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The ugly truth that Treasurer Scott Morrison refuses to see

Scott Morrison is burying his head in the sand over the Australian economy.

Scott Morrison is burying his head in the sand over the Australian economy. Photo: Getty

ANALYSIS

Treasurer Scott Morrison’s landmark speech in Sydney on Thursday was a classic head-in-the-sand statement of what’s ailing the Australian economy.

Mr Morrison went into considerable detail on things that aren’t politically embarrassing – China’s growth prospects, the limits of loose monetary policy around the world, the perils of low inflation and negative rates.

What a pity, though, that he was forced to ignore the elephant in the room – the complex system of tax loopholes holding Australia back.

That’s no accident. This government has fluffed, mismanaged, obfuscated and crumpled on key tax reform issues.

When they came to power in late 2015, Mr Morrison and Prime Minister Malcolm Turnbull insisted “everything” was on the table regarding tax reform.

Since then they have backed out of GST reform, mounted a deceitful campaign against negative gearing and capital gains tax reforms, ignored loopholes such as the salary packaging of vehicles purchased for non-work purposes, and are reportedly on the brink of watering down their superannuation tax concession reforms.

The problem

Putting the GST aside for a moment, that list of tax rules serves to transfer wealth away from people who don’t make use of them, to those that do.

No policy objective, such as stimulating economic growth or addressing inequality, is served.

Treasurer Scott Morrison at his Sydney speech on Thursday.

Treasurer Scott Morrison at his Sydney speech on Thursday.

Negative gearing and CGT discounts have encouraged Australians to rack up world-beating debts in the housing market and our banks to borrow heavily abroad.

Salary packaging of private vehicles takes tax dollars from a car owner not using the scheme, and hands them to their neighbour who is.

And over-generous super tax concessions punch a hole in the federal budget – not in order to get middle-income earners off the state pension, but to give the lion’s share of benefits to high-income earners who will never qualify for a pension.

Political opportunism

I have included GST reform in the list above because for a time Mr Morrison floated the idea of raising the rate from 10 to 15 per cent.

He then used bogus modelling to kill off the plan when voter backlash over the supposedly ‘regressive’ move became apparent.

What few people understood during that brief ‘debate’ was that a GST increase is one of the very few options for getting Australia’s most astute tax-minimisers to shoulder more of the burden.

But instead of considering real solutions that were on the table just a year ago, the Treasurer focused on the problems and falsely claimed again that only cuts to public expenditure would fix things.

Broelman - August 26 (taxed - RGB)

Cartoonist Peter Broelman’s take on the Treasurer’s speech.

He pointed out that Australia’s 25 years of uninterrupted growth is under threat (quite so), and if we get things wrong we’ll face recession and ballooning public debt (also true).

What he did not say is that the best way to ensure growth will be to encourage investment in productive assets, not ever-higher mortgages.

The best way to stimulate domestic demand is not to have one taxpayer struggling to pay their own bills, while their neighbour gets a cheque from the ATO for upgrading their car.

The best way to balance the budget is to help middle-income earners save enough to get off the state pension, rather than helping the wealthy avoid tax.

An efficient tax system – the kind that holds the economy back the least – is one where taxation is broad-based and fair.

That means sharing the burden between income tax, company tax, GST, land tax, transaction taxes, excise and so on in an optimal way.

Former Treasurer Joe Hockey and Prime Minister Tony Abbott liked to refer to 'leaners and lifters'.

Former treasurer Joe Hockey and prime minister Tony Abbott liked to refer to ‘leaners and lifters’.

And it means only exempting certain people, and certain companies from paying their share of the burden where there is a sensible policy outcome intended.

The very worst part of the speech was when Mr Morrison revived something akin to Joe Hockey’s ‘leaners and lifters’ slogan.

Australian is now divided, he said, in to the “taxed and the taxed not”.

That is intended to create the illusion that indolent youth and lazy middle classes are living it up on the taxes of a few.

In fact, plenty of the taxed-nots are from higher up the income scale.

Mr Morrison knows that, but he is failing to address the crazy distortions in the tax system that allow that to happen.

Read more columns by Rob Burgess here

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