Government clever at making us believe we're paying less tax

By cleverly pushing payments out of one column and into another, federal governments have bamboozled citizens into thinking they are paying less tax, but we're effectively paying more, writes Tom Orren.

MOST OF US remember the shellacking Julia Gillard received when (mostly right-wing) pundits labelled her carbon-pricing scheme a big, new tax. At the time, it stirred up a lot of debate about whether it was or wasn’t.

Yes, it was a charge imposed by the Gillard Government on businesses, but it didn’t apply to businesses that didn’t release huge amounts of carbon dioxide into the atmosphere. Not only that but most of the money collected was given to consumers to compensate for any price rises, so it didn’t linger in the Government’s coffers for long.

In the end, the "it’s a tax" side won the media battle and the next election broke the final straw for a price on carbon. However, that saga did nothing to resolve the debate about what actually constitutes a tax and today, we are increasingly being faced with payments that aren’t called taxes but certainly feel like them — payments for things that governments once provided out of our taxes.

Take road tolls. We’re told that getting a private company to build a road will save us money and reduce the tax we pay. By contracting the job to a private company, the government doesn’t have to fork out for a new road. The company covers the cost. Then, road users pay tolls to use the road. Eventually, it gets paid for and the company "gives" the road to the government. Sounds like a win-win, doesn’t it?

But, that "win" is singular because the company doesn’t actually give the road away. It makes a lot of money out of the deal because it always negotiates a generous amount of profit, including a guarantee that the government will top-up toll receipts if they are lower than expected. And guess where those top-ups come from? Our taxes!

Paying for what we used to own: The strange case of CSL

Australia will be paying nearly $1 billion to a privatised company providing pharmaceutical products that were developed when we owned it.

A toll road is almost a textbook example of a "user-pays" tax but, strictly speaking, it’s not a tax. It’s a payment to a private business for a service. At the same time, it’s also a payment by citizens for the cost of a road, so it sounds like a tax, but the government has shifted it from the community’s "tax" column to its "private expense" column.

Only, it doesn’t stop there. People start complaining about the high cost of road tolls, so, at the next election, the government offers rebates and free registration. Now the government has to guarantee the profits of the road-building company and pay rebates to motorists. And where do those rebates come from? From our taxes.

People thought they were getting a "free" road but of course, like lunches, there are no free roads. They were paying for it all the time. What’s more, they were paying more than before because those tolls are actually a form of tax — a surrogate tax that is collected via a private company.

What’s actually happening? In reality, a new road has been built but the way it was paid for has changed. Once upon a time, the government would have paid for it from taxes paid by citizens. Now, that same road is being built and is still paid for by citizens, but they are also paying for the profit of the road-building company, the toll rebates and the free registration. But nobody thinks they’re paying that tax.

It’s not unlike the old pea and shell game. I’ll hide this pea under one of these three shells. Swish, swish, slide, swish, swish, slide. Now, which shell is it under? Is it this one, this one or this one? Only, with government responsibilities, it’s more like: Here’s a government project, but how is it being paid for? Is it a tax, a toll, a fee or a voluntary payment? Of course, in reality, they’re all the same thing… money coming out of our pockets.

A similar thing happens with private education. Once upon a time, the government paid for public schools and anyone who wanted to send their child to a private school paid for it themselves. Then the powerful church lobby told us that everyone would save a lot of tax if the government were to fund private schools because fewer people would be a burden on the public system. A win-win solution or another pea and shell game?

Churches taking funding from public schools — it's abuse

Religious schools that once begged for limited monetary support now demand and receive a disproportionate amount of government funding, ensuring permanent disadvantage to public school children.

What the church lobby forgot to mention was that private school fees are just a tax by a different name. They call them "voluntary" but they’re actually a payment for a compulsory government obligation.

The church lobby insisted that their schools also receive government funding. Not just from the states (which are obliged to provide education) but from the Commonwealth as well. Now they receive fees, plus state and Commonwealth subsidies. In fact, they get more from governments than public schools and there are no prizes for guessing where that money comes from either. Our taxes!

Not only is the community paying more tax than it used to for education (in other words, private schools didn’t save a penny), but a lot of people are now paying a surrogate tax in the form of private school fees.

In reality, kids are still going to school, but what used to be paid for by taxes is now paid for by fees and taxes. Swish, swish, slide, slide: people think they’re paying less tax, but, as a whole, the community is paying more than it once did.

And a similar picture could be painted in regard to private health. Everyone thinks they are paying less tax for health care but they are actually paying more for it, only under a different name. Instead of taxes, they are called private health insurance premiums and increasingly larger gaps for private hospitals and private services.

Tax reform urgently needed as inflation soars

With the cost of living and wealth inequality still plaguing our economy, reforms are in need for our taxation system to stabilise it.

To understand the nature of this issue, we have to peel back all the layers that confuse reality. In reality, roads need to be built, kids need to be educated and hospitals are needed to treat the sick, and all these things have to be paid for.

People worked out long ago that the cheapest way to provide "collective wants" was to "collectivise" both the products and the means of paying for them. That is, for the government to collect taxes and then build "collective" resources for society: roads, schools, hospitals, waterworks and so on.

Then, in the latter half of the 20th Century, some clever business people figured out that "collective" products were actually cash cows — because people need them all the time, they generate a steady stream of cash flow. That’s when the push for privatisation started, but, by and large, it was just a huge a pea and shell game.

By cleverly pushing payments out of one column and into another, the government bamboozled citizens into thinking they were paying less tax… but we've really ended up paying more.

Tom Orren is a retired head teacher.