>
<p>Taxes on capital gains and dividends tend to be lower than taxes on wages, and the wealthy get most of the income from capital. No wonder economic inequalities are increasing.”</p>
<p><a href="http://theconversation.com/tax-forum-overcoming-private-affluence-and-public-squalor-3664"><em>Read more here</em></a></p>
<p><strong>Miranda Stewart, co-Director of Taxation Studies, Melbourne Law School at University of Melbourne</strong>, on the argument for eliminating stamp duties and introducing a broad-based land tax:</p>
<p>“Tax reform for housing is hard, because it affects so many of us and because it involves both the federal income tax and many state taxes.</p>
<p>That is also why it is important. A "package” approach is needed, in which the federal government will support state governments to reform their systems.</p>
<p>Reforms to improve the taxation of housing would fix some of the worst problems in our state tax systems, and would make our income tax fairer and more neutral in its treatment of different kinds of income and investment.</p>
<p>A tax reform that rebalances the system to tax housing assets more neutrally and fairly can make a significant contribution to improving housing fairness, efficiency and affordability.“</p>
<p><a href="http://theconversation.com/housing-and-tax-why-is-reform-so-hard-3300"><em>Read more here</em></a></p>
<p><strong>Peter Whiteford, Professor, Social Policy Research Centre at University of New South Wales</strong>, argues inequalities in the social security system must be urgently tackled: </p>
<p>"Almost 50 cents of every dollar spent by governments in Australia goes on social spending – either social security or health and community services. This week’s tax forum must reform the system, as the taxation and transfer systems are the two main ways governments reduce inequality and poverty.</p>
<p>The Henry Review and the Harmer Pension Review between them provided the most detailed analysis of Australia’s social security system looking not only at the interactions between the two systems, but also analysing specific social security policy issues in their own right.”</p>
<p><a href="http://theconversation.com/tax-forum-make-the-social-security-system-fair-3640"><em>Read more here</em></a></p>
<p><strong>John Freebairn, Professor of Economics, University of Melbourne</strong>, gives the expert view on why the GST will inevitably be reformed, even if it’s not tackled this time:</p>
<p>“While changes to the GST are not an explicit item on the Tax Forum agenda, they should be and the issue will arise anyway.</p>
<p>A broad and comprehensive GST tax base along the lines of the New Zealand model would provide gains in efficiency and simplicity.</p>
<p>Recycling revenue gains from a broader base GST and an increase in the GST rate to replace more distorting state stamp duties and some income tax would provide further efficiency gains.</p>
<p>A larger revenue-earning GST would help reduce vertical fiscal imbalance and some of the inefficiencies of current commonwealth-state financial relations.”</p>
<p><a href="http://theconversation.com/tax-forum-gst-needs-changing-so-lets-debate-it-3358"><em>Read more here</em></a></p>
<p><strong>John Langmore, School of Social and Political Sciences, University of Melbourne</strong>, on the reasons why Treasurer Wayne Swan should follow Europe’s lead in considering a financial transactions tax:</p>
<p>“It would be timely for the Australian Government to review its knee-jerk agreement with the US in opposing the proposal.</p>
<p>If Treasurer Wayne Swan would like to generate additional revenue in the least controversial way, he would do well to join Germany, France and the rest of the European Community – as well as many countries in the developing world – in supporting a global FTT.”</p>
<p><a href="http://theconversation.com/the-eus-adopting-a-financial-transactions-tax-so-why-dont-the-rest-of-us-3533"><em>Read more here</em></a></p>
<p><strong>Ian Winter, executive director, Australian Housing and Urban Research Institute</strong>, on how the Tax Forum could be an opportunity for the brave to put forward reforms for our property industry:</p>
<p>“A series of tax settings – such as limiting negative gearing and replacing state-levied stamp duties with a broad-based land tax – were identified by the recent Henry Tax Review, but are considered politically difficult.</p>
<p>Yet new research by the Australian Housing and Urban Research Institute’s Professor Gavin Wood provides early evidence that the Henry Review’s recommendations would have a positive impact.</p>
<p>Limiting negative gearing provisions for residential landlords would likely see an increase in the supply of private rental accommodation from "equity investors”, such as superannuation funds.</p>
<p>Henry’s proposal to replace stamp duty with a broad-based land tax levied on an individual rather than aggregate basis could also see prices drop by up to 10%.“</p>
<p><a href="http://theconversation.com/tax-forum-reforming-how-property-is-taxed-means-well-tackle-affordability-3469"><em>Read more here</em></a></p>
<p><strong>John Passant, senior lecturer in tax law, Faculty of Law, Canberra University</strong>, on the quiet tax powerhouse that is the local government sector:</p>
<p>"Why is local government important? It is democratic, transparent and performs a vital delivery role for many basic services, from roads and road maintenance to water supply and sewerage, community facilities like swimming pools, public halls and libraries, aged care facilities, stormwater drainage, waste management, natural resource management and emergency and disaster response and relief.</p>
<p>It’s economic impact too is huge. The sector employs more than 185,000 people. It owns fixed assets and land worth more than $300 billion. It raises over $32 billion in revenue. That is 3% of Australia’s total tax take. It spends over $27 billion.”</p>
<p><a href="http://theconversation.com/tax-forum-the-overlooked-role-of-local-government-in-tax-reform-3474"><em>Read more here</em></a></p>
<p><strong>Keith Kendall, Senior lecturer in tax law, School of law, La Trobe University</strong>, on why lifting the GST exemption of basic foods is a good idea:</p>
<p>“As everyone needs to eat, then at least basic food should be exempted so that food prices are lowered and lower income families are given a helping hand.</p>
<p>Exempting food in this way, though, is far from the best way of achieving the desired result of helping such people. One outcome is that the exemption may actually cost more than the benefits it produces.”</p>
<p><a href="http://theconversation.com/tax-forum-the-gst-exemption-should-come-off-food-3275"><em>Read more here</em> </a></p>
<p><strong>Eva Cox,research fellow at UTS</strong>, on whether there should be tax exemptions for high incomes women to subsidise nannies:</p>
<p>“Some very well-paid women want to use the Tax Forum to press the government to substantially subsidise the costs of nannies by allowing their costs to be tax deductible.</p>
<p>They claim this is essential to allow some high-income skilled women to return to their full time paid work.</p>
<p>But this suggested change to child-care subsidies raises some interesting questions about the purpose of this type of government funding, as well as possibly exposing children to lesser levels of care.</p>
<p>It may also encourage powerful women to exploit many less powerful ones.”</p>
<p><a href="http://theconversation.com/tax-forum-should-nannies-for-high-income-women-be-subsidised-3582"><em>Read more here</em></a></p>
<p><strong>Richard Eccleston, Associate Professor, Political Science, University of Tasmania</strong>, on why we shouldn’t expect too much to come out of the Tax Forum - and why that’s not such a bad thing:</p>
<p>“Expectations for the upcoming Tax Forum – which I am attending – may be modest, and the prospects for near-term reform may be low, but it is important to recognise that building political support for contentious and complex tax packages takes years rather than months.</p>
<p>In this context, the Tax Forum should be regarded as an opportunity to build the political foundations for the next round of tax reform.</p>
<p>Fortunately, the forum is not starting from scratch. There is both a growing recognition among experts and awareness among the voting public that tax reform is required.”</p>
<p><a href="http://theconversation.com/tax-forum-critical-reform-is-worth-the-effort-and-the-wait-3468"><em>Read more here</em></a></p><img src="https://counter.theconversation.com/content/3717/count.gif" alt="The Conversation" width="1" height="1" />
So the Tax Forum is done and dusted. Was it simply a talk-fest? Or a useful exchange of ideas? We’ll have to wait and see. In the meantime, if you missed anything, don’t despair: we’ve collected some of…Helen Westerman, Business + Economy EditorLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/36642011-10-03T19:39:43Z2011-10-03T19:39:43ZTax Forum: overcoming private affluence and public squalor<figure><img src="https://images.theconversation.com/files/4048/original/bigissue.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Income inequality is a big issue for Australia, but tax reform offers many solutions.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>What can we expect from the Tax Forum at Parliament House today and tomorrow?</p>
<p>We may anticipate consensus that the tax system should be efficient, fair, understandable and effective in raising the revenue needed to pay for good public services and infrastructure. But the participants are unlikely to agree on who should pay the most.</p>
<p>The Gillard Government won’t want to embrace anything radical anyway. It presumably thinks it has more than enough on its hands implementing the proposed carbon tax and mining tax proposals.</p>
<p>The prospect of Opposition leader Tony Abbott parroting <a href="http://www.tonyabbott.com.au/LatestNews/PressReleases/tabid/86/articleType/ArticleView/articleId/7371/Joint-Press-Release--Coalition-to-protect-the-Australian-economy-from-another-great-big-new-tax.aspx">“another big new tax”</a> if any further reform is proposed is all too predictable, but no less constraining.</p>
<p>Yet some fundamental consideration of tax reform would be thoroughly appropriate in the current economic conditions. </p>
<p>Economic inequalities are growing. We’ve got a mining boom that is benefitting some but disadvantaging others.</p>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/4055/original/swanforum.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/4055/original/swanforum.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=902&fit=crop&dpr=1 600w, https://images.theconversation.com/files/4055/original/swanforum.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=902&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/4055/original/swanforum.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=902&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/4055/original/swanforum.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1133&fit=crop&dpr=1 754w, https://images.theconversation.com/files/4055/original/swanforum.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1133&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/4055/original/swanforum.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1133&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Treasurer Wayne Swan is unlikely to want any new, controversial tax proposals.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure>
<p>Further afield, the global economy is on a continuing roller-coaster ride of unsustainable debt and systemic instability. </p>
<p>So what should be done? </p>
<h2>Financial transactions tax</h2>
<p>An <a href="http://theconversation.com/the-eus-adopting-a-financial-transactions-tax-so-why-dont-the-rest-of-us-3533">international financial transactions tax</a> could help to rein in the speculative tendencies that have led to such a wild ride in financial markets.</p>
