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Focus on death taxes, resource taxes and negative gearing

Asked to find an extra $20 billion per year to fund government priorities like building nuclear submarines and responding to climate change, Australia’s top economists overwhelmingly back land tax, increased resource taxes, an attack on negative gearing and extending the scope of the goods and services tax.

The 59 leading economists surveyed by The Conversation and the Economic Society of Australia were asked to pick from a list of 13 options (many of them identified in the government’s 2022-23 Tax Expenditures and Insights Statement) and reply as if political constraints were not a problem.

The economists chosen are recognised as leaders in their fields, including economic modelling and public policy. Among them are former International Monetary Fund, Treasury and OECD officials, and a former member of the Reserve Bank board.

Policies based on efficiency not politics

Asked to choose tax measures on the basis of efficiency – minimising the economic damage the extra taxes or tightening of tax concessions would do – 40% chose increased or new taxes on land, while 39% choose increased resource taxes.



International consultant Rana Roy said every major economist in every strand of modern economics had found taxes on the use of land and natural resources to be the least damaging way of raising money.

This was confirmed in Hong Kong, which charged for the use of crown land; in Norway, which heavily taxed oil and gas resources; and in countries such as Australia, which charge for the use of broadcast spectrum.

Former OECD official Adrian Blundell-Wignall said Australia’s natural resources were the birthright of every Australian. It was time for a resource rent tax along the lines of the one introduced by the Rudd and Gillard governments and abolished by the Abbott government in 2014.

Blundell-Wignall said politicians should ignore the usual hysteria that arose whenever the idea was discussed.

Centre for Independent Studies economist Peter Tulip said he would lump income from inheritances in with income from changes in land value. In both cases the income was unexpected, undeserved, and not compensation for sacrifice. And it disproportionately went to the already fortunate.

A quarter of those surveyed backed winding back the ability to negatively gear (write off against tax) expenses incurred in owning investment properties, a concession costed by Tax Expenditures Statement at $24.4 billion per year.

Blundell-Wignall said negative gearing should have been wound back years ago. Few other countries allowed it, and it contributed to the build up of exposure to property in Australia’s banking system and financial risk as interest rates climbed.

University of Sydney economist James Morley described getting rid of negative gearing as an 'easy win'. There were better ways to support home building.

Independent economist Saul Eslake said while he was inclined to extend capital gains tax to the sale of high-end family homes, the problem with the idea was that it might allow owners to write off against tax their mortgage payments (as is the case for investors who negatively gear), encouraging even larger mortgages.

One quarter of those surveyed wanted to broaden the scope of the goods and services tax (at present it excludes spending on education, health, childcare and fresh food) and one fifth wanted to increase the rate, pointing out that a 10%, it was low by international standards.

‘Unfair’ super concessions and tax-free inheritances

Asked to choose measures on the basis of equity – not treating similar people differently – 52% backed inheritance taxes, 37% backed winding back superannuation tax concessions and 32% backed increased resource taxes.

None would broaden the GST on equity grounds, and only 3.4% would increase its rate on equity grounds.



Grattan Institute chief executive Danielle Wood said two-thirds of the value of super tax breaks went to the top fifth of income earners, who are already saving enough for their retirement and would do so without tax concessions.

Wood said the government should go further than the measures taken against super accounts worth more than $3 million announced in February.

The University of Adelaide’s Sue Richardson said super concessions had a negative impact on budget revenue, amounting to tens of billions per year. They were used for tax minimisation by high earners who obtained expensive advice.

Missing fixes: Stage 3 and a carbon tax

Guyonne Kalb of the University of Melbourne said the most important tax measure for fairness was one not listed as an option: scrapping the legislated Stage 3 tax cuts for high earners, due to take effect in 2024.

The tax cuts scheduled for people earning between $120,000 and $200,000 would not have much or any positive impact on Australia’s labour supply and would cost the budget more than $100 billion in their first seven years.

Three panellists, Frank Jotzo, Michael Keating and Stefanie Schurer, said they would have selected “carbon pricing to raise revenue” had it been an option.

Jotzo said if Australia fully taxed emissions at $100 per tonne, the revenue would be around $15 billion per year from electricity, $18 billion from industry, and $9 billion from transport – very large sums in relation to other options.

Schurer would also take away all subsidies to fossil fuel industries. In 2021-22 measures that wholly, primarily or partly assisted fossil fuel industries cost federal, state and territory governments $11.6 billion.

