I’ve been thinking a bit about tax today, mostly prompted by listening to a spokesdrone from the Business Council of Australia outline their submission to the Henry Review on Radio National this morning. Unsurprisingly he was arguing that the company tax and capital gains tax rates should be slashed and the GST increased, the same tune that the BCA usually sings, but it was enough to start me thinking.
There’s a lot of tax churn in our system, taking money with one hand and then giving it back to a particular demographic that’s politically useful. Possum Comitatus has looked before at the way that voters receiving Family Tax Benefit Part A impact the ALP vote but it’s certainly not the only game in town. Baby bonuses, first home buyer’s grants and funding grants to private schools are just a few more examples of people being handed back their own tax almost directly, albeit expensively, after multiple government departments have had to administer the payments.
In addition to handouts, our tax system also has a huge number of exceptions built into it so that people can claim certain expenses against their income tax. There’s a fairly good argument that can be made that we’d all be better off if we cut out tax deductions, government handouts and the cost of administering them, and cut everyone’s tax rate to offset it all. I’m fairly sure that if you put that proposition to almost anyone they’d tell you it was a great idea, however neither side of Australian politics seems to be rushing to embrace it as a policy. Why not?
You could argue that the ‘tax and spend lefties’ in the ALP aren’t interested in it because they have a fundamental addiction to stealing people’s money, but this doesn’t explain why the ‘small government’ Liberal Party didn’t do it during their eleven years in power. In fact, during the Howard years middle class welfare boomed seemingly counter to one of the traditional philosophies of conservative politics.
The simple answer is that everyone loves a handout, a windfall, free money. There’s perhaps no better example of this than pensioner lobby groups who argued after the 2008 budget that an increase in the pension equal to the Howard government’s annual pension bonus payment was not an acceptable policy change, there’s something that we like about receiving a lump sum payment.
But why are we so enamoured with getting a wad of cash rather than receiving the same amount of money, or potentially even more over a longer period of time? Certainly there’s an element of the desire for instant gratification, but I think that there’s more to it than that.
I think that a lot of us have simply lost the ability to manage our personal finances, tax time is an opportunity to undo all of the reckless financial decisions of the preceding year and go through the ritual paying off of the credit card balance. It’s no secret that many of us spend more than we earn, so without these little income supplements through the year plenty of people would be in a lot of trouble. Increasing people’s regular income wouldn’t fix the problem, it just changes the point at which they get over their heads, so in effect the taxation system has become a forced method of saving for people. While this is the case there is no chance of either major party making serious changes to the tax churn that people have not only come to expect, but have come to depend on.
If we are going to seriously reform our taxation system to make it more efficient and less complicated, we will also need to help better educate people about their personal finances. This is no small task, it took me ten years of working and making mortgage payments before I truly came to grips with our household budget, and it took the help of a professional financial planner to do it. There’s no ad campaign or series of brochures that’ll suddenly make the populace financially literate and so I fear that until we find another way to achieve it we’ll be saddled with the churning of our taxes.