<p>A more <a href="http://theconversation.com/housing-and-tax-why-is-reform-so-hard-3300">broadly based Australia-wide land tax </a>could help to reduce the speculative tendencies that have been driving land prices up and widening the inequalities between homeowners and the rest. </p>
<p>A broader resource rent tax could help to return more of the phenomenal wealth arising from the extraction of resources to the people as a whole. </p>
<p>And estate duties could help to create more inter-generational equity. As I have <a href="http://theconversation.com/why-we-should-put-an-inheritance-tax-back-into-the-spotlight-1634">previously pointed out</a>, Australia is unusual in having no tax on inherited wealth. </p>
<p>All that may sound like it is coming from the left end of the political spectrum, but support has recently come from some surprising on the right. </p>
<p>Conservative European leaders, such as French President Nicolas Sarkozy and German Chancellor Angela Merkel, have spoken out in favour of the financial transactions tax. European Commission President Jose Manuel Barroso last week <a href="http://www.ft.com/intl/cms/s/0/19c46aca-e9ad-11e0-adbf-00144feab49a.html#axzz1ZfM3khj8">proposed</a> that the tax be used as a means of overcoming the Eurozone’s debt crisis. </p>
<p>A recent International Monetary Fund <a href="http://www.imf.org/external/pubs/ft/wp/2011/wp11185.pdf">recent report</a> also signals acceptance of the tax’s potential value in creating more economic stability. </p>
<p>Levied at a small percentage on trades in foreign exchange, it would discourage short-term speculation without having significant impacts on long-term investment. Its proponents have labeled it the “<a href="http://robinhoodtax.org/">Robin Hood tax</a>” because its effects would be conducive to progressive income redistribution on a global scale.</p>
<h2>Buffett Tax</h2>
<p>Perhaps even more newsworthy is <a href="http://www.nytimes.com/2011/08/15/opinion/stop-coddling-the-super-rich.html">the call</a> by the American multi-billionaire Warren Buffett for very rich people to pay more tax. </p>
<p>Buffett has pointed out that he pays a smaller share of his total income in tax than his secretary does. This is largely because incomes from labour are taxed more highly than incomes from capital. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/4046/original/buffett.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/4046/original/buffett.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=847&fit=crop&dpr=1 600w, https://images.theconversation.com/files/4046/original/buffett.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=847&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/4046/original/buffett.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=847&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/4046/original/buffett.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1065&fit=crop&dpr=1 754w, https://images.theconversation.com/files/4046/original/buffett.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1065&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/4046/original/buffett.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1065&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Billionaire Warren Buffett has called for more taxes on the rich.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure>
<p>Taxes on capital gains and dividends tend to be lower than taxes on wages, and the wealthy get most of the income from capital. </p>
<p>No wonder economic inequalities are increasing.</p>
<p>Buffett suggests that an equitable tax system would ensure that wealthy people never pay a lower overall tax rate than people on average incomes. </p>
<p>Sounds fair, doesn’t it? </p>
<p>President Obama seems keen to take up the challenge, <a href="http://www.forbes.com/sites/beltway/2011/09/22/obamas-buffett-rule-keep-your-eye-on-capital-gains/">proposing a minimum tax rule</a> that would require anyone with an annual income of over a million dollars to pay at least the average tax rate. </p>
<p>It won’t resolve the US administration’s debt woes, but it may signal an end to the acceptance of neoliberal orthodoxies that have favoured cutting the taxes for the rich.</p>
<p>A stronger version of the same sort of reasoning would reduce the gap between after-tax incomes for the wealthy and the poor. </p>
<p>For example, what if the tax system were changed so that the ratio of the highest and lowest 10% of household incomes never exceeded, say, ten to one? </p>
<p>That would still allow for strong economic incentives and capital accumulation for those so inclined. But it would set limits on overall economic inequality. </p>
<p>Australian society would probably be happier as a result – after the initial shock had worn off! </p>
<p>International comparisons show nations with greater income equality generally have happier societies, with lower incidence of ill-health, crime and array of social problems.</p>
<h2>Environmental benefits</h2>
<p>A reformed tax system could also contribute to reducing ecological stresses. </p>
<p>Creating a more sustainable society requires taxes to discourage exploitative use of natural resources, thereby steering the economy towards a more harmonious relationship to the physical environment. </p>
<p>A carbon tax is based on that principle. A more fundamental reform would be to tax the incomes arising from the use of the resources themselves.</p>
<p>Land is the most basic natural resource. However, its private ownership and use as a vehicle for capital accumulation has become a major source of unearned incomes, wealth inequalities, speculation and economic inefficiency. </p>
<p>The problem of unaffordable housing for many Australians is, at root, a problem of land prices. </p>
<p>Current tax arrangements, including exemption of owner-occupied properties from capital gains and land taxes and the existing negative-gearing arrangements, create incentives to invest in land in pursuit of capital gain without productive effort, driving prices up. </p>
<p>Much of the fruits of economic progress, particularly in the larger urban areas, is privately appropriated in this way. </p>
<p>More comprehensive national land taxation could capture more of that socially generated wealth for public purposes.</p>
<h2>Mining tax</h2>
<p>Broadly based resources rental taxation has a similar rationale. </p>
<p>The growth of private mining-based wealth has been prodigious in recent years as a result of rapidly rising commodity prices.</p>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/4050/original/miningtax.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/4050/original/miningtax.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=903&fit=crop&dpr=1 600w, https://images.theconversation.com/files/4050/original/miningtax.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=903&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/4050/original/miningtax.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=903&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/4050/original/miningtax.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1135&fit=crop&dpr=1 754w, https://images.theconversation.com/files/4050/original/miningtax.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1135&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/4050/original/miningtax.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1135&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The government caved-in to anti-mining tax protests.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure>
<p>But the boom has created adverse macroeconomic and distributional effects, notwithstanding the short-term boost to wages and profits in the mining sector. </p>
<p>The rise in the currency exchange rate has disadvantaged businesspeople and workers in many manufacturing and service industries.</p>
<p>Of course, the Gillard Government is now trying to capture more of the minerals-based wealth, but its proposed mining tax has turned out to be extraordinarily modest relative to the total income flows. </p>
<p>The proposal for a more comprehensive resource rental tax needs to be revisited in these conditions, notwithstanding the evident power of the corporate interests involved.</p>
<p>In general, globalisation makes it more necessary to develop a wealth-based tax system. </p>
<p>The system needs to focus more on immobile sources of wealth, like land and natural resources, that are difficult to conceal from tax collectors.</p>
<p>It also needs to target speculative international financial transactions that undercut the capacity of national governments to manage their economies and provide for the broader needs of society. </p>
<p>Without significant tax reform we can expect growing economic and social imbalance – what the great Canadian political economist <a href="http://www.washingtonpost.com/wp-dyn/content/article/2006/04/30/AR2006043000422.html">John Kenneth Galbraith</a> termed the trend to “private affluence and public squalor”. </p>
<p>While it would be “pie in the sky” to expect the Tax Forum to tackle all these profound issues, it should be a first step towards discussing how we can collectively create a more equitable and sustainable society.</p>
<p><em>Frank Stilwell is a Tax Forum delegate.</em></p>
<p><em><strong>Read more of our Tax Forum coverage:</strong></em></p>
<p><a href="http://theconversation.com/housing-and-tax-why-is-reform-so-hard-3300">Housing and tax: why is reform so hard?</a></p>
<p><a href="http://theconversation.com/tax-forum-make-the-social-security-system-fair-3640">Make the social security system fair
</a></p>
<p><a href="http://theconversation.com/tax-forum-critical-reform-is-worth-the-effort-and-the-wait-3468">Critical reform is worth the effort - and the wait</a> </p>
<p><a href="http://theconversation.com/tax-forum-should-nannies-for-high-income-women-be-subsidised-3582">Should nannies for high income women be subsidised?</a></p>
<p><a href="http://theconversation.com/tax-forum-reforming-how-property-is-taxed-means-well-tackle-affordability-3469">Reforming how property is taxed means we’ll tackle affordability</a></p>
<p><a href="http://theconversation.com/tax-forum-the-overlooked-role-of-local-government-in-tax-reform-3474">The overlooked role of local government in tax reform</a></p>
<p><a href="http://theconversation.com/tax-forum-the-gst-exemption-should-come-off-food-3275">The GST exemption should come off food</a></p>
<p><a href="http://theconversation.com/tax-forum-gst-needs-changing-so-lets-debate-it-3358">The GST needs changing, so lets debate it</a></p>
<p><a href="http://theconversation.com/the-eus-adopting-a-financial-transactions-tax-so-why-dont-the-rest-of-us-3533">The EU’s adopting a financial transactions tax, so why don’t the rest of us?</a></p><img src="https://counter.theconversation.com/content/3664/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Frank Stilwell does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>What can we expect from the Tax Forum at Parliament House today and tomorrow? We may anticipate consensus that the tax system should be efficient, fair, understandable and effective in raising the revenue…Frank Stilwell, Professor, Department of Political Economy, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/36402011-10-03T03:59:52Z2011-10-03T03:59:52ZTax Forum: Make the social security system fair<figure><img src="https://images.theconversation.com/files/3995/original/Wheelchair_dominikgolenia.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Carers lose out in the current welfare system.</span> <span class="attribution"><span class="source">Flickr/dominikgolenia</span></span></figcaption></figure><p>Almost 50 cents of every dollar spent by governments in Australia goes on social spending - either social security or health and community services. This week’s <a href="http://www.futuretax.gov.au/content/Content.aspx?doc=TaxForum.htm">tax forum</a> must reform the system, as the taxation and transfer systems are the two main ways governments reduce inequality and poverty.</p>
