Major parties have no plans for updating engine of ageing tax system

Like Seinfeld, the election is a campaign about nothing.

This really is a Seinfeld election campaign: it’s about nothing, certainly when it comes to the economy. Neither major party has a plan for the future, despite the significant challenges we face.

Don’t be fooled by the bluff and bluster of the opening week of the campaign.

Anthony Albanese’s gaffe on the unemployment and cash rates was certainly a bad look but ultimately meaningless to the heavy lifting required to ready our economy for the future.

Equally, the Coalition might benefit from perceptions that it is the better economic manager, but after 8½ years in office it has next to nothing to show for it; no substance to support the perception voters have.

In truth, the national economy has been largely on autopilot since the heady days of the Bob Hawke-Paul Keating reforms and what John Howard and Peter Costello did to build on that legacy. The latter pair would take exception to being described as an addendum, which probably undersells their importance, but there is no denying the initial importance of the micro-economic reforms and modernisation measures instituted during the 1980s.

Through the years I have interviewed, talked privately to and studied the records of all four of these giants of modern Australian politics, and I can tell you that each in their own way has been critical of how little has happened since their day. Howard is the most polite of the four about politicians of today, but even he knows how underperforming Australia’s political leadership has been for a decade and a half when it comes to managing the economy.

There are differences between the agendas of the two major parties fighting this year’s election. These include substantive points of difference – on climate change, the structure of a national integrity commission, funding levels for services such as aged care and childcare – that voters can look at when determining who to support.

There are also different priorities when it comes to infrastructure plans, perhaps on border protection too.

But the heart of the economy is the tax system, and neither party has anything resembling a plan to make it fit for purpose for the coming decade. It is antiquated and overdue for an update.

Think of the Australian economy as a car and the tax system as the engine, the most important component. Both major parties are polishing the exterior, debating what colour and shape it should take, even arguing about the layout of the interior. But the engine is old, outdated and in need of a major overhaul.

At the moment there is a disproportionate reliance on income and company taxes, buttressed by a whole host of complex and inefficient taxes to go with that, spread between tiers of government. There is stamp duty, which discourages the buying and selling of property (which will matter if there is a downturn or interest rates go up); and payroll taxes, which discourage businesses from employing more staff. These won’t change without federation reform, which has been taken off the table.

Income taxes dominate revenue streams for federal governments. When their budgets get out of control, bracket creep is used slowly to fix the structural deficits so politicians don’t have to do anything meaningful.

Recently we have seen cuts to income taxes. But doing so without widening the reform remit has added to the structural deficit in the budget that exists well into the future. Company taxes have come down, but not enough to mirror like-for-like economies around the world. That risks offshoring, in the same way high income taxes risk a brain drain.

But you can’t make such taxes more internationally competitive by cutting them without lifting taxes elsewhere, unless a government is prepared to reduce the size of government. At the moment there is a cultural shift towards citizens expecting more, not less, of government, so the days of economic liberals downsizing the role of the state no longer jells with community wants. That, at least, is my reading of the situation.

So what can governments do? There are many prudent internationally tested tax reforms that could be embarked on, but neither major party is willing even to have the debate because the sorts of reforms that should be on the table are considered taboo.

I’m talking about inheritance taxes; taxing the family home; reforming the superannuation system so the ageing population of the future pays its way rather than leaving a debt burden and recurrent expenditure problem for younger generations. Sin taxes are worth a closer look, too.

The tax burden can’t result in a shift to consumers, however. Businesses have to pay their way, especially if the broadbased company tax rate is to come down. That could involve targeted industry taxes, for example; super-profits taxes or environmental penalty taxes where offshoring isn’t an option. But we need a rigorous scholarly debate first so outcomes are robust and not driven only on a whim.

Unfortunately, in Australian politics, any party or politician who seeks to start a debate about any of these issues is shot down almost instantly. They wouldn’t get their ideas into the internal party debate, much less be permitted to ventilate them publicly, secure something like a tax summit to do so more formally, then embark on a sales pitch to win a mandate for reform in an electorate.

Even if they did get that far they would likely lose the election in which such issues were fought because, in campaigns, fear of change trumps hope and prudent planning for the future.

So what is left? Nothing; no plan by either side to tackle the reforms previous leaders did. The current generation of politicians presumably was drawn to their vocation because of those who inspired them in the past and because of issues they fought for.

On the Labor side, I suspect too many of the current generation real­ly were inspired only by Gough Whitlam, who despite embarking on many important social reforms after decades of conservative governance, didn’t really pay much attention to economic settings.

To the extent Hawke and Keating were inspirational to current Labor politicians, it was their charisma, their capacity to win elections and dominate the floor of parliament, that shone brightly – in other words, the theatre of politics. I don’t hear too many Labor politicians today lauding the economic reforming credentials of Hawke and Keating beyond using them as a punch line. If it were more than that, they would aspire to do more now because otherwise they are no credit to the past leaders they look up to.

It is no better on the conservative side. Liberals, in particular, like to hold themselves up as fiscal conservatives, the better money managers. But they do nothing to support such a claim. Economic reform, making the tax system fit for purpose and able to support what government does, is how you live up to the mantra of being a fiscal conservative. If Howard hadn’t legislated the GST and reformed industrial relations, he wouldn’t have been able to pay down debt and balance the budget. Both areas, instead, would have been a drag on the economy.

This Coalition government is asking for a fourth term having done next to nothing to modernise the economy since it came to office, and it certainly has no plan to change that pattern of neglect if it wins again.

Peter van Onselen is a professor of politics and public policy at the University of Western Australia and Griffith University.