Presentation on theme: "Wayne Gumley Tax Reform After Henry: There’s a Hole in the Bucket."— Presentation transcript:
Wayne Gumley Tax Reform After Henry: There’s a Hole in the Bucket
The 2010 Federal Budget Statement 5 Revenue $285BStatement 5 Revenue Individuals $120B Companies $51B GST $50B Petrol/diesel excises $13B Super funds $5.9B FBT $3.6 Royalties $1.3B Petroleum RRT $1.25B Tax Expenditures Statement 2009 $102BTax Expenditures Statement 2009 Does not include ‘unmeasured’ TEs CGT concessions for main residence $31B Superannuation $21B GST $9B
The Victorian Budget State revenue $43BState revenue Payroll tax $4B Land transfer tax $3.5B Land tax $1.28B Royalties $48m* $22B (50%) by Fed grants (GST) State tax expenditures $3.1BState tax expenditures Land tax exemptions $1.9B Payroll tax exemptions $0.8B Land transfer duty $0.2B * contrast: WA $2.4B, Qld $1.4B, NSW $0.5B
The Henry Review Terms of reference 3...... the environmental challenges of the 21st century 3.4..... enhancing the taxation on consumption property and other taxation by the States 3.6...... the interrelationships with the proposed emissions trading system. 9....... consideration of all relevant tax expenditures.
“environmental challenges of the 21st century” HR Overview at 1.5 – brief mention of ‘growing environmental pressures’ but lacked specific description Concludes taxes can help address environmental problems –but difficult to design and implement - see HR Part 2 –Carbon taxes? - uncritical acceptance of CPRS emissions trading approach
Footnote on climate change Are we beyond fooling around with market mechanisms? NSIDC – arctic ice decline in May the highest on recordNSIDC 6
“enhancing taxation by the States” Henry recommended –mobile bases best taxed by Cwth (eg. capital, labour) and immobile bases by States (eg. land) –replace ‘inefficient’ royalties with Resource Super Profits Tax@40% - ‘new insights’ (Chart C1-1)
User charges vs environmental taxes Henry Review inconsistency –recognises that user charges are important for common pool resources like fisheries, forests –no recommendations for reform – no mention of ‘full cost pricing’ principle required by National Competition Policy –prefers resource rent approach for ‘non-renewable’ mineral resources – to replace royalties
“ interrelationships with CPRS” and “consideration of relevant tax expenditures” –Stern – necessary to remove ‘barriers to change’ which are likely to inhibit effective market based responses –Garnaut – ETS must be well integrated within the broader economy to drive new behaviour > need to review tax rules - Henry Review given this task – Australia has a wide range of tax expenditures that promote growth in greenhouse emissions – opposing the intended effects of the CPRS
Key tax concessions –Adjustments for fluctuating income –Deductions for up-front capital expenditure and prepaid expenses –Allowance of losses against non-farm income –Underpricing for water (by States) Effects –Agriculture and forestry make up 27% of greenhouse emissions –Land degradation and salinity –Nutrient and chemicals in waterways –Biodiversity losses –Recurring mass marketed tax avoidance schemes in agribusiness sector Agriculture and forestry
Property development Impacts 23% of energy emissions –housing outside CPRS Transport and infrastructure costs Vast consumer of resources Tax breaks Main residence ($14 billion pa) Capital gains discount ($5 billion+) Negative gearing ($5billion +)
Transport Impacts –14% of Australian emissions and growing (linked to housing developments) –Massive infrastructure spending (opportunity cost) Tax breaks –Fuel tax credit scheme for heavy vehicles (gives back $5B) –FBT car benefits ($1 B) – actually rewards higher kilometres!
Henry on tax expenditures Administrative convenience but... Lack of transparency and accountability Efficiency questionable (blunt instrument) ATO ill-equipped to manage non-tax objectives Equity lacking – disproportionate benefits Add to complexity Undermine integrity & sustainability of tax bases Recommended Trade-offs with spending programs Better reporting and measurement – new standards Strong arguments for scrutiny by budgetary procedures, rather than tax policy criteria
Conclusions Henry Review disappoints on environmental terms of reference –Little recognition of ESD –Uncritical acceptance of CPRS Contradicts itself re “super tax” on mining –aggravates fiscal imbalance –immobile sources should be taxed by States –royalties can be redesigned –departs from ESD user pays/polluter pays –departs from NCP TEs deserved much deeper analysis –People who live in big houses have big dogs!