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Tax expenditures as welfare for the rich

The Centre for Policy Development writes:

Imagine a welfare scheme that gave minimum wage earners nothing, but handed out $11,000 a year to those on the top income tax rate. Surely if any political party ever suggested such a scheme they would be run out of parliament and have their doors kicked down by commercial current affairs programs.

Yet, such a scheme already exists, and almost nobody says anything about it.

Dr Benjamin Spies-Butcher’s and Adam Stebbing’s paper Reforming Australia's hidden welfare state: Tax expenditures as welfare for the rich examines the inequities of the tax breaks and loopholes inherent in Australia’s complex taxation system, with particular reference to one of the most expensive tax breaks – the flat 15% tax on compulsory superannuation. The main points of their research are:

This paper outlines possible reforms to one of the largest tax expenditures, superannuation. By transforming this particular tax expenditure into a rebate program, which would be subject to proper budgetary scrutiny, Australia’s superannuation arrangements could be made more accountable and more equitable. If successful, this model could then be applied to other areas of tax expenditure.

Under the current system of tax expenditures on compulsory superannuation contributions:

  • Minimum wage earners receive no assistance.
  • Those in the top income tax bracket receive on average more than $11,000 per annum.

This paper proposes two alternative models for reform. The first is based on a flat rate similar to the First Home Savers Account. The second has a flat rate for those earning up to $80,000 per annum, phasing out after $100,000 – similar in design to the recent tax bonus included in the stimulus package.

These schemes would provide a much more equitable distribution of benefits.

  • Minimum wage earners would be up to $24,000 better off on retirement under the first model and $32,000 under the second; more than a year’s additional salary.
  • 85 per cent of wage earners would receive higher benefits under the second model.
  • Savings by low-income earners would be encouraged, reducing reliance on the pension.
  • Both models are revenue neutral.

It seems that Wayne Swan is already taking action. According to Peter Martin in today’s Age:

With very little publicity, Swan has asked the Henry review to bring forward the section of its report dealing with the taxation of superannuation. It will go to him in time to be considered in the lead-up to this year's budget. Submissions to that part of the Henry review (but not those to other parts) have already closed.

The review is certain to point to the unfairness and ineffectiveness of the super tax concessions we have now. We give high income earners — the most able to save for their retirement — the most assistance in doing so, and low income earners — the least able to save — the least assistance. Swan and Rudd, more concerned about Labor values than Labor tradition, are likely to listen. The party that invented compulsory superannuation might finally make it fair, or at least a good deal fairer.

Tuesday 12 May 2009 could be an interesting time to be in Canberra.


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Rudd minister admits he's worried by national debt

HAYDEN COOPER: Addressing the National Press Club, the Finance Minister revealed that he is losing sleep over Australia's step into debt.

LINDSAY TANNER: It's a very important question and one that I lie awake at night worrying about, I must confess. I, perhaps more than most, am very conscious of this.

He wasn't supposed to say that, was he? I bet Mr Rudd was delighted.

Better instead to chest thump over executive salaries and babble about neo-liberal "immorality"....

The times will suit them

I’m prepared to bet you almost anything you like (well, up to $50), Eliot, that the present members of the federal Opposition are thanking their lucky stars that they didn’t win the 2007 election.

Arrest rates and the bonus

I spoke to a copper in Brewarrina not so long ago who said that arrest rates shot up there after distribution of bonuses to the general public last year. Well, at least the money went to the local publicans! 

The horror, of course, at Rudd's economic stimulus package is that this is money that ought to have been transferred straight into the pockets of the middle classes through, for example, bonuses to the private sector like the $9M that Pacific Brands received in tax concessions for research and development.

The middle classes do like to suckle at the teat of the state and only get their wet and greedy mouths off long enough to chant a bit of Hayek into the ether before rapidly nestling in again.

The genius of Rudd's actions is that the stimulus package is money given to people who are labor voters.



Superannuation has been part of the landscape for twenty years or so and we know the underlying cognitive landscape did initially involve the tax break as much as a didactic device in explaining the notion of superannuation to the public, as with its superior efficiency as a financial mechanism.

But very little stays the same. Policies are devised and intended to overcome specific problems arising at a given historical moment, yet  it is not unreasonable to consider a fine tuning of the system in response to changing circumstances. There is always an underlying discourse revealed in public responses to policies implemented and the system can be fine tuned in response to the new synthesis, ensure the laudable goals of policy remain paramount and efficient.

Yes minister, precisely

Quite right, an upward move in the fiscal resources and viability of the already highly viable was always a policy direction much desired by Australian governments, especially those of Coalition persuasion. Well targeted welfare has much to recommend it.

Policy pursued with regard to capital gains, negative gearing, and of course the numerous other tax breaks of the "self-funded" retirees, are other good examples of such well targeted welfare.

What's that minister? politics? politics?. Well you might say that, but I couldn't possibly.

And while we are at it, I'm really not sure that giving $900 odd to the hoi polloi to spend willy-nilly is such a good idea. Perhaps the money would be better spent providing derivative investment incentives to underemployed brokers and bankers?

Thank you Fiona

This is what we knew but it needed someone with the time and competence to come up with the data.  Thank heavens for PhD scholarships.

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