What the campaign has avoided
Structural reform – we need to collect more tax and to do it in a better way
When one looks at the priorities of the two main parties and at opinion polls listing people’s concerns it could be argued that the parties have picked the right issues – cost of living and housing.
But these are manifestations of more fundamental structural failures in the economy, particularly our long-term decline in productivity. This stems in turn from decades of under-investment in human capital, under-investment in physical infrastructure, neglect of widening wealth disparities, and a reluctance by governments to undertake structural reform, particularly tax reform. During periods of high commodity prices we used the proceeds to finance unsustainable levels of consumption rather than to invest in our economy to build its resilience for a period when we would have to live in a more competitive world.
This is the narrative missing in our election campaign. In fact, ever since the failure of John Hewson’s Fightback policy package in 1993, politicians have been guided by a belief that election campaigns should be confined to immediate “what’s in it for me” issues, and arguments about fiscal balances as indicators of parties’ economic competence.
Arana Sathanapally of the Grattan Institute, Roy Green of the University of Technology Sydney, and Jennifer Hewitt of the Financial Review were on the ABC’s Saturday Extra last weekend taking listeners through the big issues that the election has ignored.
Covering much the same ground is Karen Barlow’s Saturday Paper article, The issues missing in this election campaign.
A strong message from these contributions is that our political practices conspire against structural reform. Politicians have learned from bitter experience that the easy path to political victory lies in opposing reform, and that the most assured way to stay in government is to do no more than to tinker at the edges of reform. The panellists and writers are too polite to name the offenders, but it’s clear that they’re referring to the Coalition, both when they are in opposition and when they have been defending their hold in government.
Many of our structural weaknesses result from a tax system that discourages wealth-creating activity while rewarding speculation and living off the returns of accumulated financial wealth. We require working people, particularly those on salary and wage incomes, to finance concessions enjoyed by those with political clout – multinational firms, so-called “self-funded” retirees, pampered small businesses using family trusts, property speculators, and a bloated financial services sector. We have few taxes on wealth or on the transfer of wealth. As economist Mariana Mazzucato has pointed out, we reward the wealth extractors while we punish the wealth creators.
Redistribution should be an essential aspect of tax reform. Tax reform should collect enough revenue to improve the living standards of low- and middle-income earners, while bringing our public services and public assets up to a standard fitting for a prosperous country. We forgo many billions of public revenue through concessions to the well-off, with little or no return in public benefit.
For some back-of the-envelope estimates of the amounts involved in these tax concessions you can hear Chris Evans of the University of New South Wales, formerly head of the Australian Taxation School, in a Late Night Live session discussing with David Marr the reasons the major parties are dodging serious tax reform. (28 minutes) The amounts they talk about make the parties’ pre-election costings look puny.
Redistribution is important, but the more important and enduring benefits of tax reform are two-fold – a re-alignment of incentives and a more capable public sector.
Ensuring that our economic system provides a strong connection between contribution and reward should be a principle embraced by any political party, left or right. But many of our taxes do the opposite. Our capital gains taxes reward short-term speculation while discouraging patient long-term investment. Our superannuation and health financing systems require young and hard-working Australians to finance the indulgent lifestyles of retirees with multimillion dollar investment portfolios. Our taxation of housing rewards investors who put their savings into “investment” properties, fuelling asset appreciation, rather than into real investment in wealth-creating businesses.
The other benefit is a better-resourced and more capable public sector. Ever since the mid-1980s Australians have been gripped by a belief that there is some economic benefit in “small government”. In fact the Liberal Party holds as a core belief the idea that there is no value-added in the public sector. So we have tried to struggle with a lopsided economic structure, with inadequate public investment in physical and human capital, and have privatized functions – urban roads, electricity transmission, health insurance, employment services – that are done more efficiently in the public sector.
In the election campaign taxation has been the issue that dares not breathe its name for the major parties. It is only from independents, such as Allegra Spender, that we hear calls for tax reform.
Gambling
The report of the House of Representatives Standing Committee on Social Policy and Legal Affairs – You win some, you lose more: online gambling and its impacts on those experiencing gambling harm – was presented to Parliament by its chairperson, Peta Murphy, in June 2023.
Peta Murphy died later that year, without seeing any progress on the report’s 31 recommendations. Since then the Albanese government has dug in, refusing to accept one of its main recommendations – a ban of sports betting companies’ advertisements on television and social media.
Late last year Jenny Ware, a Liberal Party member of the committee urged the government to act, but she had no support from the Coalition parties, who seem to be just as intimidated by gambling and media interests as Labor.
In the last week there have been five Conversation contributions on gambling, united in their calls for reform.
Charles Livingstone of Monash University, a veteran among gambling reformers, has two articles – Pokies line the coffers of governments and venues – but there are ways to tame this gambling gorilla and The “responsible gambling” mantra does nothing to prevent harm. It probably makes things worse.
Three researchers from Central Queensland University contribute an article Gambling in Australia: how bad is the problem, who gets harmed most and where may we be heading? Another three researches from Deakin University contribute an article The gambling industry has women in its sights. Why aren’t policymakers paying attention?
And Wayne Peake of Western Sydney University has a history of gambling in Australia: The biggest losers: how Australians became the world’s most enthusiastic gamblers.
A theme common to these contributions is the way Australians stand out as losing more per capita - $1 635 – than any other country. If that were averaged across all households it would come to around $4 000 per household, but it is far from evenly distributed. Gambling losses are concentrated among the least well-off, and are even more concentrated among 200 000 people with severe gambling problems.
Regulations claiming to protect those who may develop gambling problems have been largely ineffective. Most often there is only token compliance with regulations, and in many cases there has been outright criminal activity, particularly in casinos.
Poker machines stand out as a particular source of problems. Many countries prohibit then altogether. In some countries they are only in specific gambling venues, but in most Australian states they are in pubs and clubs, made easily available to people who use these businesses.
The authors stress that the gambling industry has political clout. It’s a textbook case of a parasitic activity that has accumulated enough in privileges extracted from government so as to build strong defences around those privileges. But the authors also tell us about gutless governments and political parties, particularly the Labor and Liberal Parties, who lack the moral courage to take on the gambling companies. That cause is being taken up by independents in the current campaign.