<p>The <a href="http://taxreview.treasury.gov.au/Content/Content.aspx?doc=html/home.htm">Henry Review</a> and the <a href="http://www.fahcsia.gov.au/about/publicationsarticles/corp/BudgetPAES/budget09_10/pension/Pages/PensionReviewReport.aspx">Harmer Pension Review</a> between them provided the most detailed analysis of Australia’s social security system looking not only at the interactions between the two systems, but also analysing specific social security policy issues in their own right. </p>
<p>The Henry Review recognised that:
“A 21st century tax and transfer system should reflect the commitment to Australian values of fairness and support for those who are disadvantaged, but do so in a way that is efficient, sustainable, simple and transparent, and internally consistent” </p>
<p>Although it concluded the broad architecture of the transfer system was well suited to these goals, reflecting <a href="http://taxreview.treasury.gov.au/content/Content.aspx?doc=html/conference.htm">effective targeting</a> of support to low income households, the Report identified a number of weaknesses: the system is overly complex, can treat those of similar means differently, and can result in people making choices that potentially undermine long-term wellbeing. Henry noted that setting payment levels and the design of payments could be improved to provide incentives to participate in the workforce. </p>
<p>Many issues raised by the Henry Review are long-term and should be debated and analysed comprehensively before reforms are introduced. </p>
<p>Other issues are more urgent and should be acted on as a matter of priority.</p>
<p>The system needs to minimise adverse incentives to work and save. It should treat different types of households equitably, and be politically and economically sustainable. But, if payments are not adequate, the system is not meeting its primary objective.</p>
<h2>The unemployed</h2>
<p>Currently, for a single person on the average wage <a href="http://clubtroppo.com.au/2009/03/15/is-australian-social-protection-ready-for-the-great-recession/">losing their job</a>, Australian benefits are the <a href="http://www.oecd.org/document/3/0,3746,en_2649_34637_39617987_1_1_1_1,00.html">lowest in the OECD</a>. </p>
<p>A single unemployed adult receives about $475 per fortnight, or $33.90 per day. If they’re renting privately, they’re entitled to up to $116 per fortnight in rent assistance, but to get that amount their rent has to be more than $258 per fortnight, leaving them with just $23.75 per day for everything else. </p>
<p>And that assumes you can find somewhere to rent for that amount. The NSW government’s <a href="http://www.housing.nsw.gov.au/NR/rdonlyres/7B8407E4-8BF2-4F74-ADEC-FB7EA81296A6/0/RSReport96.pdf">Rent and Sales Report</a> found that in June 2011 the cheapest one-bedroom homes in Sydney’s outer ring were in Wyong and Gosford and cost “just” $180 a week.</p>
<p>If you were on <a href="http://www.centrelink.gov.au/internet/internet.nsf/payments/newstart.htm">Newstart</a> and paying that rent would have just $16.50 a day left over for your food, clothing, transport and other bills. </p>
<p>Adequate payments are important for incentives. If the gap between pensions and allowances widen further then incentives to claim disability payments will increase. </p>
<p>High housing costs can also price the unemployed out of areas where job opportunities are greater.</p>
<p>If welfare recipients don’t have enough money to live on, they may not be able to undertake sufficient or effective job search; a student may compromise their study efforts. </p>
<h2>The carers’ case </h2>
<p>The difference between payment rates can also create major equity problems. </p>
<p>The Australian community provides support to people caring for those who have a disability. But if the person being cared for dies then their carer, who has been encouraged to commit many years to providing support - and whose labour market skills and experience have therefore been adversely affected - can experience a massive drop in income after the bereavement period of 14 weeks is over. </p>
<p>If they are under 60 when their partner dies they will see a reduction in income of more than $200 per fortnight.</p>
<p>The gap between pensions and allowances has existed for a long time, but has become much worse since 1997. </p>
<h2>Pension payments</h2>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/3994/original/Elderly_Flickr_i.tokaris.jpg?ixlib=rb-1.1.0&rect=154%2C243%2C342%2C321&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/3994/original/Elderly_Flickr_i.tokaris.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=986&fit=crop&dpr=1 600w, https://images.theconversation.com/files/3994/original/Elderly_Flickr_i.tokaris.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=986&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/3994/original/Elderly_Flickr_i.tokaris.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=986&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/3994/original/Elderly_Flickr_i.tokaris.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1239&fit=crop&dpr=1 754w, https://images.theconversation.com/files/3994/original/Elderly_Flickr_i.tokaris.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1239&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/3994/original/Elderly_Flickr_i.tokaris.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1239&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Pensions are rising at a faster rate than other benefits.</span>
<span class="attribution"><span class="source">Flickr/i.tokaris</span></span>
</figcaption>
</figure>
<p>Since 1997 Age, Disability and Carers Pensions have been indexed to average earnings while payments for the unemployed remained indexed to the <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6401.0">CPI</a>. </p>
<p>Before then single rate of Newstart was around 91% of the single pension rate. The gap between pensions and allowances has widened over time. </p>
<p>Changes in payments for pensioners implemented after the Harmer Review have meant that the gap between in benefits for the unemployed and for people with disabilities has widened. It’s now more than $230 per fortnight, and a single unemployed person receives a payment that is only 65% of the payments for a disability pensioner.</p>
<p>As the system is currently configured this gap cannot narrow over time, it can only grow.</p>
<p>Last year’s <a href="http://www.treasury.gov.au/igr/igr2010/">Intergenerational Report</a> assumes that current indexation policies apply into the future so that age and disability pensions will be linked to wages, while most other payments for people of working age and families will be indexed to prices. </p>
<p>Over a 40 year period this will produce an even more remarkable change in the relative levels of support for pensioners and beneficiaries. Pensions are projected to rise by 4% a year on average, while benefits and allowances would rise by 2.6% a year. </p>
<p>The result – if actually continued for 40 years – would be that in 2050 a single unemployed person would be receiving a payment of about 11% of the average male wage, compared to 20% now. </p>
<p>The gap between pensions and allowances would widen enormously, and an unemployed person would be receiving a payment that was little more than one-third that of an age or disability pensioner. </p>
<p>So relative poverty among working age allowance recipients including families with children would increase significantly. But also incentives for the unemployed to qualify as eligible for disability payments would be strengthened enormously.</p>
<h2>Encouraging employment</h2>
<p>Would raising benefits to a more adequate level keep the unemployed out of jobs or even cause low paid workers to give up jobs? </p>
<p>Australia has been very fortunate in having one of the lowest increases in unemployment of any OECD country since 2008. But we shouldn’t overlook the fact that it has still risen significantly, and there are many people relying on an increasingly inadequate payment. </p>
<p>Over the last fifteen years the level of Newstart for a single person has fallen from around 54 per cent to 45 per cent of the after-tax minimum wage. If it hadn’t changed from the 1996 level then benefits would be around 19 per cent higher. It is difficult to see that going back to to that would pose serious disincentives to work. </p>
<h2>Urgent reforms</h2>
<p>These problems are not going to go away. Current policies are simply going to make the problems more difficult to deal with the longer decisions are postponed.</p>
<p>The single rate of Newstart should be increased by around 20%, and rent assistance should be increased substantially (with a rent threshold of around 20% of income before support is payable). </p>
<p>In the longer run, <a href="http://www.centrelink.gov.au/internet/internet.nsf/payments/rent_assistance.htm">Rent Assistance</a> should be indexed to rental costs. The indexation of unemployment payments needs to be regularly reviewed and adjusted to ensure payments are adequate.</p>
<p>The Tax Forum needs to make changes now, before inequalities in the system are too great to handle.</p><img src="https://counter.theconversation.com/content/3640/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Whiteford receives funding from the Australian Research Council for work on social security policy issues. He will be attending the October 4-5 Tax Forum.</span></em></p>Almost 50 cents of every dollar spent by governments in Australia goes on social spending - either social security or health and community services. This week’s tax forum must reform the system, as the…Peter Whiteford, Professor, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/33002011-10-02T19:21:14Z2011-10-02T19:21:14ZHousing and tax: why is reform so hard?<figure><img src="https://images.theconversation.com/files/4016/original/fenceneoliminal.jpg?ixlib=rb-1.1.0&rect=25%2C27%2C970%2C688&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">fenceneoliminal</span> <span class="attribution"><span class="source">Flickr/Neoliminal</span></span></figcaption></figure><p>There will be a myriad of issues debated at this week’s <a href="http://www.futuretax.gov.au/content/Content.aspx?doc=TaxForum.htm">Tax Forum</a> but top of the wishlist for many experts is reforming housing taxation. </p>
<p>Housing makes up the lion’s share of household wealth in Australia. The Australian Bureau of Statistics <a href="http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/6554.0Main%20Features22005-06?opendocument&tabname=Summary&prodno=6554.0&issue=2005-06&num=&view=">estimated</a> in 2007 that about 45% of household wealth is in home ownership, and another 15% is in investment housing. </p>
<p>People access housing in different capacities: as home owners, landlords and renters. Australia has a fairly high and stable rate of home ownership by global standards.</p>
<p>About 70% of Australian households (individuals or families) own or are purchasing their own home; 22% rent in the private rental market and 5% rent in public or social housing.</p>
<p>However, these averages mask some worrying trends, as younger people find it more difficult to access home ownership, our cities sprawl and services become more expensive, and older people carry mortgage debt for longer than ever before. </p>
<p>This year, the National Centre for Social and Economic Modelling (NATSEM) <a href="http://www.canberra.edu.au/centres/natsem/">confirmed</a> previous findings that Australia has one of the least affordable housing markets in the OECD. We have severely unaffordable areas in most cities and in regional and rural areas. </p>
