Smorgasbord of sensible reforms gets no grazers

Scott Morrison is heading into an election due by May that will be a referendum on pandemic management. Picture: Dylan Coker

The rich countries’ economic think tank has laid out a smorgasbord of sensible policy reforms in its latest survey of Australia – but our political class has no appetite for protein-rich offerings.

There are too many potential losers in this suite to scare even the bravest of legislators, not that anyone is putting their hand up for that right now.

Covid-19’s crisis-mode governing – spend big, think small – explains only part of Canberra’s reform laziness. There’s no zest to try to do things in a better way because it is politically risky and difficult to win the partyroom, let alone secure passage of legislation through the parliament.

Both major outfits have been tax-reform wreckers for dubious short-term wins.

Take the Coalition’s three-stage tax plan, with its aim of removing an entire bracket so that about 94 per cent of taxpayers face a marginal tax rate of no more than 30c in the dollar. It also involves a hefty stage-three tax cut for top earners, who pay the bulk of tax.

This system flattening aids workforce participation. It is really fiscal housekeeping to maintain progressivity for all, but the level of panic stoked by Labor and its Twitter surrogates was insane. Then in July, Labor backed off on its stage-three grandstanding.

As the OECD highlighted ahead of this year’s budget, workers here labour under the third-highest income tax burden in the world, behind only Denmark and Iceland.

We rely much more on personal tax than other developed countries do, because we have a high top-marginal rate of tax, and that top rate cuts in at relatively low levels of income.

The OECD also calls for the removal of the capital gains tax concession and reform of negative gearing, which Shorten Labor proposed but which have also been abandoned.

What started as a set of worthy tax changes soon morphed under the Coalition’s outsized scare campaign into a revenue grab to fund redistributive social engineering.

Broadening the tax base or increasing the GST are sound, but only if the aim is to improve overall efficiency and fairness, while ensuring fiscal sustainability to meet the challenges of ageing outlined in the Intergenerational Report.

The national game plan should be to grow the economy, improve its ability to sustain a faster pace for longer, lift incomes across the board, optimise our resource use, and meet at least-cost our carbon emission obligations. With an election due by May, we won’t be debating a path to a growth economy or innovation; we’ll be stuck in smears and a referendum on pandemic management.