Economists uninspired by Labor’s ‘illogical’ $2.4bn tax return policy

Economists hungry for widespread fiscal reform believe Labor’s deployment of a ‘piecemeal’ tax return policy insults the innovator who first suggested it.

Anthony Albanese with former PM Julia Gillard, who led Australia during the Ken Henry tax review, as Finance Minister Katy Gallagher watches. Picture: Jason Edwards

You can now listen to The Australian's articles. Give us your feedback.

You can now listen to The Australian's articles.

Labor’s $2.4bn promise to give all Australians a $1000 “instant tax deduction” on work expenses is a “very populist Band-Aid” that had “little economic logic behind it”, experts have warned.

At Labor’s campaign launch in Perth on Sunday, Anthony Albanese announced the “instant tax deduction”, which would guarantee each Australian would be able to “opt in” for an automatic tax deduction of $1000 on work expenses.

The Prime Minister said it would be a simple, quick cost-of-living relief measure for Australians.

“No paperwork, no box of receipts, no scrolling through your online banking – just tick the box and your return is ready,” he said.

“Every year, millions of people who work part-time, or work from home, or don’t have an accountant to navigate the tax system for them miss out on claiming deductions they are entitled to and pay more tax than they should.”

‘Band-Aid coverage’

Mr Albanese said it “took away the hassle” of tracking expenses across the year, but that people would be able to choose the standard deduction or do an itemised return if their claims went over $1000.

However, the policy – costed at $2.4bn over the forward estimates – was pulled from the recommendations of economist Ken Henry’s 2010 tax review, leaving economists underwhelmed at its “Band-Aid” coverage when it was born from a paper with ambitions for system-wide fiscal reform.

“(The proposal) is part of the general pork barrelling on both sides, so I wasn’t particularly surprised. I don’t see a lot of economic logic behind it,” UNSW economics professor Richard Holden said.

“I think Ken Henry’s review came up with a lot of good ideas, and I don’t think many of them were put to work.

“And if the government wanted to do that, they could do so. I don’t think this represents a meaningful step in that direction.

“The Henry tax review was holistic. It was about not just (something you could) pick and choose one or two things from … it wasn’t like ordering off the menu.”

Economics Professor Richard Holden was unimpressed by the Labor announcement. Picture: David Beach

‘Slightly farcical’

Professor Holden acknowledged the reform would cut down the price of compliance for those seeking to extract more earnings from their tax return.

Former Treasury official and Outlook Economics director Peter Downes similarly argued the policy went against the core intentions of the document it was born from.

“We’ve got spending pressures, but we need to raise revenue efficiently to meet that expenditure and so we’re in desperate need of reform of the tax system,” he said.

“The treasurer has ruled out a major review of the tax system, and what we’re getting from both parties are these piecemeal Band-Aids.

“It all seems slightly farcical to me … It’s all for the 24-hour news cycle, and to get their names out there and to be seen to be doing something, but it’s very populist.”

Senator James Paterson says the government “couldn’t be trusted”. Picture: Martin Ollman

The Coalition’s campaign spokesman, Senator James Paterson, said it showed the government “couldn’t be trusted”.

“Labor promised this once before only to scrap it later when they ran out of money,” he said.

“With Labor you need to look at what they do, not what they say.”

‘Big change’

But Finance Minister Katy Gallagher said that the tax return policy was a tangible improvement for Australians.

“(This is) about looking at ways we can lower people’s taxes, but also ensure that we’re running an efficient tax system as well. So this instant tax deduction really is a big change to the way our tax system works. And it means for those that don’t have a lot of tax to reduce or receipts or expenses, that they can opt for this track,” she said on ABC News.

“We’ve got our top-up tax cuts and now we’re making some efficient reforms with the $1000 instant deductions. So I think we have made progress. But it’s not an easy space.

“There isn’t a uniform view about how you proceed. But we’ve tried to deal with (tax reform) in components, in areas where we think we could make reform and we’ve done that in a pretty difficult political environment.”