By Lisa Macdonald and Dick Nichols
Since the Premiers' Conference and the Council of Australian Governments meeting on June 13 and 14, the competition between federal and state governments in the game of blame has been fierce. But the debate between the premiers and federal cabinet members over whose fault it is that state governments are moving to raise taxes, further cut services and sack even more public servants does not soften the blow that working people in this country have just been dealt — again.
The federal government is keen to shift onto the states more of the blame for carrying out capitalism's austerity drive. Even before it has actually implemented any of the harshest elements of its economic agenda, the Howard government's honeymoon period seems to be coming to an end. A June 15-16 Newspoll shows that the Coalition's lead over Labor has been more than halved in the last three weeks. Support for the government dropped from 55% to 48%, and dissatisfaction with Howard's performance increased from 14% to 30%.
The state premiers' "donation" to federal coffers of $2.7 billion of public money over the next three years, agreed to on June 13 and 14, will take three forms. The Commonwealth imposition of sales tax on private-plated cars for public servants, effective immediately, will raise around $180 million. This is all that remains of Costello's original proposal to impose sales tax on all state and local government purchases.
Secondly, the federal government will suspend growth in general assistance (untied) grants to the states for the next two years, phasing it back in in the third. As a result, the state governments are losing approximately $1.56 billion of grant increases which were promised by federal Labor in 1995 as a trade-off for the states' agreement to carry out Labor's national competition policy, the Hilmer "reforms".
Thirdly, the state governments have agreed to a 3% cut in specific purpose payments (tied grants) in 1996-97, the details of which will be released in the August 20 budget. This will save the federal government around $1 billion.
Tied grants cover areas such as secondary education, home care for the frail and elderly, temporary accommodation for the homeless, roads, hospitals and public housing programs.
The June 14 COAG meeting also agreed to shift the management responsibility for $18 billion worth of health (excluding Aboriginal and veterans' health care), public housing, aged and family service programs to the states, to begin immediately.
In one area at least, there are clear indications that untying grants and devolving implementation to the states will result in fewer services for those in need: in their submission to the Commission of Audit, state and territory leaders complained that under the current state-federal housing agreement they "cannot reduce the value of their housing stock".
A "Joint Statement of Concern" issued before COAG by an alliance of community organisations, including the Australian Pensioners and Superannuants Federation, the Uniting Church and the Australian Catholic Social Welfare Commission, supports this view. It argues that, on the basis of past experience, "there is a very real danger ... [the] hand over would be accompanied by reduced funding for health and community care services. We need more public investment in these services, not less."
Their concern is supported by the Interim Report of the Review of the Commonwealth/State Disability Agreement, which reveals a poor track record by the states in providing services.
State responses
The premiers' willingness to accept the federal cuts (however grudgingly) has unlocked the federal Coalition from its promise not to increase taxes or cut state grants. Bob Carr, the sole Labor premier — despite his claim to have "got a queasy feeling from being locked in unity with such cold-blooded reactionaries" — toed the economic rationalists' line as enthusiastically (if not more so, according to some media reports) as his Liberal and National Party counterparts.
The details of most state governments' plans to cover the cuts have not yet been released. However, various proposals have been floated and they all hit working people.
NSW, Tasmania, Victoria and South Australia, for example, have all floated an annual "household levy" — a poll tax. While the NSW government has, for the moment, rejected this option, conceding that poll taxes are grossly inequitable, it has yet to be dismissed by the other states.
The Carr government has opted for a 0.5% increase in stamp duty on all new and used car sales, an increase in land tax from 1.5% to 1.65% on unimproved land values exceeding $160,000 and a broadening of payroll tax to include employer superannuation contributions, along with a reduction in the tax rate from 7% of payroll to 6.85%.
Other options that are being floated by the premiers include increasing taxes on alcohol and tobacco (Qld, Vic); raising car registration costs (Vic); extra cost cutting and job shedding in government operations (all states and territories — WA Premier Richard Court maintains that all of WA's $90 million funding cut can be covered this way); the sale of public assets (Tasmanian Premier Tony Rundle has suggested the privatisation of the Hydro Electric Corporation); deferral of public capital works programs (for example, public housing development in SA); and various other increased charges.
Along the way, the big business media have been advising premiers to "have a hard look at government expenditure" (Sydney Morning Herald editorial, June 17). The Financial Review editorial of June 18 argues that the states' claim that the federal funding cut justifies a lift in existing taxes "should be rejected. Instead they should respond by making greater efforts to lift their own efficiency ... an approach that would no doubt result in some loss of jobs in the public service. Raising taxes is simply the easy way out."