<h2>A complex mess</h2>
<p>Housing is affected by many different taxes in Australia, leading to a complex mess of federal, state and local taxes, exemptions and concessions. </p>
<p>Home owners benefit from many tax exemptions. Most home owners pay rates to local councils, but home owners do not pay any land tax, or any capital gains tax on the sale of their home.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/4017/original/kenhenry.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/4017/original/kenhenry.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=999&fit=crop&dpr=1 600w, https://images.theconversation.com/files/4017/original/kenhenry.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=999&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/4017/original/kenhenry.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=999&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/4017/original/kenhenry.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1255&fit=crop&dpr=1 754w, https://images.theconversation.com/files/4017/original/kenhenry.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1255&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/4017/original/kenhenry.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1255&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Ken Henry: retain capital gains exemption.</span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure> <p></p>
<p>Home owners also do not pay tax on what is called “imputed” rent – this is the benefit of living in your own home instead of having to pay rent out of after-tax income, like renters do. </p>
<p>For most of us, who must purchase a home with mortgage debt, the benefit of not being taxed on imputed rent is offset to some degree, because the interest on our home mortgage is not deductible. </p>
<p>The tax rules for landlords of private rental housing are inconsistent. Landlords pay some taxes but benefit from some subsidies as well.</p>
<p>The combination of our capital gains tax 50% discount, the ability to negatively gear investment in rental property as a deduction in the income tax, state stamp duties and poorly designed land taxes causes a biased investment housing market that contributes to Australia’s lack of affordable housing.</p>
<p>All home owners and landlords pay stamp duty on house purchases. Tax and housing policy experts, including the <a href="http://taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/publications/Papers/Final_Report_Part_2/chapter_c2-3.htm">Henry Tax Review</a>, agree that stamp duty is a poor tax. </p>
<p>It is inefficient, feeds into house prices (contributing to lack of affordability) and taxes more heavily those people who purchase new housing more often, than those people who don’t. </p>
<p>Stamp duty is an extra cost that impedes people from buying and selling their homes, both within our major cities and across the country, for work reasons, or to “upsize” or “downsize” their home as needed. </p>
<p>Stamp duties are an important revenue source for state government, and this is a crucial factor in any tax reform. </p>
<p>However, stamp duties are a volatile revenue source - as housing markets soften in many places, state governments struggle to meet revenue requirements because their stamp duty collections are down.</p>
<h2>So what do we need to do? </h2>
<p>As <a href="http://taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/publications/papers/Final_Report_Part_1/chapter_12.htm">recommended</a> by the Henry Tax Review, we should retain the capital gains tax exemption for the home. </p>
<p>Australians support home ownership and seeking to tax it will add significant complexity to the income tax system for many people. </p>
<p>But we should go ahead and reform the income tax rules for investments, including rental real estate. </p>
<p>One approach is to adopt the recommendation of a 40% discount on net savings income. Investors would net off their income and gains on investments, against expenses and losses on those investments. </p>
<p>A 40% discount would apply to net savings income, so that only 60% of this net savings income would be subject to tax at the individual rate.</p>
<p>This would be simpler, fairer and cause less distortion than our current income tax system.</p>
<p>To assist in increasing the supply of affordable housing, the government should consider retaining the 50% capital gains discount, and the ability to “negative gear” interest, for rental housing investments that are developed in the National Rental Affordability Scheme.</p>
<p>State governments should eliminate stamp duties, as in Recommendation 51 of the Henry Tax Review. </p>
<p><figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/4018/original/land.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/4018/original/land.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/4018/original/land.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/4018/original/land.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/4018/original/land.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/4018/original/land.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/4018/original/land.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">AAP</span></span>
</figcaption>
</figure>
Over a suitable transition period, we should replace this, as recommended in Recommendations 52 to 54, with a broad-based, low rate land tax that would apply to all land, including the main residence of most home owners, with an unimproved value over a minimum threshold. Only the land value, not the value of the house, would be taxed.</p>
<p>States should also reform land taxes to improve valuation rules and rate structures. Land taxes would usually be lower on apartments than on houses, supporting city planning goals and affordable rental housing.</p>
<p>A key issue will be the design of fair rules for transition to the new system. These can be designed so that home owners are not “double taxed” by paying both stamp duty and the new land tax on their home. </p>
<p>For example, the stamp duty on people’s last home purchase, within a reasonable time, could be credited against land tax owed for a period of years into the future. </p>
<p>We can also design tax concessions in the new land tax, so that people without sufficient cash flow, such as pensioners, can delay payment until sale of their house.</p>
<h2>Hard but necessary reform</h2>
<p>Tax reform for housing is hard, because it affects so many of us and because it involves both the federal income tax and many state taxes. </p>
<p>That is also why it is important. A “package” approach is needed, in which the federal government will support state governments to reform their systems. </p>
<p>Reforms to improve the taxation of housing would fix some of the worst problems in our state tax systems, and would make our income tax fairer and more neutral in its treatment of different kinds of income and investment. </p>
<p>A tax reform that rebalances the system to tax housing assets more neutrally and fairly can make a significant contribution to improving housing fairness, efficiency and affordability.</p>
<p><em><strong>Read more of our Tax Forum coverage:</strong></em>
</p><p><a href="http://theconversation.com/tax-forum-critical-reform-is-worth-the-effort-and-the-wait-3468">Critical reform is worth the effort - and the wait</a> </p>
<p><a href="http://theconversation.com/tax-forum-should-nannies-for-high-income-women-be-subsidised-3582">Should nannies for high income women be subsidised?</a></p>
<p><a href="http://theconversation.com/tax-forum-reforming-how-property-is-taxed-means-well-tackle-affordability-3469">Reforming how property is taxed means we’ll tackle affordability</a></p>
<p><a href="http://theconversation.com/tax-forum-the-overlooked-role-of-local-government-in-tax-reform-3474">The overlooked role of local government in tax reform</a></p>
<p><a href="http://theconversation.com/tax-forum-the-gst-exemption-should-come-off-food-3275">The GST exemption should come off food</a></p>
<p><a href="http://theconversation.com/tax-forum-gst-needs-changing-so-lets-debate-it-3358">The GST needs changing, so lets debate it</a></p>
<p><a href="http://theconversation.com/the-eus-adopting-a-financial-transactions-tax-so-why-dont-the-rest-of-us-3533">The EU’s adopting a financial transactions tax, so why don’t the rest of us?</a></p><img src="https://counter.theconversation.com/content/3300/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Miranda Stewart receives funding from the Australian Research Council and was a consultant on housing taxation to the Henry Tax Review.</span></em></p>There will be a myriad of issues debated at this week’s Tax Forum but top of the wishlist for many experts is reforming housing taxation. Housing makes up the lion’s share of household wealth in Australia…Miranda Stewart, Professor and Director of Tax Studies, Melbourne Law School, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/34682011-09-29T20:32:33Z2011-09-29T20:32:33ZTax Forum: Critical reform is worth the effort – and the wait<figure><img src="https://images.theconversation.com/files/3963/original/taxwalk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Tax Forum must ensure we have a sure-footed approach to reform.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Periodic tax reform is necessary as governments respond to new patterns and forms of economic activity and the inevitable political pressures these changes create. </p>
<p>Yet the politics of tax reform is politically fraught because vested interests who may incur short-term losses will always be vocal, often drowning out the less tangible and more diffuse benefits of reform.</p>
<p>Given these political dynamics, successful tax reform requires three elements. </p>
<p>First, given the political risks associated with tax reform there needs to be a consensus that the policy status quo is untenable and that reform is needed. </p>
<p>Second, there needs to be broad technical and political consensus on the priorities for reform and the broad direction of policy change.</p>
<p>Last, and most critically, government needs to be convinced that reform proposals are politically viable.</p>
<p>Expectations for the upcoming <a href="http://www.futuretax.gov.au/content/Content.aspx?doc=TaxForum.htm">Tax Forum</a> – which I am attending – may be modest, and the prospects for near-term reform may be low, but it is important to recognise that building political support for contentious and complex tax packages takes years rather than months. </p>
<p>In this context, the Tax Forum should be regarded as an opportunity to build the political foundations for the next round of tax reform.</p>
<p>Fortunately, the forum is not starting from scratch. There is both a growing recognition among experts and awareness among the voting public that tax reform is required.</p>
<p>The view that the Australian tax system required an overhaul was one of the few concrete proposals to come out of the <a href="http://www.australia2020.gov.au/">2020 Summit</a> held in early 2008, which inturn gave rise the <a href="http://taxreview.treasury.gov.au/Content/Content.aspx?doc=html/home.htm">Henry Review</a> which reported two years later.</p>
<p>If anything, the view that reform is necessary has been reinforced by the financial crisis and the growing recognition that the global economy has changed and the Australian tax system will have to respond to this new reality. </p>
<p>Labor’s initial response the Henry Review has attracted a good deal of criticism, but the review’s real contribution to the national tax policy debate is that it presented a detailed, and in my view, credible agenda for reform. </p>
<p>Just like the <a href="http://www.austlii.edu.au/au/journals/UNSWLRS/2009/24.html">Asprey Review</a> of the mid-1970s, which set the national tax reform agenda for the 1980s and 1990s, the Henry Review has created an important blueprint for the tax policy debate over the coming decade. </p>