If the government needed $20 billion per year, it could raise around half from fossil fuel subsidies alone.


Individual responses:

The Conversation

The Conversation

Peter Martin is Visiting Fellow, Crawford School of Public Policy, Australian National University.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

 

48 Comments
Michael2
April 28, 2023

From reading this the answer is to stop subsidising and protecting fossil fuel use.

This would also reduce noise in our cities and hospital admissions saving money there also

Roland Geitenbeek
May 06, 2023

None of the above appear to take into account changed behaviour. The calculations are based on simplified basic calculations which in reality will fall far short of the estimations. Take death taxes as an example. Many wealthy people will domicile entities or themselves overseas and avoid such imposts, reducing the theoretical revenues dramatically. Behaviours will change with many less rich opting to gift money or simply spend and waste on self indulgence and gratification. Why is it we constantly focus on more taxes? Surely a complete overhaul and simplification of the tax act would drive more benefits and let’s not forget spending. New spending must stop and current spending more carefully screened. Waste in all Government departments is accepted as de rigueur.

Andrew R
April 25, 2023

Maybe these smart 59 economists should google Walton Family and inheritance tax. So far avoided paying $3B though loopholes..

chumps tax


Richard
April 24, 2023

The last sentences regarding subsidies for Fossil Fuel Industries? Please expand on this as I am not sure which subsidies are being referred to. All miners currently receive a rebate on diesel excise, this could be a place to start as effectively affects their input costs then you can discuss increasing royalties. Or was this the subsidy which was being referred to?

Anon
April 24, 2023

Would really like to see a survey across a broad cross section, not so left wing.

Geoff R
April 23, 2023

One thing that surprised me with this survey was that 0% supported "Broaden set of goods and services in GST".

If we adopted NZ style GST, as well as increasing the rate to 15%, we would include a much broader range of goods and services.

Of course the calls to "compensate the poor" when talking about increasing GST miss the mark in that it is those with savings (which is generally not the poor) that suffer a loss in value of those savings.

A further thing that surprised me is so few supported increasing the corporate tax rate. My long held belief is that it should be pegged to the top personal rate (45% + 2% medicare = 47%). Ideally this rate could ultimately be reduced to say 39% (37 + 2) which would probably in time see an increase in tax revenue as nobody wants to pay 47% and hence adjusts their behaviour to avoid it. As voters pay "corporate tax" at their own marginal rates (due to franking credits) the higher rates would only apply to foreign investors (who do not vote in Australian elections) and retained earnings (ie. profits not paid out in dividends).

David
April 23, 2023

Inflation is the best tax of all and you don't need legislation for it. Jack up the reserve bank's mandate from 2.5% to 5% pa or more, and let it rip. The extra capital "gains" taxes on all assets, with no inflation indexing should bring in a windfall, and the government debt will fall away in value at twice the rate. Of course we will end up like Argentina, but they seem to manage somehow.

C
April 27, 2023

They manage somehow ? Have you seen the standard of living of most people over there ?

Laszlo Harai
April 23, 2023

This is typical thinking of the rich, so called "economists", who are dealing with numbers and not with real people who are fighting with more and more difficulties in life. As a pensioner I find very unfair all of these extra tax propositions. If a government cannot deal with normal expenses within their budget, instead spending recklessly on unrealistic ideas, than they should give the power to those who can. Among other unfair tax propositions I cannot think any logical explanation to tax inheritance. I worked hard and paid tax for every single dollar I put into my home for an easier future. It is mine, and no one has the right to tax it again when it comes to inheritance and it is my right to give it whomever I want tax free. It is basic human rights! Shame on you so called "economists"!!!

K Navin
April 23, 2023

I agree that once you have paid tax on the income, it should not be retaxed. Income tax, GST and then pay for services, Medicare levy, surcharge and gap fees and toll roads. If you look all this, 40-50% of the income is taxed anyway.

SN
April 22, 2023

They say charity begins at home.
Should't Govt cut Spending first ?

Taxy
April 26, 2023

Would we not then complain about the lack of services? I mean, when the Government spends, it is usually on something that some of us will actually benefit from...

