Morrison’s tax cuts will hurt people and damage economy

Contributed by Joe Montero

We know it now. Scott Morrison is forging ahead and bringing forward the intended tax cuts for the wealthiest Australians, and this is being sold, via a manipulative campaign against “taking money out of people’s pockets.”

Time for a little truth here. In the first place, this campaign is designed to create the wrong and dishonest impression, that this is that it is about protection of the average punter. The reality is that a few are going to get most of the benefit. Most will get little.

Photo from AAP: Prime Minister Scott Morrison

Even if this wasn’t true, when the economy is sick, is not the time to be contemplating a tax cut. The circle around the government hold, although their language to the public is somewhat different, that giving to the richest stimulates investment, and this will drive a recovery. The track record shows otherwise.

This year has driven home the lesson that when the economy is in trouble, it needs stimulus through government intervention. To do this, the government must raise revenue, and recucing the ability to do this will hurt the economy.

A sensible policy would be to take on the tax evasion industry. This would recover billions of currently unpaid and needed tax revenue.

Joining to this tax recovery to the principle that each of us must contribute fairly, to a joint effort to pull Australia out of the hole, is even better. Each should contribute according to their capacity.

Another way the Morrison propaganda machine is misrepresenting the tax issue, is to suggest, taxes take money away from people. The bit that is left out, is these taxes pay for our hospitals, schools, roads and much more. The ;largest part of what we contribute comes back to us in other forms.

The pie chart below shows the allocation of tax money.

Source: Commonwealth Budget 2019-20

Imagine what it would be like, if none of the services that government provides and we depend on, did not exist.

Government does not only provide services that make our lives better. It plays the leading role in providing the infrastructure that every business and the economy depend on to function. Pulling this away is not the road to economic recovery.

When the economy is in trouble, the need for sufficient revenue becomes even more critical.  

The Australia Institute is campaigning against the tax cut, and has the backing of people like Bernie Fraser, former governor of the Reserve Bank, Stephen Grenville, former deputy governor of the Reserve Bank and Professor Peter Doherty, a Nobel Laureate in Medicine, and former Liberal Party leader and economics professor John Hewson.

This campaign is good but it is also limited. It argues against introducing the tax cut and does not move to putting forward an alternative taxation option. If Australia is going to be serious about real economic recovery, and aim towards a stronger and better economy, a new taxation system must be on the table.

Part of this is closing the major revenue leaks associated with large scale tax avoidance and use of tax free havens, together with the application of the capacity principle.

Comprehensive data on the extend of corporate tax avoidance is not published in Australia. But we can get some idea from Australian Taxation Office (ATO) information.

Taxable income for biggest 1,504 corporations was $52.3 billion in 2017-18. Of the biggest 2,214, a third or 710 paid no tax, and this does not include those who paid just a little. A conservative rule of thumb is at least $17 billion a year.

According an investigation by the Tax Justice Network, the union United Voice, and the data in the WikiLeaks released “Paradise Papers,” tax evasion could be as whopping $80 billion.

Recovery of this substantial sum of money would be a windfall.

The other side of taxation taxation is about meeting national goals. The Morrison government partially recognises this, with its wrong gas led recovery push. It is directing a portion of its revenue towards it.

An alternative tax policy will have a sharper focus on some key specific goals. Full employment and the capacity of everyone to participate in the economy, would be at the top of the list. Diversification of the economy and rebuilding the manufacturing base, through a just transition to a new and sustainable economy would also be up there.

The best way to do this is to act locally, building local economies, as the foundation for national progress. Private initiatives could be matched with the growth of social enterprises, providing new opportunities for people to work together for mutual benefit. Both local private and social enterprises need some government support to start, strengthen and grow.

Taxation policy should be shaped around such a set of clear goals. This would contribute greatly to a national reconstruction plan, costing it, and determining how much revenue is needed. Taxes could then be applied fairly to meet the need.

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