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5 June 2015 Tax White Paper Task Force the Treasury Langton Community and Public Sector Union Michael Tull – Assistant National Secretary 5 June 2015 Tax White Paper Task Force The Treasury Langton Crescent Parkes ACT 2600 Email: [email protected] Dear Sir/Madam Tax White Paper The CPSU believes that government has a crucial role to play in the nation. It is our view that, at present, the government does not collect sufficient revenue to meet the needs of the Australian people. The CPSU is committed to providing a strong voice for members in the big public policy and political debates. As the key union representing Australian Public Service (APS) employees, our members have a strong interest in the tax reform debate. Political and public policy decisions around reform of the tax system are central to our members’ interests as the tax system raises the revenue required to fund public services. Given the importance of tax reform, the CPSU recommends that the final Tax White Paper: 1. oppose any cap on Commonwealth taxation of a proportion of GDP; 2. focus on tackling tax avoidance to increase revenue; 3. support reform of negative gearing and the capital gains discount; 4. support the reintroduction of a carbon price and resource rent tax; 5. oppose a cut in the corporate tax rate unless accompanied by closing loopholes whereby the net effect would be increased revenue; 6. oppose an increase in the GST; 7. support introducing a Buffett rule; and 8. support greater resourcing for the Australian Taxation Office. The CPSU welcomes the opportunity to make a submission to this White Paper process into tax. For further information please contact Dr Kristin van Barneveld, Director of Research via email [email protected] or 0420 316 825. Yours sincerely Michael Tull Assistant National Secretary 191-199 Thomas St SYDNEY NSW 2000 AUSTRALIA Phone: +61 (02) 8204 6950 G Fax: +61 (02) 8204 6977 http://www.cpsu.org.au G [email protected] CPSU (PSU Group) Submission Tax White Paper June 2015 Why tax reform is necessary “Taxes are the price we pay for a civilized society” - Oliver Wendell Holmes, Jr. The community wants investment in services The work of government impacts the lives of all Australians: whether they are individuals accessing Medicare services, seniors seeking information on pension entitlements, or a family needing assistance following an emergency such as a bushfire or flood. Beyond direct human services, government provides fundamental information, often taken for granted, that helps facilitate daily life – from weather forecasts that assist Australian food producers, grants to small businesses and funds to develop innovative new technology, to protecting the community through work including biosecurity and food and pharmaceutical regulation. Research has shown that Australians place a high importance on the breadth of work undertaken by government.1 Two thirds (67%) of Australians believe that an active Government is necessary to provide important public services, and to protect Australians from unfair policies and practices. 2 Revenue has to increase The debate about tax reform is occurring at a time where it has become increasingly clear to the community that: • The policy approach of successive governments to achieve a surplus through spending cuts has been unsuccessful; • There are substantial community, economic and strategic costs from these spending cuts; and • There is a fundamental mismatch between the community expectations of the role of government and what governments will be able to deliver while attempting to achieve a surplus through spending cuts. It is broadly accepted that future demands on government will grow rather than shrink with the increase in the scope and volume of health services, long-term commitments including the NDIS and additional welfare costs. 3 Australians are, however, not supportive of cutting programs to meet these future demands with four in five Australians (81%) supporting maintaining government programs. 4 The public response to the 2014-15 Budget confirms that Australians will not entertain cuts to services and our standard of living. 5 To maintain these services and meet the future demands on government, broad tax reform is urgently needed to increase revenue to ensure we can continue to meet the growing demands on government. Australia is a low taxing nation Contrary to public perceptions, Australia does not have a spending problem, it has a revenue problem. Australia is a low-taxing nation. With taxes at 27.3 percent of GDP, Australia’s taxes are clearly well below the Organisation for Economic Co-operation and Development (OECD) average of 33.7 percent (Chart 1). Almost all other developed nations’ governments both spend and raise more, as a share of GDP, than Australian governments. 