Ray
April 21, 2023

Clearly, removing the following would be a more equitable option 1.Remove Franking as there are too many companies paying no tax 2. Remove stage 3 tax cuts 3. Super concessions to be capped at an indexed $2million 4. Remove the international entities influencing the big 4 banks and our economy with replacing the majority ownership with Australian Industry Super Funds, so when they rig the rates the proceeds are not exported overseas 5. Australia Post to be our national bank as they are doing the Big 4 branch closure work now and add a lending arm to bring some completion to the market

Mark
April 21, 2023

You obviously don't understand Franking Credits.

They are only available if a company has paid tax.

James
April 22, 2023

"1.Remove Franking as there are too many companies paying no tax" 


?

Rob
April 21, 2023

Goodness me, it's back to the 1950's. Why don't we just prop up all of our domestic businesses with tariffs too!

Stephen
April 22, 2023

If a company can claim interest and business expenses against revenue why not a private investor?
If they want to mess with something look at the CGT discount.
Then cancel the stage 3 cuts.
But firstly deal with multinational tax avoidance and windfall (gouging and exploitation) profits.

David
April 21, 2023

Leave the pensioners alone they are struggling enough now to survive and you want to make it harder for them to live on very little money and you want to cut the pension rate . I would like to all politicians live on what you pay them. Shame on all of you.

June
April 21, 2023

Let's see if these experts can do as good a job on this issue as various bodies have done on ensuring that private landlords have left the rental market in droves! Oh what! We now have a housing crisis! How did that happen?

Dane
April 23, 2023

We already have a rental crisis June. Let's consider a scenario. If a private landlord sells their property because they can no longer get a tax deduction for a loss-making investment (a whole other discussion) who are they selling to? Either another investor = no change in rental stock. Or a previous renter = one less renter in the market. But let's not let the facts get in the way of this convenient narrative about about landlords are Australia's tireless benefactors. More like rent seekers and financially illiterate ones..

John Corbin
May 20, 2023

If it was that straightforward there would be no need for rental properties. I think the problem with what you've put, is supply, together with pricing. What you say would apply if housing supply matched demand and then also that on the demand side renters could afford to buy their own home.

Peter
April 21, 2023

I am already working at least six months of every year just to pay taxes to the different levels of government. That is enough, so leave me alone

C
April 20, 2023

Hear, hear

Fred
April 21, 2023

Tax on $500K= $196K+$10KMedicare + $40K other ? taxes= 50%
So to work half the year to pay taxes you would need to be earning at least $500K/y

Fred
April 21, 2023

You would need to be earning at $500K/yr for this to be accurate. Do you need a tax expert to help reduce your tax?

Paul
April 21, 2023

All levels of government. So no I would concur but also note don't leave it alone. Tax me more and stop prioritising warships to ensure my kids get a future without a mountain of debt via government overspending and unaffordable housing.

C
April 21, 2023

But it's nowhere near 500K when you remove the excessive amount of personal income tax we pay in this country. The fact you are suggesting he should get a tax expert to reduce it confirms it.

Martin
April 21, 2023

Keating removed negative gearing - property market collapsed, rentals not available - very quickly re-instated it.
Hope this isn't the pool of economists Chalmer's is going to draw from for the RBA.

Paul
April 21, 2023

As noted other countries don't have it but seem to have cheaper houses and no rental crisis.

Mark
April 21, 2023

Rents rose in Sydney and Perth only when NG was stopped. Rents dropped in Adelaide and Brisbane and stayed flat in Melbourne.

As for the actual stopping of NG the legislation was not in place to garner any worthwhile data on its impact.

The rise in Sydney rental prices coincided with a lull in home building activity going on around then.

The rise in rentals in Perth was from the growing need for workers for mining industry.

Aro
April 21, 2023

Obvious from the replies, increasing taxes is not an option. Cutting Govt. spending is unspecified as there no guidance on which spending has to cut and by how much. Even removing tax deductions is not agreeable.
In other words do nothing except complain about the level of debt.

Taxy
April 26, 2023

That seems to be the way forward... Nobody wants to pay any additional tax (especially not high income earners) AND nobody wants cuts to overall government spending (as everybody wants more services to be provided).

But we are surrounded by loads of experts behind keyboards who all seem to be coming from a position of protecting their personal patch. It's no wonder our politicians can't look much beyond the next election cycle...

Zoi
April 20, 2023

Quoting the genius Milton Friedman "Cutting government spending and government intrusion in the economy will almost surely involve immediate gain for the many, short-term pain for the few, and long-term gain for all."