<p>The challenge from here on is political rather than technical.</p>
<p>Tax reform can be a difficult and thankless task, and one that has ended many a political career. Yet despite these risks, there are many established paths to reform success.</p>
<p>One approach is to build a bipartisan consensus for reform in the parliamentary arena. While a tacit agreement between Australia’s major parties underpinned the liberalisation of the Australian economy during the 1980s, such bargain seems extremely unlikely in the adversarial, opportunistic and increasingly dysfunction climate which prevails in Canberra today.</p>
<p>Another strategy is the selective use of compensation to minimise the number of losers from reform. This is a tried-and-true approach and no doubt was central in Wayne Swan’s mind when he commissioned the Henry Review in mid-2008, before the financial crisis really started to bite. </p>
<p>We now live in a different world and it is clear that the Federal Government won’t have surplus funds to devote to tax reform until at least 2017.</p>
<p>Given these constraints, at this stage of the tax reform process it is important to start gauging interest group and broader community support for the wide range of proposals to be considered by the Tax Forum.</p>
<p>History, both in Australia and abroad, shows us that if a reform proposal has technical merit and enjoys support from business, community and labour interests, then the political viability of the policy is greatly enhanced – even in the face of almost inevitable partisan opposition. </p>
<p>The decisive development in the Australian GST debate in the late 1990s was the community sector’s (and Australian Council of Social Services in particular) decision to support a broad-based consumption tax with appropriate compensation. This left the ALP looking opportunistic and shrill.</p>
<p>The aim of the Tax Forum should be to identify those reform proposals which enjoy broad-based support and this should be established by a simple post-forum survey of participants.</p>
<p>Reforms which enjoy broad-based support should then be subjected to more refinement, consultation and policy development and the proposed <a href="http://www.futuretax.gov.au/content/taxforum/statements/academics/Joint_Statement_by_20_Academics.pdf">Tax Research Centre</a> could play and important, independent role in this process.</p>
<p>Having completed this technical and political groundwork, whoever forms government after the next federal election will be able to start implementing the next round of Henry reforms knowing the agenda is backed by a solid coalition of stakeholders. </p>
<p>More contentious, but structurally important, reforms may have to wait until the end of the decade when more generous compensation is more likely be available.</p>
<p>Tax reform is a long game. My hope is that the Tax Forum will represent a small but important step in what will be a decade-long process.</p>
<p><em><strong>Read more of our Tax Forum coverage:</strong></em></p>
<p><a href="http://theconversation.com/tax-forum-should-nannies-for-high-income-women-be-subsidised-3582">Should nannies for high income women be subsidised?</a></p>
<p><a href="http://theconversation.com/tax-forum-reforming-how-property-is-taxed-means-well-tackle-affordability-3469">Reforming how property is taxed means we’ll tackle affordability</a></p>
<p><a href="http://theconversation.com/tax-forum-the-overlooked-role-of-local-government-in-tax-reform-3474">The overlooked role of local government in tax reform</a></p>
<p><a href="http://theconversation.com/tax-forum-the-gst-exemption-should-come-off-food-3275">The GST exemption should come off food</a></p>
<p><a href="http://theconversation.com/tax-forum-gst-needs-changing-so-lets-debate-it-3358">The GST needs changing, so lets debate it</a></p><img src="https://counter.theconversation.com/content/3468/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Eccleston receives funding from Australian Research Council for his research on the politics of international tax cooperation. DP1095946</span></em></p>Periodic tax reform is necessary as governments respond to new patterns and forms of economic activity and the inevitable political pressures these changes create. Yet the politics of tax reform is politically…Richard Eccleston, Associate Professor, Political Science , University of TasmaniaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/35332011-09-29T04:18:56Z2011-09-29T04:18:56ZThe EU’s adopting a financial transactions tax, so why don’t the rest of us?<figure><img src="https://images.theconversation.com/files/3946/original/barroso.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">European Commission President Jose Manuel Barroso says the FTT could raise 55 billion euros a year.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Momentum is building behind the <a href="http://robinhoodtax.org/">global campaign</a> to impose a tax on transactions in financial markets, with European Commission President Jose Manuel Barroso <a href="http://www.theage.com.au/business/world-business/europe-eyes-controversial-financial-tax-20110929-1kxvh.html">announcing plans</a> to introduce the measure as way of overcoming the Eurozone’s economic woes.</p>
<p>In his annual “state of the union” address in Stasbourg on Wednesday, Barroso said the tax could raise up to 55 billion euros ($76.6 billion). “It is time for the financial sector to make a contribution back to society,” he said.</p>
<p>His proposal comes after German Chancellor Angela Merkel and French President Nicolas Sarkozy announced their support for the measure after a meeting in August. Leaders in the United States, United Kingdom and Australia have rejected proposals to introduce the tax in their own countries.</p>
<p>At a time when there is a financial malaise on both sides of the Atlantic, it may seem strange to be talking about a new tax. </p>
<p>But a financial transaction tax (FTT) is a long-term policy which would ease several aspects of the crises. </p>
<p>High budget deficits and debts can be addressed by increasing revenue, and a tax on financial transactions is likely to cause less opposition than any other.</p>
<h2>A taxing challenge</h2>
<p>So what is a FTT, and what are the potential benefits and costs?</p>
<p>Economist John Maynard Keynes suggested in 1936 that a substantial transfer tax on securities transactions could reduce speculation in financial markets.</p>
<p>Nobel laureate economist James Tobin proposed a currency transaction tax (CTT) in 1972, and reiterated that suggestion in the mid-1990s. </p>
<p>Since then, the idea has gradually gained support among scholars as well as development and environmental NGOs. Recently political support for the idea has grown strongly. </p>
<p>It was brought up during a Special Session of the United Nations General Assembly on Social Development, held in Geneva in June 2000, when Canada officially proposed that a study into the FTT be authorised. </p>
<p>There was opposition from the United States and some other countries, so a compromise was negotiated, calling for a study of “innovative sources of funding for development”. </p>
<p>The UN University’s World Institute for Development Economic Research was commissioned to conduct the study and eminent econometrician <a href="http://word.world-citizenship.org/wp-archive/2460">Professor Sir Anthony Barnes Atkinson</a> agreed to lead the project. The papers were published as “New Sources of Development Finance” in 2005. </p>
<p>Around the same time, <a href="http://www.nsi-ins.ca/english/contact_us/profiles/rschmidt.asp">Rodney Schmidt of the Canadian North-South Institute</a> studied whether a tax on currency transactions would cause increased exchange rate volatility as a result of the expected fall in trading volume. </p>
<p>Schmidt found that “a currency transaction tax of 0.5 basis points (0.005%) in the major currency markets would reduce transaction volume by 14% … A 0.5 basis point CTT would raise at least $US33 billion every year, probably more.” </p>
<p>A CTT could be imposed almost universally on transactions, as long as it had the cooperation of the four or five monetary authorities of the countries with the principal reserve currencies – especially the US dollar, the pound and the euro.</p>
<p>The small direct costs would be concentrated in financial sectors of the countries where most transactions occur – the wealthy countries.</p>
<h2>Growing momentum</h2>
<p>Political momentum for introduction of a FTT was nurtured through the formation in 2006 of the Leading Group on Innovative Finance for Development, of which about 55 countries are now members including Belgium, Chile, Finland, France, Germany, India, Italy, Japan, Mexico, Norway, United Kingdom, South Africa and Spain. </p>
<p>In mid-2009 the Leading Group appointed a committee of experts to report on a CTT. The committee reported in June 2010, and recommended introduction of a global CTT at the point of settlement. </p>
<p>The committee recommends collecting a tiny tax of 0.005% through a “Global Solidarity Levy” collected through the increasingly centralised foreign-exchange trading system’s settlement bank. </p>
<p>The committee recommended establishing a “Global Solidarity Fund”, with a representative governing body to allocate funds for global public goods, such as the achievement of the Millennium Development Goals and climate change mitigation and adaptation. </p>
<p>The global financial crisis has strengthened support for this proposal. The Bush and Obama administrations, and many European governments, were compelled to launch massive rescue strategies for financial institutions. </p>
<p>Citizens are therefore demanding ways of making financial institutions return the favour. </p>
<p>Nobel economics laureate Paul Krugman argues that such a tax “would be a trivial expense for people engaged in foreign trade or long term investment; but it would be a major disincentive for people trying to make a fast buck (or euro, or yen) by outguessing the markets over the course of a few days or weeks. What’s not to like?” </p>
<p>The centralisation of such transactions makes them relatively easy to monitor.</p>
<h2>Political will</h2>
<p>Governments have significantly different views about how to tax financial sectors: the US and UK want a levy on bank liabilities. But Merkel and Sarkozy are now publicly advocating that the G20 recommends that countries introduce a financial transaction tax.</p>
<p>The European Commission supports global introduction of the tax but if this is not agreed by the G20, legislation will be passed to introduce financial transaction taxes at the European level. </p>
<p>The IMF has previously argued for alternative levies on banks, but their most recent <a href="http://www.imf.org/external/pubs/ft/wp/2011/wp11185.pdf">paper</a> on the administrative feasibility of a FTT concludes that “in principle, an FTT is no more difficult and, in some respects easier, to administer than other taxes”. </p>
<p>It would be timely for the Australian Government to review its knee-jerk agreement with the US in opposing the proposal.</p>
