Turnbull talks tax trash

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Turnbull's claim that rehashed "trickle down reforms" will not be "keenly felt" in the community during the lowest wage growth on record are farcical, says John Passant.

AFTER TRUMP'S ELECTION VICTORY, multi-millionaire ex banker and Cayman Islands investor, PM Malcolm Turnbull began attacking the ABC and media "elites".

Then the harsh reality of capitalism hit and Turnbull returned to a familiar theme.

In a speech to the Business Council of Australia, Turnbull said:

"The need to undertake reforms to deliver long-term gains for all Australians, which may create winners and losers in the near term, isn't keenly felt in many parts of Australian society."

With real unemployment at over 9%, with inequality continuing to increase, with wages rising at a record low rate of 1.9%, and with more than 2.9 million Australians (including more than 731,00 children) living in poverty, the real question is: who will be the losers and who will be the winners? No prizes for guessing that the billionaires will be okay but that poor people and workers won’t.

Back in May, the Turnbull-Morrison Budget announced the company tax plans costing an estimated $48 billion over ten years.

The trend in Australia for decades under both Labor and Coalition governments has been one of increasing poverty and increasing inequality. The key fact behind this has been what is happening to wages.

As Richard Dennis says in the Canberra Times:

Wages account for 44 per cent of all the income earned in Australia, down from 48 per cent about 30 years ago. But it is not just the share of national income accruing to workers that has fallen steadily in the past few decades, the share of wage income accruing to low income workers has fallen faster still.

Not only has the minimum wage risen more slowly than the average wage, but the number of people working short hours on low pay has risen rapidly as well. Of course, no one is worse off financially than the unemployed, which begs the question of why Turnbull recently tried to cut their incomes by $230 a year.

Another way of looking at it is that the share of total factor income going to labour has fallen from a high of 63% to around 52-53% today. The share of total factor income going to capital has increased from about 17% to 27% over the same period.

Tax is also an important part of increasing inequality.

With cuts to the company tax rate and to the top rates for individuals, according to the OECD:

‘ ... since the mid-1980s, [Australia’s] taxes have become less redistributive. Both progressivity and average tax rates have declined.’

In essence, the income tax system has become more regressive. The goods and services tax (GST) over time has compounded that.

Last year, Malcolm Turnbull said nothing was off the tax reform table. A backbencher did his dirty work and floated the idea of extending the GST to spending on essentials like fresh food, health and education — a move which would have hit low income earners much harder than the wealthy. There was also talk of increasing the rate from 10% to 12.5,  or even 15%. After a huge backlash, Turnbull ruled out any changes to the GST.

The Turnbull Government has an agenda to cut the company tax rate from 30% to 25% over the next decade, graded from small business to big business over that time. While there is some argy bargy over timing and what constitutes a small business, essentially, in ten years time, the company tax rate for billion dollar companies will be 25% if the Government gets its way.

There are a couple of flies in the tax cut nirvana ointment. First, given the budget deficit of this government, the lost revenue will be paid for by cutting services, services which overwhelmingly help poor people and workers. In an open letter to Malcolm Turnbull back in April, 50 leading Australians warned against the government’s proposed big business company tax cut plan. They said that it would be ‘ … at the expense of services that everyday Australians rely on'. They argued for fairness, the exact opposite of what neoliberals like Turnbull and Morrison want.

Bill Shorten tapped the mood of the nation when, according to Gareth Hutchens in The Guardian, he asked:

How on earth does a $50bn tax plan help Australians battling flat wages right now?

If Mr Morrison now wants Australia to go back to the failed policies of rightwing economists from 30 years ago, cutting taxes for the top end instead of investing in jobs, education, Medicare, and protecting the vulnerable, well, we need to tell him that Australia is different to that, we’re better than that, we are a kinder, more inclusive, more equal place.


Another fly in the ointment is Donald Trump. His promise to cut U.S. company tax rates from 35% to 15%, has emboldened the Business Council of Australia and other business figures to urge the Turnbull Government to continue with its proposed company tax rate cuts. This puts pressure on the Government, in the interests of being "internationally competitive", to go further than cutting to 25%.

Turnbull’s "winners and losers" speech to the Business Council of Australia is basically rehashing the discredited "trickle down" theory. The argument is that the more money we throw at capitalists and the rich (tax cuts, wage cuts for their workers, subsidies, unpaid overtime of their workers, sacking some of their workforce) the more jobs and higher wages there will be. It is the false argument of rich, white fakers like Trump and Turnbull.

Apologists usually argue there will be more investment if business has more money, but even if there is, the real object of business is profit, not more jobs and higher wages — and competition often forces them to invest in labour saving devices. The experience of the past 30 years shows this idea of more investment, more jobs and higher wages to be almost globally incorrect in the short, medium and long term. Economists, economics journalists and commentators have debunked the idea.

For example, the International Monetary Fund said recently:

'... if the income share of the top 20 per cent (the rich) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20 per cent (the poor) is associated with higher GDP growth.'

There in a nutshell is part of the answer. For those on Newstart and other social welfare payments, increase them by about $140 per week to put them above the poverty line of about $400 per week for a single adult. One way of doing this might be to consider a universal basic income, where everyone is paid enough to live on.

The best way to reduce inequality is to increase wages. We can also use taxes as a tool to reduce inequality. I have set out some tax suggestions in an earlier article here.

The letter from 50 leading Australians summarised that general direction well:

‘ ... serious tax reform package designed to be "fair" should address as a priority the current generous tax concessions to the top end of town, inequitable distribution of superannuation tax concessions and the capital gains tax discount ... ’

As I have argued before, a net wealth tax, dealing with negative gearing and a Buffett Rule for the 36% of big business that pay no income tax – such as imposing a small tax of say 3% on their gross untaxed revenue of $458 billion – should all be part of our tax armoury as well.

It’s time to make the rich the losers, and the poor and workers winners.

Read more by John Passant on his website En Passant. You can also follow John on Twitter @JohnPassant.

Signed copies of John Passant’s first book of poetry, Songs for the Band Unformed (Ginninderra Press 2016) is available for purchase from the IA store HERE.

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