LABORíS $7B ANNUAL GAIN IN TAX REFORMSPosted February 18, 2016
Labor’s tax-reform plans announced at the weekend are good for the budget and housing affordability and will reduce inequities in our tax system while also addressing systemic risk.
The Coalition has been left flat-footed on economic reform, which doesn’t bode well for the country.
With the Coalition all at sea with its own tax plans, Scott Morrison’s first media release criticising Labor’s plan was that the policies raise very little revenue.
Given the Coalition recently abandoned its fiscal strategy of achieving a 1 per cent of GDP surplus by 2023-24, together with a budget deficit now $33 billion worse than when they came to power, this criticism can be best described as weak.
It is true our changes to negative gearing and capital gains tax concessions deliver only modest savings over the forward estimates. This is deliberate.
Given our policies come in to effect on July 1, 2017, together with our economically responsible grandfathering arrangements, the savings build up over time but importantly raise $32 billion over the medium term.
By the end of the decade, our changes to negative gearing and capital gains will deliver an annual $7 billion boon to the budget bottom line, which will continue to grow until full maturity.
Labor has taken the responsible approach ensuring savings are calibrated in a way that doesn’t adversely affect the economy in the short term but delivers maximum structural improvement over time.
Indications are that the Coalition is considering its own changes to negative gearing. If its changes do indeed raise more revenue in the early years, bets are it is applied retrospectively to existing investments.
Retrospective tax changes have been previously described by Julie Bishop as ‘‘anathema to most Australians’’, with the Treasurer in November last year describing rightly that ‘‘if people have been investing under particular rules, then if you change those rules down retrospectively then that can really undermine confidence’’.
Any changes applied retrospectively would damage confidence in an already fragile economy. Labor draws the line at retrospective tax; Scott Morrison should follow his own previous advice and do the same.
Another one of the more peculiar arguments being made by Scott Morrison and the Coalition is that our policies are ‘‘distortionary’’. This criticism borders on the bizarre.
There are very real issues around financial stability and the economic benefits of the current tax incentives.
The logic isn’t hard to follow: current tax incentives have helped underwrite unsustainable property speculation and price spirals, with obvious risks to financial stability and family balance sheets.
This is putting aside for a moment the inequity of the current arrangements, including how they help sideline young and aspiring first-home owners from the market.
This is well-worn territory for Australia’s regulators, including the Reserve Bank of Australia, as well as the government’s own Financial System Inquiry, headed by David Murray.
If Scott Morrison had spent a bit of time reading through his government’s commissioned FSI document, he would see in flashing lights under the heading ‘‘Major Tax Distortions’’ (David Murray’s words, not mine), advice that reducing negative gearing and capital gains tax concessions would lead to a more efficient allocation of funding in the economy.
So reducing these concessions will encourage better and more productive investment decisions and less speculation.
This article was originally published in The Australian Financial Review on Thursday, 18 February 2016.
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