National Reform Summit should look at all the options

20 August 2015

Opinion Article Published in The Australian Financial Review on Thursday August 20, 2015

by Cassandra Goldie, CEO, ACOSS

Australia’s future is in our hands. We are one of the wealthiest, most resource-rich countries in the world. Our public institutions are the envy of other nations. Our community is committed to fairness, we care about those who struggle, we celebrate diversity. Yet, we are deeply frustrated. We are frustrated by our political system, a parade of failed reforms. We do not understand why we lose great innovators overseas, nor why far too many of us live in poverty. The rise in unemployment worries us all. Our political debates pitch us against each other – young versus old, black versus white, citizens versus outsiders, gay versus straight – and we don’t like it.

So, as a community, it is time for us to lead, to show that common ground is possible and that, if we get the process right, breakthroughs can be achieved. That’s why ACOSS has joined the BCA, ACTU and others for the National Reform Summit next week.The current debates about our public budget problems show us the failure of reliance on politicians to lead the debates.We all want governments to provide essential services like healthcare, public transport and a decent social security safety net. Most people accept that the federal and state governments will face budget problems over the next two decades.

Yet the community was surprised by the severity and scope of the spending cuts in the 2014 budget. Our sense of fairness was affronted by savage cuts that fell on those who could least afford to pay. We have begun to doubt government commitment to universal access to essential services. Instead of opening a discussion with the community on how the budget problem could be solved, the government doggedly pursued a single solution: cutting social programs. For these reasons, the 2014 budget was rightly rejected.

In 2015, the government’s tax reform process started well. Launching the process with ACOSS, the Treasurer assured us that “everything was on the table”. But within weeks the government ruled out one option after another.

Echoes an earlier attempt

This experience echoes an earlier attempt at tax reform: the highly regarded Henry review. The then government announced some reforms, and ruled out others, without explaining the problems first and giving us the chance to shape the policy response.

As long as the tax debate is framed by simple slogans such as “lower taxes” we won’t progress tax reform. The reality is that, as the population ages – and our reasonable expectations of the healthcare system increase – governments will need more revenue to provide this and other essential services.

The alternative is that we pay for those services directly through user charges. If that’s what the government thinks should happen, let’s have that discussion. The backlash against the GP co-payment suggests that this is not the path the community want to take. If not, we need to turn our minds to how public revenue can be raised in future – modestly, fairly, and with minimal economic harm.

Some believe the answer is to increase the GST. Yes, let’s have the debate. Raising the GST is not as simple as it seems. What would the revenue of a higher GST be used for? To help the states fund health care and schools? To allow the Commonwealth to cut income taxes? To replace inefficient state taxes? We need clarity here.

The case for raising the GST to cut income tax is weak. As the government’s  tax reform discussion paper shows, our revenue from income and social security taxes is low by Organisation for Economic Co-operation and Development standards, and the GST is barely more efficient economically. If we shift revenue from income tax to consumption taxes like the GST all we achieve is to shift taxes from the top 20% of taxpayers to everyone else. “Compensation” is high risk and too easily taken away.

ACOSS accepts that all options should be considered to strengthen our revenue base. But we should explore first more equitable ones than raising the GST, such as restoring the personal income tax system for people older than 65. Less than one in five older people pay any income tax, because of their higher tax-free threshold and the sheltering of income from tax through superannuation.

More creative

Our policy solutions should be more creative. Rather than increasing tax rates, start by closing tax shelters. Start by replacing inefficient taxes like stamp duties with efficient ones like land taxes. Start by treating investment income consistently. In this way, governments can raise more revenue, and do so more fairly and efficiently.

On spending, let’s start by removing past largesse, not hitting those who can least afford any losses. We should curb wasteful spending to invest in areas of chronic neglect, such as disability services, mental and dental health, and the poverty-inducing Newstart Allowance.

The recent tightening of the pension assets test shows there is room to target better some social security payments but we already have the most targeted income support system in the OECD, so there are limits to what more can be done without causing harm.

Governments also need to get smarter in the way they fund and deliver services. Too little investment is made in prevention, and too often subsidies to the private sector benefit only providers rather than expanding care, including through the private health insurance rebate and the Extended Medicare Safety Net.

All of these options – revenue and expenditure – should be considered. We need to move beyond simple slogans and combative politics, look together at the evidence, and give the community an opportunity to debate them. As we move towards next week’s National Reform Summit, ACOSS is committed to finding common ground and to stay the course on the hard debates. We hope the summit helps open the door on a fresh start for national reform, and that Canberra might follow our lead.

Cassandra Goldie is chief executive of the Australian Council of Social Service