Finance Finance News Michael Pascoe: Whatever Frydenberg comes up with, it won’t be tax reform

Michael Pascoe: Whatever Frydenberg comes up with, it won’t be tax reform

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In the government’s pattern of playing catchup with the unfolding economic crisis, its preferred stenographers report Josh Frydenberg this week will announce JobKeeper will be extended.

This has been a no-brainer, just like permanently increasing the JobSeeker payment.

Yet, for reasons only known to itself, the Morrison government has been happy to let the threat of the “September cliff” loom over the economy these several months, to let businesses and individuals worry that the main fiscal supports announced in March would suddenly disappear six months later.

Such a threat is enough to make people batten down whatever hatches are available to them, unleashing the classic “Paradox of Thrift” whereby what makes sense for the individual in risky times is bad for everyone if many people do it.

PM Scott Morrison and Treasurer Josh Frydenberg are unlikely to deliver any reform. Photo: AAP

It is possible to think Mr Morrison and Mr Frydenberg have been naïve enough to believe the nation really could just “snap back” from the greatest economic shock since the Great Depression, never mind the reality that pandemic they want us to “live beside” is not disappearing.

It is also possible to believe the Prime Minister and Treasurer have been loath to let go of the neoliberal dream of letting “market forces” deal with unemployment – and all the human tragedy that would entail.

Or maybe it has been that pattern of catchup, starting from the government’s first attempt at support which it recognised as hopelessly inadequate almost as soon as it was announced.

Whatever the case, they are set to have another crack on Thursday with what might be something of a mini budget. Or might not be.

At a time when certainty is in short supply, the government seems to have no particular desire to provide more.

But what we do know is that the government won’t announce any genuine tax reform.

Oh, there’s speculation the government might try to bring forward the flattening of our progressive income tax system it has already managed to legislate.

I’m not sure if that qualifies as “reform”, being primarily in the nature of deleterious fiddling, but it’s already in the system anyway.

And, as The Guardian’s Greg Jericho has nicely explained, it would do Sweet Fanny Adams for the vast majority of Australians as it would only benefit the relatively well off.

Real tax reform – taking a step back to look at what is good and bad about our tax system and taking a knife, hammer and nails to it – is simply impossible for this government.

Every galah in the pet shop knows broad reform could be to the long-term benefit of the nation and all who sail in her except the most privileged of rent-seekers, but the galahs can be relied upon to screech at cross purposes.

Every interest group would be offended if reform was done properly. To get away with that, a government must have political capital to invest – and this one does not despite Mr Morrison’s present personal polling, as demonstrated by the Eden-Monaro by-election.

For cheap political reasons, the government has already ruled out some of the things responsible reform would require – for example, at least capping the blowout in dividend imputation rebate paid to non-taxpayers and reducing negative gearing and the capital gains tax discount.

And this government would not be trusted with a key part of real reform – restoring the balance of income and consumption taxes, alias increasing GST revenue.

morrison negative gearing rents
Negative gearing has already been ruled out even though it is a sensible reform. Photo: AAP

It’s heresy on the left and in the centre to suggest GST should be increased, but it is possible to rationally broaden the GST’s base and compensate those who would need to be compensated.

Personally, I’d favour broadening the base with appropriate compensation but keeping the rate at 10 per cent. (There’s a reason God gave us 10 digits across our two hands.)

Besides, GST as it exists is often ridiculous. I’ve given examples of its application to food before and will happily repeat myself: It’s easy to fall through the looking glass when you start examining what “food” is exempted and what is taxed.

And this for a tax that was supposed to do away with all the stupidity, contradictions and the-number-of-angels-on-a-pin inherent in the appalling previous sales tax system.

Biscuit crumbs and biscuit-base mix cop GST, cake mixes do not. Chocolate-liquor flavouring, chocolate spreads, “chocolate dessert cups” (whatever they are), confectioner’s chocolate not marked as an ingredient for confectionery and some chocolate drinking preparations are all GST-free, but chocolate itself, chocolate-coated nuts, chocolate drinks, confectionery chocolate marketed as an ingredient for confectionery and some chocolate drinking preparations are taxable.

Bones sold for human consumption are GST-free, dogs are supposed to pay tax on their bones. (And that’s 70 per cent in dog tax.)

Your turn to guess: Uzhunnu vada (Indian deep-fried urad bean balls) and Melba toasts – GST or not?

Answer: Your uzhunnu vada is GST-free; the Melba toasts, well that depends – the baked or dried variety is tax free, the fried cops tax.

Maple syrup, sugar-laden tomato sauce and pesto are all GST-free, healthy salt-free roasted nuts pay tax. Non-alcoholic apple cider with no food additives is tax-free, unfermented grape juice still containing 5 to 8 per cent pulp is not.

Then there’s the chook: alive, she’s taxable; dead and raw, tax-free; cooked and hot, taxable; cooked and cold, tax-free.

And while the humble hot-cooked chook, for less than $10 from the supermarket and the core of a quick working family’s dinner, is taxed, the $100 a kilo of raw wagyu fillet is not.

It is very silly indeed and needs reform, along with a bunch of other stupidities and failings in our tax system – but you can be sure the government won’t.