<p>If Treasurer Wayne Swan would like to generate additional revenue in the least controversial way, he would do well to join Germany, France and the rest of the European Community – as well as many countries in the developing world – in supporting a global FTT.</p><img src="https://counter.theconversation.com/content/3533/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Langmore does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Momentum is building behind the global campaign to impose a tax on transactions in financial markets, with European Commission President Jose Manuel Barroso announcing plans to introduce the measure as…John Langmore, Professor, School of Social and Political Sciences, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/35822011-09-28T20:37:12Z2011-09-28T20:37:12ZTax Forum: should nannies for high income women be subsidised?<figure><img src="https://images.theconversation.com/files/3938/original/nannysubsidy.jpg?ixlib=rb-1.1.0&rect=264%2C69%2C4661%2C3188&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Subsidies for nannies could help retain skilled women in the workforce, but isn't without pitfalls. </span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Some <a href="http://www.smh.com.au/opinion/editorial/tax-break-on-nannies-will-lift-job-equality-20110924-1kq7q.html">very well-paid women want to use the Tax Forum to press the government</a> to substantially subsidise the costs of nannies by allowing their costs to be tax deductible. </p>
<p>They claim this is essential to allow some high income skilled women to return to their full time paid work. </p>
<p>But this suggested change to child-care subsidies raises some interesting questions about the purpose of this type of government funding, as well as possibly exposing children to lesser levels of care. </p>
<p>It may also encourage powerful women to exploit many less powerful ones.</p>
<h2>Parental needs first</h2>
<p>When women’s groups argue for nanny subsidies for those who can’t find formal care, the focus is for parental needs - there is no mention of the benefits of such care for either children or the home-based worker. </p>
<p>The two clearly different political questions are often confused in the public subsidies on offer for a range of children’s care services. </p>
<p>Governments set standards so these can meet children’s needs for social, emotional, physical, intellectual, and educational development as well as ensuring parents can afford the costs of services. </p>
<p>Some of these are also organised so they allow parental time for paid work, studies or other approved activities. </p>
<p>For around a century it has been recognised that children from a relatively early age benefit from group interaction and designed activities. </p>
<p>The movement brought about the development of kindergartens and preschools which offered learning experiences which complemented home-based care. </p>
<p>Crèche and child care services dating from the same time also assisted women who had to work, for instance as servants, but since has developed as a mix of development and care, as more and more mothers moved into paid work. </p>
<p>The first federal child care funding Act in 1972 was designed to fund 70% of the salaries of a qualified teacher to improve the quality of care services. </p>
<p>As children’s services developed in that decade, early subsidies were paid directly to providers, with a later addition of fee subsidies to ensure lower income mothers could afford quality services for their children. </p>
<p>However, by 1996, the market influence that had begun in the 1980s had moved funding entirely to the current model of subsidising parents costs. </p>
<h2>Subsidies system </h2>
<p>The maximum subsidy possible is now around $150 per week for the child care rebate, if you spend twice this on approved care. </p>
<p>The child care benefit subsidy increases to a maximum of $189 per week if your family income is under $39,785, tapering off at $138,000 per annum in approved care.</p>
<p>If you are ineligible for this subsidy, but use a registered carer such as relative or nanny, you receive $31.60 per week.</p>
<p>Low income recipients will get some of both the rebate and benefit, but most higher income earners will get only the rebate. </p>
<p>As most fees for full-time care range from $350 $600 plus per week, parents can have a significant gap to cover.</p>
<p>These categories make a clear distinction between using services that meet approved standards, while carer registration just requires a tax file number and some identification. </p>
<p>Tax deductibility generally will only help high income earners - and then only if the rebate cap is lifted. </p>
<p>For most lower income earners, the current subsidies exceed the amount parents would receive if child care is a tax deduction at their marginal tax rate. </p>
<h2>Regulated care </h2>
<p>While there are arguments that costs may be too high for some second income earners, and there is a need to look at fee rebates for regulated care. </p>
<p>This should not include home-based services as these offer no quality assessment or regulation. </p>
<p>The argument may be that it is parental choice. This view underpins the government’s own funding model which assumes falsely that parental choices will both influence the quality and supply of care to the benefit of the consumers. </p>
<p>As there is no serious choice for most parents, the market doesn’t work. However, the model suggests that the funding is just a subsidy for fees rather than designed as a contribution to quality care as a public good.</p>
<p>The logic therefore can be that parents choosing to have their children cared for in their own homes should have access to similar subsidies as those using outside services.</p>
<p>This assumption ignores the other quality and educational aspects of care that are implicit in the funding and regulation. </p>
<p>Costs are influenced by regulated qualification and ratio requirements, as well as standards of care and programs. </p>
<p>At present, national standards are being set for staffing ratios and qualifications and this may lead to higher fees. </p>
<p>So the pressure is to raise subsidies to make sure people can afford the mandated quality of care. Therefore quality of care should be discussed as a justification for subsidies. </p>
<h2>Legal standards for nannies</h2>
<p>The current nanny subsidy is a token of around $5 per day but its existence - and the pressure to increase it - raise a series of significant questions.</p>
<p>There are no current legal standards for nannies. </p>
<p>Many employed in this area are young people, maybe students, and often part of the cash economy. </p>
<p>However, if the pleas of high-income women are taken seriously, the nannies to be subsidised would need to be full-time - thus also allowing mother corporate high flyers to work the ridiculous hours demanded at that level. </p>
<p>There are questions of the standards of care, as what may satisfy parents and mirror their own views does not guarantee quality for children.</p>
<h2>Qualifications </h2>
<p>New childcare rules set a Certificate 3 as the minimum qualification for all carers, which covers only basic care needs and activities. </p>
<p>If the parents want someone who could also respond to developmental needs and program some appropriate activities, they would need at least a Certificate 4 or even a Diploma, and these are in high demand. </p>
<p>Hiring a competent person to care for your child(ren) at home requires a considerable investment of time and money. </p>
<p>Assuming that people will pay according to awards and stick to legal working conditions, a 40 hour child care worker on say $25 per hour would cost $1,000 per week. </p>
<p>As most parents want some flexibility, this pay rate would probably increase as the worker stayed for more hours on some days and will have no time off even for meals. If the rate was casual it would include sick pay and holiday pay. </p>
<p>They would need to cover insurance, workers compensation and other on costs and take out tax. There is a need to have a backup when the worker is ill or on holidays.</p>
<h2>Cash temptation </h2>
<p>The temptation is not to do it formally, as many are probably cash jobs now. The supply will be limited as young people move on so this model won’t work necessarily work for the long day care that would allow senior executive women to stay at work in ways that match their male peers. </p>
<p>As home-based workers are not generally recorded in any significant way or specifically regulated, we have little idea of how many private carers there are. </p>
<p>Could a possibility be that the lack of local candidates may result in applications for temporary work visas to import nannies for the Philippines, like they do in Hong Kong and the Gulf States? </p>
<p>Rather than expanding this type of payment, Government should make it clear that its primary objective is ensuring children access quality care when their parents are otherwise engaged.</p><img src="https://counter.theconversation.com/content/3582/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Eva Cox does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Some very well-paid women want to use the Tax Forum to press the government to substantially subsidise the costs of nannies by allowing their costs to be tax deductible. They claim this is essential to…Eva Cox, Professorial Fellow Jumbunna IHL, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/34692011-09-27T20:24:40Z2011-09-27T20:24:40ZTax Forum: reforming how property is taxed means we’ll tackle affordability<figure><img src="https://images.theconversation.com/files/3900/original/housing2.jpg?ixlib=rb-1.1.0&rect=200%2C45%2C3700%2C2690&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Increasingly, the impossible dream? Government policy has contributed to a lack of affordable housing.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>The Federal government’s Tax Forum offers a unique opportunity to begin remedying some of the inefficiencies and inequities we are witnessing in our housing system.</p>
<p>Housing in Australia has become an unaffordable dream for some, and a nightmare reality for others already in the market.</p>
<p>House prices have risen faster than incomes over the past 40 years, with median prices outstripping the borrowing capacity of average workers by more than $250,0000.</p>
<p>We are increasingly a nation of landlords and renters rather than a nation of homeowners. With 22% of Australians owning 55% of the homes across our capital cities, the landed gentry are on the rise. </p>
<p>The “fair go” of the Australian housing market — once a defining feature of our culture — bears little resemblance to the reality facing today’s potential homeowners.</p>
<p>According to a 2010 report from the <a href="http://www.fahcsia.gov.au/sa/housing/pubs/housing/national_housing_supply/Documents/StateofSupplyReport_2010.pdf">National Housing Supply Council</a>, around 50% of low-to-moderate income households who have managed to enter home ownership are struggling to cope with significant financial housing stress.</p>
<p>Though house prices have recently softened by 2% to 3%, the Australian Bureau of Statistics 2010 House Price Index makes clear that this is on the back of a decade in which prices rose by 170%. </p>
<p>As a nation, we can only be comfortable with these figures if we have lost sight of the core purpose of home ownership — providing homes.</p>
<p>Property has become a speculators picnic, with homes treated more like share portfolios than as a basic human need. </p>
<p>This is how Australia has ended up with some of the <a href="http://www.ahuri.edu.au/nrv/nrv3/">worst housing affordability</a> in the developed world and a dramatically falling home ownership rate.</p>
<p>Government-issued cash subsidies for first homeowners, while seemingly helpful, in fact do nothing but help push up house prices for existing homeowners. It’s a program that is good for some homeowners, but not for home ownership.</p>
<p>The failings in the home ownership sector in turn create fierce competition for properties to rent. Lower income households are unable to compete in the rent auctions. </p>
<p>In 2007-08, of the 1.4 million private rental dwellings affordable to lower income households, 1.1 million of these were occupied by higher income households. </p>
<p>As a result, lower income households end up in insecure, inadequate housing; share with others; join long waiting lists for social housing; or, join the more than 100,000 homeless in Australia.</p>
