The relationship between taxpayers and government should be symbiotic – to the mutual benefit of each party. This is certainly what Adam Smith had in mind when he wrote that everyone should contribute to the support of government in proportion to the revenue they enjoy under the protection of the state. He also wrote that paying tax was a badge of freedom and not the mark of a slave. How times have changed.
A lack of fiscal discipline has seen ten years of budget deficits translate into over half a trillion dollars worth of debt. That is over five hundred thousand million dollars. You’d think that the government would have stopped spending money, cut staff, and salaries. Delayed, or even cancelled, big ticket spending items that are unaffordable? Well, no.
The government have turned a symbiotic relationship into a parasitic relationship. The past week has seen two disgraceful tax incidents.
At the last budget, the government announced a bank levy – a tax on tier-two bank capital. As if taxing capital was ever a good idea. This is a tax that strikes at the very heart of the banking system. Banking, as a business, involves lending borrowed money. Lending out your own money is venture capitalism. Expect to see some capital rationing and higher lending rates in the next few years as banks pass this levy onto their customers.
To make matters worse, the government contrived to apply this levy to only five banks. One of those banks has threatened to move their operations offshore. It takes a special kind of stupid to so obviously destroy Australian economic activity and local initiative. It seems, however, that our friends in Canberra are up to the challenge. Mind you – have they ever stopped to think why investment, wages, and economic growth have been so sluggish of late? Probably not.
Not to be outdone, South Australia has just announced they will be copying the federal bank levy. This is precisely the sort of state-based nuisance tax that the GST was brought in to eliminate. It is very disappointing that politicians are reneging on the tax deal that the Howard government negotiated with the Australian people when the GST was introduced a mere 17 years ago. Of course, it is very difficult for the federal government to hold the South Australian government to account when they themselves are trashing the Howard legacy.
Then there is the GST on low-value imported goods fiasco. The government has a tax law that will come into effect on July 1, 2018 but has asked the Productivity Commission to advise them how to actually make it work. Clearly, it can’t operate on the same basis as goods above the $1000 threshold. That isn’t economically viable – the government would be borrowing money to collect less tax than it cost to collect the revenue. Even our current crop of politicians realised that wasn’t too smart.
Plan B was to require online business platforms to collect the tax from their own clients and then pass it on to the Australian government. This required foreigners to voluntarily comply with Australian tax laws when Australian citizens have to be coerced into compliance. This would almost certainly have resulted in Australians being geo-blocked on many platforms. On the positive side, nobody would have to worry about the slow NBN speeds if Australians were excluded from online activity.
All this sounds like some low-budget slapstick comedy, but this is what tax policy has become. Canberra needs to get serious – stop trying to grow the tax take and focus on growing the economy.
Sinclair Davidson is a professor in the School of Economics, Finance and Marketing at RMIT University, a senior research fellow at the Institute of Public Affairs, and an academic fellow at the Australian Taxpayers’ Alliance.
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