Tax reform and GST
The outcomes of the Premiers' Conference and COAG meeting has been used by the economic rationalists to fuel their push for "tax reform".
Victorian Premier Jeff Kennett has consistently voiced big business's demands for "widespread tax reform" and a "new, internationally competitive" tax regime. At the Premiers' Conference, he obtained the support of all other state leaders for a full-blown review of Australia's taxation system that will include a discussion of a goods and services tax.
The push for a GST is being driven by a coalition of business (and their media), some politicians and the Australian Council of Social Service. The Australian Chamber of Commerce and Industry's tax reform summit in October will be jointly hosted by ACOSS.
As well, the NSW National Party annual conference on June 15 called for a type of goods and services tax (that resolution also called for the abolition of taxes on all banking transactions and on interest, and the introduction of a flat-rate tax on income), and on June 19 the GST resurfaced in the Liberal Party caucus for the first time since the party's 1993 election defeat.
While the federal government is still publicly saying no to a GST, it is only for this term. On June 18, Howard told ABC radio that debate on the GST should be "encouraged".
Taking up the suggestion, Ross Gittins, the Sydney Morning Herald's "economics for mums-and-dads" commentator wrote in the June 19 issue: "Why do we imagine we can pay less tax when we're so unwilling to give up government services?"
Gittins runs through the sources of Canberra's revenue and explains that the tax base is shrinking (alcohol and tobacco taxes, customs duties, crude oil levy), or suffering from a return to low inflation (less income tax gains through "bracket creep"), or simply amount to too small a part of the total tax take (company tax, petrol excise and fringe benefits tax).
Gittins' conclusion? Rational mums and dads will accept that there really is no rational alternative to Treasury's unrelenting hunt for a GST.
The basic message here and from all champions of new taxes and/or deeper cutbacks is: "There is no painless way to fill Beazley's $8 billion black hole". Yet even a superficial glance at the latest federal Tax Statistics (1993-94) is enough to expose this argument.
Even assuming (1) that Beazley's $8 billion dollar black hole actually exists somewhere in the financial universe and (2) that this hole must be filled, then plugging the gap doesn't require selling off Telstra, slashing public sector spending or a GST.
The following measures, which would fall most on those most able to bear them, would readily rake in the needed funds:
- Lifting the personal tax rate on higher incomes to 60%. If, in 1993-94, a 60% threshold had cut in at $50,000, it would have adversely affected 632,330 or 8.3% of taxpayers, but raised an extra $13.92 billion. Too drastic? Then if the 60% threshold had cut in at $80,000 (higher than Labor's 1983 scale, when income above $35,788 — only $63,269 in 1994 dollars — attracted the 60% rate), it would have affected 144,256 or 1.9% of taxpayers and yielded an extra $5.26 billion. Even a 60% threshold at $100,000 would have raised $3.67 billion extra from the country's 78,841 richest people, 1.03% of total taxpayers.
Clearly, a tax scale with brackets rising from 60% at, say, $60,000 to 100% at $100,000 would easily fill an $8 billion black hole to overflowing, and with no pain to the vast majority.
F41559S>lRemoving dividend imputation. Dividend imputation (which makes dividend income tax-free if the company which has paid the dividend has paid income tax) was introduced by Treasurer Keating in 1985.
Imputation credits to individuals have cost $8 billion in just four years, and in 1993-94, total imputation credits amounted to $1.955 billion, with $1.321 billion going to those earning over $50,000 a year. As Keating told a Labor audience in 1993: "We gave the private sector $30 billion and they sprayed it around like a garden hose".8
- Restoring the corporate tax rate to 46% (now 36%). In 1993-94, Australia's 459,797 companies earned a total income of $779.822 billion, yielding a taxable income of $68.177 billion. On this taxable income, net tax of only $14.252 billion was paid, an effective rate of 20.9%. An increase in the effective tax rate to 25% would have yielded $2.79 billion: an increase to 30%, $6.2 billion.
- A serious war on tax avoidance. In the recent federal election campaign, a desperate Paul Keating promised a war on the tax avoidance industry, claiming that the mega-rich were avoiding at least $800 million a year through creative accounting and a plethora of fancy dodges. A government that wanted to crack down on such schemes would devote a lot more resources to this area. Even a cursory examination turns up treasure chests. After all, even Labor's mild capital gains and fringe benefits taxes yielded more than their authors anticipated.
It's clear as day that the problem of taxation and "black holes" isn't one of evaporating revenue sources, but one of political will. A government that wanted to impart some equity to Australia's income tax system could easily design a tax system that would achieve that goal, without recourse to GSTs, poll taxes, public spending cuts or privatisation.
[Dick Nichols is the industrial spokesperson for the Democratic Socialist Party.]