Shorten’s fix for imaginary inequality issue is to tax the rich

Shorten’s fix for imaginary inequality issue is to tax the rich, by Henry Ergas.

When Bill Shorten says “tax reform” what he means is the largest peacetime increase in tax rates since federation.

Under federal Labor’s plan for government the top marginal rate of personal income tax would rise to levels not seen since 1989; capital gains tax would jump to historic highs; and the elimination of negative gearing on existing properties, together with likely but not yet announced changes in the taxation of trusts, would further increase effective tax rates on personal income.

In international terms, our top income tax rates would be well above the average top rate in every region of the world, with taxpayers hitting those rates at lower incomes than elsewhere while benefiting from fewer exemptions and deductions.

As for capital gains tax, it would be the second highest among the advanced economies, with only Denmark taxing capital gains more harshly.

At the same time, by reversing the Coalition’s initial reduction in the company tax rate, and not proceeding with the further reductions to which the Coalition is committed, Labor would keep our effective tax rates on company income much higher than those in the other advanced economies, with the gap made all the greater by the fact that we apply those rates to a far broader base than do countries such as the US.

Those changes flatly contradict the recommendations of the Henry tax review, which Labor commissioned. That they would make our tax system even more inefficient, dragging down Australia’s prosperity, is beyond doubt.

Labor’s increase of the top personal rate to 49.5 per cent alone would decrease our economic wellbeing by 83c for every dollar of revenue raised, according to a calculation by Chris Murphy, whose model of the Australian economy was used by the Henry review to estimate the economic impacts of tax changes. …

And Murphy estimates that raising the company tax rate to 30 per cent, rather than the planned reduction to 25 per cent for all companies, would have a cost in terms of wellbeing of fully $2.39 for every dollar of tax revenue it allowed the government to retain. …


WK Hancock, whose Australia, published in 1930, remains unsurpassed as a study of our national character, regarded envy, cloaked in the language of fairness and leavened by the constant fear of being dudded, as the quintessential Australian vice.

“Properly anxious to run a fair race”, he wrote, Australian democracy “is improperly resentful if anybody runs a fast race”, with the result that “in its fear of the strong, it succumbs to the destructive vandalism of the weak”. The country’s “intellectually lazy” politicians could therefore trade all too easily on the tall poppy syndrome…