6 1 Australian Council of Trade Unions, ‘Myths and realities: The tax system & attitudes to taxation’, ACTU Working Australia Tax Paper No. 1, Melbourne, 2011. 2 EMC, ‘Type of Government’, Essential Report, 2 April 2012, viewed 22 January 2015, http://essentialvision.com.au/type-of- government 3 J Daley and C McGannon, ‘Budget pressures on Australian Government: 2014 Edition’, Grattan Institute, Melbourne, May 2014, p.6 4 I McAllister, ‘Public Priorities for Government Expenditure, Report No .15’, ANUpoll, January 2014, p.6 5 EMC, The Essential Report, 3 June 2014, viewed 17 January 2015, http://essentialvision.com.au/documents/essential_report_140603.pdf , p.7 6 Australian Council of Trade Unions, 2011, p.10-12 3 The Tax White Paper acknowledges this, stating that Australia’s aggregate tax burden is relatively low compared with other developed countries with a smaller overall size of government compared to many developed counterparts. 7 Chart 1. Taxation as a proportion of GDP compared to the OECD 8 Additionally, Australia’s taxation revenue as a proportion of GDP has declined significantly over the last decade (Chart 2), from 30.4 per cent in the year 2000 to 27.3 per cent in 2012. Over the same period, the OECD average has remained relatively steady, dropping only slightly from 34.3 per cent to 33.7 per cent. Chart 2. Taxation as proportion of GDP (2000-2013) 9 At a federal level, tax as a proportion of GDP is estimated to be 22.3 per cent in 2015-16, 10 well below the average of 23.4 per cent per annum collected during the Howard Government – with the Howard Government average a figure still not sufficient to meet government payments. 11 Indeed, the forward estimates project that receipts will only rise slightly to 23.4 per cent in 2018-19 and will continue to remain below projected government payments. 12 During the decade 2002-2012 the revenue problems that would ordinarily arise from being a low taxing nation with high living standards were masked by the business cycle and the minerals boom. The business cycle boosted the budget position until 2008, peaking at over 1 per cent of nominal GDP, while the strengthening terms of trade, due to the minerals boom, boosted the budget over the decade, peaking at just under 2.5 per cent of GDP. The dramatic rise in the terms of trade over the past decade over 2002-3 levels alone provided about $190 billion to accumulated budgets. 13 While the cash budget position improved between 2002-03 and 2011-12, the structural level of Commonwealth receipts fell by around 5 percentage points of GDP while the structural level of 7 Australian Government, Tax Discussion Paper, March 2015, p.16 8 Organisation of Economic Co-operation and Development, ‘OECD Revenue Statistics 2014’, 8 December 2014, viewed 15 January 2015, http://www.oecd.org/ctp/consumption/revenue-statistics-and-consumption-tax-trends-2014-australia.pdf 9 ibid 10 Australian Government, 2015-16 Budget Paper 1: Budget Strategy and Outlook – Statement 10, 12 May 2015, viewed 21 May 2015, http://www.budget.gov.au/2015-16/content/bp1/html/bp1_bs10-03.htm 11 Stephen Koukolas, The Kouk Writes: the issues with Hockey’s methodology, Per Capita, viewed 21 May 2015, http://percapita.org.au/media/the-kouk-writes/ 12 Australian Government, 2015-16 Budget Paper 1: Budget Strategy and Outlook – Statement 10, 12 May 2015, viewed 21 May 2015, http://www.budget.gov.au/2015-16/content/bp1/html/bp1_bs10-03.htm 13 Parliamentary Budget Office, ‘Estimates of the structural budget balance 2001-02 to 2016-17’, 22 May 2013, p.3 4 payments (excluding GST) rose by around 1 percentage point of GDP. 14 The end of the boom and change in the business cycle revealed these underlying revenue problems. A return to surplus is unlikely to be achieved through growth alone. For the budget to return to surplus through growth alone, without spending cuts or tax increases, the economy would need to expand by 5.25 per cent a year to return to surplus within five years. 15 The Reserve Bank has said that it expects growth to be 2.5 to 3.5 per cent in the year to June 2016.16 The CPSU is also concerned that the Commonwealth is locking Australia into a low revenue future. The Tax White Paper states that budget projections incorporate a cap on Commonwealth taxation at 23.9 per cent. This would be lower than the tax to GDP ratio 2000-01, 2002-03, 2004-05 and 2005- 06. 17 The CPSU does not support arbitrary caps on taxation as governments should have the flexibility to fund the public services that the community wants and respond to changing economic circumstances. If Australia remains committed to a return to surplus in the medium-term, a much stronger revenue base is needed. Attempts to cut government programs and public services to return to surplus will only cause damage that will be costly in the long-term.
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