<p>There are many interlinked causes of these economically inefficient and socially inequitable housing circumstances.</p>
<p>Some arise from inefficiencies in the regulation of land and new housing supply.</p>
<p>Other reasons include rising levels of real household incomes, a period of low interest rates and government subsidies that fuel housing demand but do nothing to assist supply, as well as an under-investment in public housing supply. </p>
<p>A series of tax settings – such as limiting negative gearing and replacing state-levied stamp duties with a broad-based land tax – were identified by the recent Henry Tax Review, but are considered politically difficult.</p>
<p>Yet new research by the Australian Housing and Urban Research Institute’s <a href="http://www.ahuri.edu.au/publications/projects/p80647">Professor Gavin Wood</a> provides early evidence that the Henry Review’s recommendations would have a positive impact.</p>
<p>Limiting negative gearing provisions for residential landlords would likely see an increase in the supply of private rental accommodation from “equity investors”, such as superannuation funds.</p>
<p>Henry’s proposal to replace stamp duty with a broad-based land tax levied on an individual rather than aggregate basis could also see <a href="http://www.ahuri.edu.au/downloads/2011_Events/AHURI_tax_reform_Wood.pdf">prices drop by up to 10%</a>.</p>
<p>The advice to the Victorian Government in Treasury’s so-called “blue book” echoes the call for replacing stamp duties with a broad-based land tax, highlighting possible state-level changes.</p>
<p>Reforming the tax regime as it applies to housing has the potential to improve the lives of many Australians. If we get the settings right we can do some good. </p>
<p>If we get them wrong, things will get worse. If we do nothing, things will continue to get worse, and the current generations of wealthy property owners will be responsible for leaving behind a housing system far worse than the one they inherited.</p><img src="https://counter.theconversation.com/content/3469/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ian Winter works for AHURI Ltd, a not-for-profit research services company. AHURI Ltd receives funding from the Australian Government, each State and Territory government, and a network of university partners.</span></em></p>The Federal government’s Tax Forum offers a unique opportunity to begin remedying some of the inefficiencies and inequities we are witnessing in our housing system. Housing in Australia has become an unaffordable…Ian Winter, Executive Director, Australian Housing and Urban Research Institute Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/34742011-09-26T20:25:25Z2011-09-26T20:25:25ZTax Forum: the overlooked role of local government in tax reform<figure><img src="https://images.theconversation.com/files/3858/original/townhall2.jpg?ixlib=rb-1.1.0&rect=41%2C39%2C972%2C672&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The local government sector could serve as a valuable model for taxation reform.</span> <span class="attribution"><span class="source">Flickr/David Jackmanson</span></span></figcaption></figure><p>There is a contradiction at the heart of tax reform. Timid governments, worried about a voter backlash, do too little, too late. </p>
<p>Yet in the medium to long term, major structural changes in the economy and society may force real tax reform on government. </p>
<p>The Henry Tax Review vision for tax reform in Australia was based on a couple of key drivers of change. These included an ageing population, the public expectation of high levels of public services and the ongoing integration of the Australian economy into the global economy. </p>
<p>It also pinpointed the shift of economic power to Asia, the dependence of the Australian economy on foreign investment, the need to address climate change and the identification of a range of inefficient (mainly state and territory) taxes hampering economic development.</p>
<p>These pressures all led the Henry Tax Review to recommend a shift in direction for tax to four robust and efficient tax bases. These were a broader personal income tax base, a business income tax with more growth-oriented rates and base, private consumption and economic rents from minerals and land. </p>
<h2>“Tax it lightly”</h2>
<p>To sum it up, if it moves, tax it lightly; if it doesn’t, tax it more highly. </p>
<p>Land can’t move and most labour can’t, unlike finance and investment capital which can be moved with the click of a mouse. </p>
<p>The will to implement a grand tax reform vision may be beyond the current government, especially with memories of the Resource Super Profits Tax clearly in its mind.</p>
<p>Be that as it may, there is one sector in the community missing from this tax reform debate and specifically from the Forum discussion, and that is local government. </p>
<p>As John McLaren and I argued in our paper for the Australian Centre of Excellence for Local Government, <a href="http://www.acelg.org.au/upload/program1/1313455818_Henry_Paper_final_05aug2011.pdf">The Henry Review of Australia’s Future Tax System: Implications for Local Government’</a>, this tier of government “now has an opportunity to press forward and attend to its concerns about funding and the provision of services to its constituents.”</p>
<p>To that end we thought that the sector could “influence the current and long term debate about the future shape of the Australian tax and tax transfer system.”</p>
<h2>Not happening</h2>
<p>But if the Federal Government’s discussion paper for the Forum is any guide, that won’t be happening. </p>
<p>Local government per-se receives only one mention. That is in the first chart which shows clearly that, apart from the Petroleum Resource Rent Tax, the most efficient (or least inefficient) tax is municipal rates levied by local councils.</p>
<p>Why is local government important? It is democratic, transparent and performs a vital delivery role for many basic services, from roads and road maintenance to water supply and sewerage, community facilities like swimming pools, public halls and libraries, aged care facilities, stormwater drainage, waste management, natural resource management and emergency and disaster response and relief. </p>
<p>It’s economic impact too is huge. The sector employs more than 185,000 people. It owns fixed assets and land worth more than $300 billion. It raises over $32 billion in revenue. That is 3% of Australia’s total tax take. It spends over $27 billion.</p>
<p>The latest available figures show that 83% of local government funding comes from its own sources, according to a 2009 Productivity Commission report into local government finances, with property rates and fees and charges accounting for most of this. </p>
<p>(However, the combined share of this own-source funding has decreased over time, reflecting growth in other revenue sources, such as developer charges and fines.)</p>
<p>These figures need unpacking because they hide a divide between rich councils - which can raise all their revenue needs from property taxes and user charges - and less well-off councils, mainly in rural and regional areas, who rely more heavily on grants. It is estimated between 10% and 30% of Australia’s councils face financial sustainability issues.</p>
<h2>An opportunity </h2>
<p>Tax reform offers an opportunity to provide local government with a secure tax base and a deepening of its implantation into the democratic soil of Australia’s nationhood and nation building.</p>
<p>Certainly there are broad hints in the Henry Tax Review of a new invigorated role for local government both as a revenue raiser and protector and developer of assets and services.</p>
<p>For example, opportunities for local government input into the shaping of tax reform exist around land tax debates. The Henry Tax Review recommended harmonising state land taxes and local government rates. </p>
<p>Councils impose taxes on land in the form of rates, and states in the form of land taxes. But the base, rate and thresholds vary. </p>
<p>For that reason, the Henry Tax Review suggested increasing, broadening and standardising land tax in each state, and that local government rates adopt the same base as state land tax. In addition there could be joint administration of the taxes, with one central contact point.</p>
<p>Indeed one could almost imagine some sort of tripartite deal involving the Commonwealth, states and territories and local government in which land tax revenue provided a secure base for councils to provide the services their constituents need. </p>
<p>Of course, at this stage <a href="http://www.youtube.com/watch?v=2xB4dbdNSXY">Imagine</a> is just a John Lennon song. However, as those other great rock ‘n roll philosophers, Hush, put it, <a href="http://www.youtube.com/watch?v=cxubb_GihIs">nothing stays the same forever</a>. </p>
<h2>Integrating land tax bases</h2>
<p>Certainly the Henry Tax Review saw its suggestion about the integration of state and local government land tax bases as offering the opportunity for a reassignment of tax responsibilities within the federation. </p>
<p>It would be easy for example to alter the rate of tax charged by each level of government, and hence the revenue each collects, but leaving overall revenue untouched. </p>
<p>But there are other areas too where a federal government with foresight and vision might utilise the expertise of, and appeal to, the self-interest of local government. </p>
<p>For example, the Henry Tax Review made a number of recommendations about road user pricing including congestion charges. But it also suggested that road owners (local government owns 80% of Australia’s roads) be properly reimbursed for the damage heavy vehicles do to their roads. Again the Government will not pursue these recommendations.</p>
<h2>A vital role</h2>
<p>The Henry Tax Review saw itself as planting seeds for the future. While the role and funding of local government is not part of the Tax Forum, we can be confident that the general issue - as well as specific matters such as land tax and road user pricing - will continue to arise. </p>
<p>As John McLaren and I wrote: “The drivers for reform, the vital role local government plays in our society, and the breadth of possible tax reforms, all present opportunities for local government to raise longstanding issues about the adequacy and certainty of its revenue base in a new light, and to seek systemic rather than ad hoc improvements.”</p>
<p>Unfortunately the Tax Forum is part of that ad hoc and visionless approach to tax reform. Local government must bide its time, again, and develop strategies to put it into tax reform discussion and debate.</p>
<p><em>John Passant is one of the key organisers of the <a href="http://www.canberra.edu.au/taxreformconference">Tax Reform: Results and Prospects Conference </a>being run by the Faculty of Law and the ANZSOG Institute of Governance at the University of Canberra on 5 December.</em></p>
<p><em>Speakers include Secretary of the Australian Council of Trade Unions, Jeff Lawrence, General Manager of the Revenue Division, for Treasury Department Rob Heferen, and Professors <a href="http://theconversation.com/profiles/john-freebairn-90">John Freebairn</a>, <a href="http://theconversation.com/profiles/henry-ergas-4034">Henry Ergas</a>, Chris Evans and Michael Walpole, as well as the Tax Institute’s Robert Jeremenko and Dr Andrew Leigh MP.</em></p><img src="https://counter.theconversation.com/content/3474/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The Australian Centre of Excellence for Local Government commissioned John Passant and John McLaren, his colleague in the Law Faculty at the University of Canberra, to write 'The Henry Tax Review of Australia's Future tax System: Implications for Local Government' (Working Paper No 3, ACELG, University of Technology, Sydney, 2011).
They were paid for their work. This article reflects some of that work.
