Lunch box finances belittle both sides of politics on tax

When it comes to debate about tax matters, our political leaders on both sides keep serving up a stale cheese sandwich when what is needed is a banquet of reform. The fact that a plan to allow tax deductibility for lunches by some small businesses can dominate debate in question time in the last sitting of parliament before a federal election demonstrates how dire is the state of affairs. It has opened the way for Labor to revert to type on the politics of envy. Jim Chalmers used Treasury to do an inflated and imprecise estimate of the potential cost of the policy. From the Prime Minister down, government members lined up to claim the opposition plan was unfair. “We’re thinking outside the box, they’re thinking inside the lunch box,” Anthony Albanese said. Education Minister Jason Clare said the opposition would “make students and workers pay for their bosses’ lunch”.

When he released the policy last month, Peter Dutton said it would be good for the struggling hospitality sector. “We want other small businesses to spend more at their local cafes, clubs and pubs,” Mr Dutton said. “And if they can take their employees to the venues and pay for a meal as part of a milestone sales event, or acknowledgment for their hard work, then it is a win-win for both businesses.” Leaving aside the merits of the policy, or how it would work in practice, it is a marginal proposal that does little to tackle the tax reform challenge.

The fact the opposition was prepared to double down in defence of the lunch plan gave the government oxygen to bluster its way out of the pressure it is rightly under on a range of policy fronts. A more fruitful approach would be to better prosecute what Mr Dutton told his partyroom; that Mr Albanese was “living in a parallel universe” by essentially saying families had never had it better because inflation’s off a bit but all these prices are up. This was a mistake made by John Howard in 2007 when he said “working families have never had it so good” as they were preparing to vote in Kevin Rudd.

Both sides are playing retail politics with what undoubtedly is a cost-of-living crisis for many people. But tax reform is central to addressing the real long-term problems facing the federal budget and economy. The fact is too much is collected from a shrinking pool of workers, particularly the asset-poor young. Labor’s decision to redraw the legislated stage three tax cuts unwound what had been a rare attempt to make income tax fairer. The result has been less incentive to work more and a tax system that will see any benefits of the tax cuts quickly eaten up by bracket creep.

Australia has one of the most progressive income tax schedules in the world, meaning those on higher incomes pay proportionately more tax as their incomes rise. We are on par with what have always been regarded as the high-taxing Scandinavian countries. Only in Denmark is income tax revenue higher as a proportion of total tax revenue. According to Australian Taxation Office figures for 2021, just over 4 per cent of those with incomes in the top bracket paid 35.4 per cent of all income tax revenue.

The hard work on tax reform is not, as the Greens would suggest, to slug big business harder. It is to take a hard look at how government spends the money it collects and to find ways to ease the burden of enterprise and encourage people to take risks. The federal government’s plan to introduce a tax on unrealised capital gains in high-balance superannuation funds is indicative of where the government stands. It is an extension of its attack on business through industrial relations reforms that give power to the trade union movement but make things more difficult for business, both big and small.

Mr Dutton has more work to do to convince voters he has a plan. Shadow treasurer Angus Taylor has said the right things but so far is short on detail. In a radio interview on Tuesday, Mr Taylor said the opposition had committed to a cap on taxes as a percentage of the economy. It would then cut wasteful spending as a way to reduce the amount government needs to raise in taxes. This is all well and good. But it does not address the structural reforms needed to restore the nation’s competitive edge. On paper we are a high-tax nation relative to our trading peers. This is true both for company and personal taxes. We have squandered what has long been our natural advantage in cheap energy, and seem determined to weaken this further by hobbling the energy export companies that have helped deliver us decades of prosperity. These are the issues, not a theoretical office lunch date, that should be occupying the minds of our political leaders.