Noel Whittaker
April 20, 2023

The attack on negative gearing is rubbish, –think about a couple who don't trust Superannuation and are scared of shares – they buy an investment property for their old age. For about five years we taxpayers may subsidise them to about $30,000. Then it becomes positively we geared. Fast forward 40 years and they can't get the age pension because they're over the assets test and we taxpayers will get back about $300,000 in capital gains tax because I need to sell the property. Factor in the cost of the age pension which may be $1 million. It's a no-brainer to leave it be.

Rod
April 22, 2023

A couple who buy an investment property for their retirement? There are many people out there who have 3, 5 ,10 or even more investment properties all negatively geared. If it is such a great thing why is it not used in many countries of the world. 

Ian
April 21, 2023

In some countries you can sell a property and not pay capital gains tax if you the buy another investment with the money ey in x number of days. This can continue forever.
Australia you pay CGT on every sale.
Even with NG, it means you are operating at a loss you don't get the full value of the loss back at best 47c in the dollar.
As well as the government not having to foot the bill of supplying the house.

Gary (experience investor)
April 24, 2023

There are very few multiple property owners who have more than 1 house NG at any time. This is a much worn tale that is simply not true. Those people that have built a portfolio of multiple rental properties have built it over time as they move initially from a NG house to it becoming PG. Then they buy another house so only one or two are NG at any time. No one has 10 NG properties at one time.

Taxy
April 26, 2023

To Gary (the experienced investor) so what your saying is that for these people, the NG effect continues in perpetuity? So their property portfolio has been built on the shoulders of Government subsidies? I.e. NG effect. Good for them, but is that right? Is that sustainable?

Peter
April 21, 2023

..."think about a couple who don't trust Superannuation and are scared of shares"...

Sounds like it's time for the couple to grow up, rather than have the tax-payer subsidise them for their ignorance

John Fletcher
April 20, 2023

Many people seem to forget there are only two ways to balance a budget. Increase income (tax) or reduce spending. Cutting government spending in some areas that have minimal impact on services is probably quite easy. However, when we have record numbers of homeless people, record hospital wait times, people living in poverty and declining education systems around the country, reducing spending is not going to fix these problems. I know we all bag economists as being one of the few occupations to keep their job when they are wrong most of the time, but increasing taxes somewhere IS the solution. Unfortunately governments for as long as I can remember are too worried about the impact on them winning the next election and not worrying about making the country a better and fairer place to live for all. Tax cuts that no one asked for have been a political "vote for us" carrot for too many governments and they are far harder to increase again in the future. I wish they would remember that most voters have very short memories. Make all the unpopular decisions as soon as they get elected and by the time the next election rolls around the voters will have either forgotten about it or seen the benefits of foresight.

Russell (a veteran adviser)
April 20, 2023

You first sentence is just plain incorrect Peter. Commonwealth Government taxation DOES NOT FUND government spending. Until this is understood by "Australia's top economists", then they do not understand the purpose(s) of taxation, which is to tax 'bads', delete some private sector spending capacity, if necessary, to help control inflation and re-distribute some income to help ensure that inequality in our society doesn't become even worse. NOW start talking about what you want to tax more/less

John Gillett
April 20, 2023

Any increase and expansion of the GST could be made a federal tax, i.e., not going to the states. The federal budget would then have the funds to compensate the poor and low-income earners. With the future cashless economy (transition to a 100% digital currency) there would be less scope for tax avoidance by the wealthy.

Ben
April 20, 2023

When 40% of the survey subjects support something, that means 60% do not. I would encourage you to reflect on what that means for the policy measures above.

Peter
April 20, 2023

A pity these university professors seem to think, we can tax our nation into prosperity. Kill incentives, kill the means for paying higher wages, kill our Tax base and watch as we descend into a failing economy. The idea is equality  but the unintended consequences create an even greater divide between rich and poor as we decimate the hard working middle class.

jim gibson
April 20, 2023

yes exactly just more socialist left leaning academics who have never been in business and have never had to work in the real world.
The governments aim should be to reduce waste in spending the taxes they already receive.The NDIS,public service wages,forget about the Voice the costs alone should be enough to stop it dead in its tracks, to mention just a few.
jim.

filip wouters
April 20, 2023

wow, is more tax the only thing these experts came up with? Remind me never to ask these experts for advice.

Ian Huntley
April 20, 2023

Great argument for keeping economy for keeping "leading economists" away from such decisions!"

Rob
April 20, 2023

Glaring omission- cut Govt spending!

 

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