ACELG is a national and independent local government research centre funded by the Australian Government and hosted by the University of Technology, Sydney.</span></em></p>There is a contradiction at the heart of tax reform. Timid governments, worried about a voter backlash, do too little, too late. Yet in the medium to long term, major structural changes in the economy…John Passant, Tutor, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/32752011-09-25T20:36:23Z2011-09-25T20:36:23ZTax Forum: the GST exemption should come off food<figure><img src="https://images.theconversation.com/files/3659/original/bananas2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A GST exemption on basic food was a political argument, not economic, and should be reviewed.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>It is a shame that the GST is off the menu at October’s Tax Forum, because one of its central tenets – the exemption of basic food and beverages – deserves to be debated again.</p>
<p>The exemption is basically a legacy of the political realities in the late 1990s necessary to implement the GST in Australia. </p>
<p>At the time it was introduced, there was a great deal of scepticism in Australia about the merits of consumption taxes (most of it unjustified).</p>
<p>The net effect was that to win political support for the GST, the Howard Government needed to incorporate an exemption for basic food items as this was seen to assist those on lower incomes (the ABC documentary <a href="http://www.abc.net.au/tv/guide/netw/200811/programs/NC0859H001D17112008T203000.htm">The Howard Years</a> provides excellent coverage of the political negotiations around this point).</p>
<p>An unfortunate aspect of the recent Henry Review into Australia’s tax system was the exclusion of any discussion involving increasing the rate or base of GST. </p>
<p>Treasurer Wayne Swan recently confirmed this attitude will be carried into October’s <a href="http://www.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2011/020.htm&pageID=003&min=wms&Year=&DocType">Tax Forum. </a></p>
<p>Yet removing the GST food exemption would allow the government to provide more targeted and cheaper assistance to those who require it, rather than the present system that makes for a nice sound bite, but defies any logical scrutiny.</p>
<p>A general concern surrounding the GST is that it raises the general level of prices. While there is some merit to this argument (remembering that the price of many items actually fell when the old sales tax system was abolished), the usual follow-on is that this causes the GST to be regressive. </p>
<p>Without addressing why this argument is incorrect (as a political argument masquerading as an economic one), the important point here is that everyone needs to buy certain basic items to survive. </p>
<p>As everyone needs to eat, then at least basic food should be exempted so that food prices are lowered and lower income families are given a helping hand.</p>
<p>Exempting food in this way, though, is far from the best way of achieving the desired result of helping such people. One outcome is that the exemption may actually cost more than the benefits it produces.</p>
<p>The first problem is that the exemption applies generally, yet is intended to be targeted. That is, it is meant to help those on lower incomes, but is available to everyone. </p>
<p>While the single mother living on government payments trying to raise two children pays no GST on the fresh food she purchases, neither does the partner of a major law firm who earns $2 million a year. </p>
<p>This makes the assistance more expensive than it needs to be, with at least one of two outcomes. If the exemption has a predetermined fixed cost, then less than this amount is going to those it is intended to assist. </p>
<p>This is because the entire population is receiving some assistance in the form of lower food prices, whereas the intended recipients are only a subset of the population.</p>
<p>The alternative, but not necessarily mutually exclusive effect is that the assistance becomes more expensive than is necessary. Imagine that instead of a fixed total cost, there is a predetermined amount of assistance that will flow to those intended to benefit from the measure.</p>
<p>But, because everyone can purchase food GST-free, the cost of the measure is higher than what it otherwise would be. </p>
<p>This means that either (a) the GST rate is higher than it needs to be and/or (b) there is less tax revenue to be used to fund hospitals, schools, roads, etc.</p>
<p>The second problem is the additional complexity that the exemption brings into the GST. As not all food is exempt, suppliers of food need to spend large amounts of money ensuring that they are charging GST on appropriate items. </p>
<p>This is far from an exact science. To illustrate, I was once involved in a group training exercise during my early days as a tax practitioner (just after the GST’s introduction) where we considered the classification of drinkable yoghurt under the exemption. </p>
<p>Essentially, the debate came down to whether we thought that, as a yoghurt product, was it a food that did not qualify for the exemption (basically because it was processed) or, because it was “drinkable”, did we think it qualified for the exemption as a beverage?</p>
<p>These problems will be resolved by abolishing the food exemption. To achieve the exemption’s aim, a system should be set up separate from the GST so that all of the assistance goes to those that it is intended to help. </p>
<p>This can be as cash payments, or vouchers or some other means so that those on low incomes can more easily afford the food that will increase in price. </p>
<p>The benefits are that close to 100% of the funds spent on the measure go to those requiring assistance, revenue is freed up either to fund other worthwhile public projects or tax relief and the GST’s complexity is reduced, minimising the compliance costs for businesses affected by the food exemption.</p><img src="https://counter.theconversation.com/content/3275/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Keith Kendall does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>It is a shame that the GST is off the menu at October’s Tax Forum, because one of its central tenets – the exemption of basic food and beverages – deserves to be debated again. The exemption is basically…Keith Kendall, Senior Lecturer, La Trobe UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/33582011-09-18T20:38:08Z2011-09-18T20:38:08ZTax forum: GST needs changing, so let’s debate it<figure><img src="https://images.theconversation.com/files/3660/original/wayneswan.jpg?ixlib=rb-1.1.0&rect=128%2C137%2C3808%2C2627&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Is it time to reform the GST?</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>While changes to the GST are not an explicit item on the Tax Forum agenda, they should be and the issue will arise anyway. </p>
<p>A broad and comprehensive GST tax base along the lines of the New Zealand model would provide gains in efficiency and simplicity. </p>
<p>Recycling revenue gains from a broader base GST and an increase in the GST rate to replace more distorting state stamp duties and some income tax would provide further efficiency gains. </p>
<p>A larger revenue-earning GST would help reduce vertical fiscal imbalance and some of the inefficiencies of current commonwealth-state financial relations. </p>
<p>An approximate aggregate revenue-neutral package of improved indirect taxes, with a larger GST replacing more distorting stamp duties and income tax, can be designed so that most taxpayers are winners with a more productive economy.</p>
<p>Because of exemptions from the GST tax base, it is only 60% of a comprehensive general consumption tax base, such as that of New Zealand. </p>
<p>Exempt items include basic food, water and sewage, health, education and child care, and a lower effective rate applies to financial services. </p>
<p>The exemptions distort purchase decisions, for example between the necessities of water and electricity, and the organisation of service providers, such as the inclusion in-house of ancillary services of food preparation and business services by education and health suppliers. </p>
<p>Greater complexity and lack of transparency follows the often artificial distinctions between GST taxed and not-taxed items. </p>
<p>A more comprehensive New Zealand tax base would mean less distortions, less complexity, and more revenue.</p>
<p>The current Australian GST rate at 10% is low compared with New Zealand at 15%, and many European countries have a basic VAT rate of 20% or higher.</p>
<p>A larger revenue yielding GST would enable completion of the original idea of the GST at the time of its introduction in 2000 to replace existing selective and distorting indirect taxes.</p>
<p>According to the Henry Tax Review estimates, the marginal social cost of stamp duties on insurance at 68 cents per dollar of revenue and conveyance duty on property transfers of 35 cents far exceed the eight cents for GST. </p>
<p>Stamp duties are part of the reason for the observed high rates of non-insurance and of under-insurance, particularly among those on low incomes, revealed by recent natural disasters.</p>
<p>Conveyance duty acts as a disincentive to change houses when one’s employment changes or when family size expands and contracts. </p>
<p>Since these inefficient taxes are state levied taxes, a higher revenue GST is an especially attractive revenue replacement option.</p>
<p>A tax mix change involving a higher rate of GST to fund a lower rate of income taxation in an approximate revenue neutral and distribution neutral package has several efficiency benefits.</p>
<p>Such a package would represent an extension of the ideas of the reforms of 2000; of the 10% GST, about eight percentage points replaced more distorting wholesale sales tax and some state indirect taxes on financial transactions, and the remainder funded lower income tax rates and higher social security payments. </p>
<p>More recently, New Zealand and the UK in 2010 implemented similar tax mix change reforms. A shift from income taxation to consumption taxation reduces the former’s distortions to saving versus consumption decisions. </p>
<p>More importantly, the lower income tax rates reduce the magnitude of distortions and loss of efficiency to the choice of mix of saving and investment options caused by the hybrid tax system with its very different effective income tax rates on different choice options. </p>
<p>In the context of Australia as a open small country, as part of a wider and larger global economy, a consumption for income tax mix change represents a shift from a production base falling on some internationally mobile capital and labour inputs to a consumption base which is less mobile geographically. </p>
<p>Such a shift is in accord with optimal tax theory for reducing taxation distortions by placing relatively higher tax rates on the less price responsive decisions.</p>
<p>Under current commonwealth-state financial relations, the states depend on the commonwealth for nearly a half of their revenue. </p>
<p>Even then, the GST is collected by the commonwealth, and then redistributed in full to the states as untied transfers. For many, the vertical fiscal imbalance is an important reason for the blame game, wasteful rent seeking behaviour and inefficient government. </p>
<p>A higher revenue yielding GST is one of the better options for increasing the states’ own source of revenue to improve inter-government arrangements and general accountability of the different levels of government. </p>
<p>A new and cooperative arrangement between the commonwealth and the states is a necessary prerequisite for changes to the GST, and in particular as part of packages to reduce current highly inefficient state stamp duties and to reduce vertical fiscal imbalance.</p><img src="https://counter.theconversation.com/content/3358/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Freebairn receives funding from ARC.</span></em></p>While changes to the GST are not an explicit item on the Tax Forum agenda, they should be and the issue will arise anyway. A broad and comprehensive GST tax base along the lines of the New Zealand model…John Freebairn, Professor, Department of Economics , The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.