20 August 2009

Submission to the Henry tax review

Dear Dr Henry,

Re: Tax Reform

I write with suggestions for tax reform that has positive effects on Australia and away from policies which, while convenient or attractive in some ways, may be ultimately counterproductive. The particular issues I would like to raise are:

  • Levels of income tax and welfare

  • Income tax assessments

  • Deductions and incentives for farm income and equipment

  • Centralisation of tax collection at the Federal level

Levels of income tax and welfare

It is self-defeating to take earned income away from people and give it back as welfare transfers.

Where people face disincentives in moving from unemployment to paid employment, in terms of losing benefits (such as public transport concessions) and/or facing additional costs (such as childcare), this represents a lack of consistency in government policy toward encouraging people to support themselves and for welfare to support those unable to meet their most basic needs through paid and productive employment.

Those who rely largely or wholly upon welfare payments for their income (or who earn income at a similar level) should not have income tax deducted from their payments. The money moving from Treasury to Centrelink (and other welfare agencies) and then back, and forth, and back again year after year calls to mind the dirty water that collects in the bottom of a boat: it serves no productive purpose, and ultimately impedes the function of the craft and its journey.

Money taken from low-income earners only to be given straight back is never put to any productive purpose, neither helping people in the short term nor the community as a whole over the long term. Surely, chasing down income at the level of around $200 per week is demeaning and inefficient for ATO workers.

There has to be a level of income at which a person ceases to rely on government benefits and starts to earn enough to make a contribution to the wider community: this is the level above which income tax should be levied. People who move from welfare dependence to paid employment should keep as much of their earnings as possible until they get to a point where they can and should help others, at the very least by paying tax.

Income tax assessments

I understand that an overwhelming number of Australians earn their income through eminently traceable means such as employment and dividends. It should not be necessary for an individual to submit an income tax return unless he/she is claiming a deduction.

Deductions and incentives for farm income and equipment

I would urge you to investigate whether tax deductions ought to be available for commercial losses. The pursuit of tax-deductible losses distorts both the economy and the body politic.

The deductions that make four-wheel drive vehicles cheaper than other vehicles of equivalent size (under the assumption that they are primarily used by rural people in a rural environment) requires close scrutiny. The prevalence of four-wheel drives in our cities and the lack of social amenities to cater for them (such as parking that allows for such large vehicles) makes a mockery of the rural assumption. It also foregoes revenue that might enable social infrastructure to be upgraded – or which might adjust consumer pricing to the point where these vehicles may not be so prevalent in environments other than the rural ones for which they were intended.

No tax deductions should be available for farming on land which is environmentally destructive. For example:

  • Water-intensive farming in areas where water is naturally scarce should negate tax concessions of any kind;

  • Fertiliser based on fossil oils should not incur concessions either.
    This is not to say that all farmers should be prevented from getting any concessions; rather, those who incur more costs to the community than benefits should not be subsidised.

Rather than ban counterproductive farming practices in a heavy-handed way, the tax system should be used to demonstrate sanctions against such activity and put the onus on the perpetrators of such activities as to whether they are truly viable. Government policies seeking positive environmental outcomes along our waterways and rural communities are stymied and countermanded by perverse incentives that lead to poor environmental and economic management, and these should cease.

I understand that political activity by farmers over many years has led to farming receiving incentives that pervert the market, blight the landscape, misapply water and other resources and cost Australia dearly in all sorts of ways. I understand that political problems can often only be solved by political solutions.

Nonetheless, it is a core function of a review like yours that these issues be examined for their wider impact and that the wishes of sectional interests – some less significant in our national life – can be cast in a different light. It would be worth testing whether the status quo would be fully restored.

Centralisation of tax collection at the Federal level

I disagree that tax collection for all governments should occur at the national level.

Part of the irresponsible and inefficient nature of federal-state relations in this country comes from the fact that governments spend money they don’t raise. It is a basic feature of responsible government that those responsible for spending money should also be accountable for raising it; the fact that this does not happen in Australia makes for poor government overall, and this will get worse rather than better with centralised tax collection.

A reassessment of which governments collect which taxes requires a re-examination as to which functions of government are performed at the federal, state or local level. This may require Constitutional change. To some extent tax reform should follow a review of which functions are performed at which level of government, rather than second-guess or obviate such an urgent and, admittedly, far-reaching task.

Thank you for your consideration,
Andrew Elder.

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