In August, the Albanese government will hold an economic 鈥渞oundtable鈥 that will discuss productivity, budget sustainability and resilience. Australia鈥檚 tax system will be one of the central issues, and stakeholders are gearing up with their varying arguments for changes.
Ken Henry, a former secretary of the Treasury, has been part of the tax debates of the past 40 years. He was a treasury official working on tax at the time of the Hawke government鈥檚 1985 tax summit and led the major review of the tax system commissioned by the Rudd government.
Henry is a passionate advocate of bold tax reform, especially reform that tackled intergenerational inequity, and he joins the podcast to discuss the issues.
Looking forward to the roundtable, Henry outlines some of the many changes that he thinks should be considered,
Firstly we鈥檝e got to get rid of the remaining transactions taxes like stamp duty on property conveyancing and so on [鈥 that alone means there has to be a commonwealth-state exercise.
Secondly, we鈥檝e got to extract more revenue from the taxation of natural resources and also land.
Thirdly, we鈥檝e got to get more revenue from the taxation of environmental externalities. In the tax review published in 2010, we were developing that at the same time as the Treasury and other departments were developing the Rudd government鈥檚 carbon pollution reduction scheme. We thought that there was going to be quite a significant carbon price in Australia. We don鈥檛 have it today 鈥 we should.
Henry wants a tax system that does not disadvantage younger people who are in the workforce; he says the present 鈥渓azy鈥 reliance on bracket creep to 鈥渂ring the budget back to anything approaching balance is doing enormous damage to younger people in particular鈥.
On reform generally, Henry says he鈥檚 鈥渄isappointed鈥 that more hasn鈥檛 been done on the recommendations from his review.
I鈥檓 very disappointed, but I guess one would expect me to be very disappointed. And he laments Australia鈥檚 鈥渁bysmal鈥 productivity performance over the last quarter century.
When I then reflect on what鈥檚 happened to Australia鈥檚 productivity performance, I mean we were saying in 2002 that we really should aim to get the productivity growth rate up from 1.75% to 2.25% a year and in fact if you look back now over the first 25 years of this century right what we actually achieved was only three quarters of one percent a year. That productivity performance is just abysmal.
To put it in terms that everybody will understand, had we achieved the two and a quarter percent a year rather than three quarters of a percent a year, the average wage and salary earner in Australia, their income would be 45% higher today than it is. This is not small stuff, this is huge stuff.
Despite backing significant reform, Chalmers has been a long-term opponent of GST reform, although not ruling it out completely. Henry says all options should be left on the table,
It would be better not to constrain the reform process by ruling the GST out and that was a shame for those of us who worked on the Rudd government鈥檚 tax review [鈥 that the terms of reference that we were given said that you鈥檙e not to make any recommendations concerning the GST.
Those who are having a good hard look at how to restructure the Australian taxation system should not have one hand tied behind their backs. Having said that, I do think it鈥檚 possible to achieve major reform of the Australian taxation system without necessarily increasing the rate or extending the base of the GST.
On Chalmers鈥 plan to tax unrealised capital gains on big superannuation balances, while not directly opposed, Henry says there are other ways to make the system fairer,
I鈥檓 not opposed to it. It鈥檚 just that I think there are other ways of increasing the taxation that applies to high superannuation balances and improving the intergenerational equity of the superannuation system. In the tax review that the Rudd government Commissioned, which I led, which was published in 2010, we spent quite a lot of time detailing how we thought the taxation arrangements applying to superannuation could be improved.
The thing that stands out is this big difference between the taxation of superannuation fund earnings in the so-called accumulation phase and the treatment that they get in the so-called pension phase, So [鈥 these poor young workers, struggling, see the earnings on their accumulating superannuation balance as being taxed at 15%, whilst those who have big superannuation balances and are in the retirement, the earnings in their superannuation funds are completely tax-exempt, And that just seems rather weird.