ESSAY 11: FEDERATION REFORM # 3.4
WIDER BENEFITS OF SWAPPING INCOME TAX FOR LAND TAX
Background and Proposals
This essay highlight wider benefits from the proposals in Essay 10, for less (federal government) personal income tax, as a trade-off for (state government) broad-based land taxes (benefits in addition to those inherent to Federation Reform).
Comments on Wider Benefits of Proposed Federation Reforms
In today’s globalised economy, poor governance is an unwelcome drag on national prosperity. Need for federation reform has long been accepted by both Liberal and Labor.
The following observations are not justification, for either federation reform, or for its implementation through the use of broad-based land tax to reduce income tax. The following observations are additional benefits which flow from such major reforms.
Broad-based land taxes can be expected over time to attract people to live in regional and rural areas, as an alternative to Australia’s over-congested cities. They similarly encourage people, to disperse from busier regional hubs to their surrounds. The reason is obvious: The further you live from your nearest city or town CBD, the less land tax you pay.
Broad-based land taxes have the potential (corresponding to their impact on population distribution) to assist housing affordability in Australia’s largest cities. New residential land availability is generally far greater in regional areas than in major cities. Fewer people chasing limited urban land. More people chasing less limited regional land.
Regional and Rural Development
Broad-based land taxes have the potential (corresponding to their impact on population distribution) to underpin greater regional and rural development.
Reward for Effort
Major reductions in personal income tax provides more reward for effort than any other form of tax policy. Particularly at the lower end of the tax scale, it encourages more people (including those on social welfare) to be active workforce participants.
Middle Class Welfare
Australia has a high level of poorly targeted ‘middle class welfare’ which is politically difficult to unwind. Reductions in income tax arguably make any political case for winding back ‘middle class welfare’ (rebates, subsidies) more palatable to voters.
Retirement Incomes Policy
Upper and middle class welfare provided by Australia’s superannuation system, is politically extremely challenging to unwind. This is notwithstanding, that if the system’s purpose is to enable federal governments to contain its spending on Age Pensions, then ‘tax benefitted super’ should be far more limited (to an income stream equivalent to what the Commonwealth would otherwise pay out, as an Age Pension).
Today’s superannuation system is arguably no more than the biggest legislated income tax minimisation scheme in Australia’s history, which largely benefits people who would arguably be unlikely, to ever require an Age Pension. The superannuation system appears to be failing its original purpose, of bolstering Federal Government finances.
Material reductions in personal income tax, would help reduce excesses of the existing superannuation system, without the political liability of attacking it.
The proposed changes are open to criticism of being adverse to holders of existing wealth. Such criticism should acknowledge that any ‘redistributions’ are from ‘the-asset-rich-living-off-wealth’ to ‘the-asset-poor-living-off-income’ (including new wealth creators); and favour our younger and future generations.
Low personal income tax assists Australia to retain home-grown human talent, and to be competitive in attracting overseas-trained human talent.
Proposed changes are not intended as ideological. They are proposed as a compact of potential bipartisan political reform.
Our series of essays on Federation Reform was originally premised on this potential compact:
(A) Liberal Party agrees to broad-based land taxes in return for Labor Party agreeing to reduced personal income tax and a broader GST base; and
(B) Labor Party agrees to reduced personal income tax and a broader GST base in return for Liberal Party agreeing to broad-based land taxes.
Further consideration (in particular to restrictions on the States’ capacity to levy GST) led to Essay 10 arriving at this alternative compact:
(A) Liberal Party agrees to broad-based land taxes and no overall increase in GST in return for Labor Party agreeing to reduced personal income tax; and
(B) Labor Party agrees to reduced personal income tax in return for Liberal Party agreeing to broad-based land taxes and no overall increase in GST;
(C) Option for Liberal and Labor parties to agree to broaden the GST base, with no overall increase in GST revenue (by an offsetting reduction in the GST rate).
For and on behalf of Common Sense for Australia Inc
Authorised for publication, 3 February 2022