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Readers back mining tax and gas reserve but not Stage 3

To date, over 800 readers have responded to our survey. This article is a summary of the overall results, but as ever, the most-revealing parts of the survey are the thousands of comments. These are too long to include in an article and are loaded into this PDF document.

We are leaving the survey open for a few more days to allow further comments, and we will publish a highlight selection next week. Many thanks for your participation.

***

"Many difficult choices will need to be made."

In the past, Reserve Bank Governor Philip Lowe was unwilling to venture outside his responsibilities for monetary policy, refusing to answer questions on government spending and fiscal policy generally. Last week, appearing before a Federal Parliamentary Committee, he changed his tune. He said governments must either reduce services or increase taxes, or find other ways to reform the economy. He said:

“Each of those are very difficult. Taxes, cutting back and structural reform. We have to do one of those three things, maybe all three of them ... You can raise more taxes to pay for the things the community wants. You can cut back in other areas. Or we can get the economy to grow more strongly, so the pie is bigger ... We can’t pay for these things on the national credit card … I would hope during this term of parliament that you could start addressing probably each of these three things."

Then quoted in The Australian Financial Review, EY Chief Economist Cherelle Murphy said high government spending needs to fall from emergency levels in recognition of an economic bounce back. She said:

“Arguably in an economy running as hot as Australia’s is, this level of spending is inappropriate as it uses up resources that the private sector may otherwise need for expansion ... in 2022, with the economy bouncing back and lockdowns over, government spending has remained high. This is for a number of reasons, including ongoing health system spending and flood-related recovery. There are structural reasons spending is high too, such as the NDIS needs.”

Our Reader Survey is therefore timely, especially with a Federal Budget on 25 October 2022, and many thanks to the over 800 people who responded. See last week's article for an introduction to the issues.

Q1: Should the Stage 3 tax cuts be cancelled?

With 55% in favour of cancelling the cuts and 41% wanting to leave them (4% undecided), there's a clear winner but plenty of views on both sides. Typical comments were about the need for financial incentives and an obligation to meet election promises versus the changed economic outlook.

"The top marginal rate remains too high which restricts our ability to compete for talent."

"It was enacted in different economic times with an expectation that the budget would be in surplus. Great pity the previous government didn’t put some caveat’s around what the budget status needed to be for the tax cut’s to proceed."

Q2: Are prices increasing due to embedded inflationary expectations?

The Reserve Bank Governor has expressed dismay at the prospect of inflation becoming embedded in corporate and consumer decisions, and based on the survey results, his concern is justified. A healthy majority at 54% believe inflation is embedded with 21% unconvinced but a high 25% unsure. Typical of the 'yes' case was:

"The bulk of cost increases have genuine cause but I think it has been much easier to implement cost increases and also get away with a bit of extra thrown in to take advantage of the situation."

Q3: Should the childcare subsidies be brought forward to 1 January 2023?

Half of respondents supported the view of Treasurer Chalmers that the new childcare subsidies should be delayed, while only 37% were in favour of moving the date to 1 January 2023 despite claims of productivity and economic improvements. There were many strongly-worded comments about family priorities and the best way to look after children but also this type on encouraging workforce participation.

"Australia needs to better mobilise its available human resource and better childcare to those who cannot fund the present scenario and who could add a meaningful measure to our human capital in the workforce skills and intellectual fields."

Q4: Should a mining super profits tax be introduced?

Strong support for a super profits tax at 60% with only 32% against. A range of comments included the opaqueness of who is benefitting, whether the mining companies misled governments about the extent of reserves and the sovereign risk to investments if taxes are introduced retrospectively. This is a balance of both sides of the argument:

"I think this is reasonable but of course the question is also about the definition of a "super profit". I've always worked in the mining industry and all mining companies pay royalties based on mineral revenue. It is difficult to move the goal posts just because previous State governments applied too low a royalty measure at the approval stage of a project. But it would not be unreasonable to seek a fairer distribution in times like we are currently seeing and where those circumstances have resulted in somewhat artificial opportunities for mining companies to make more profit through no extra effort of there own personnel. So perhaps when selling prices were outside the bounds of say 2 sigma of the real past 10 years then tax on revenue could be imposed. Cost to produce could be a key issue and so perhaps the revenues might need to be indexed to allow for cost increases. But in my view if the state and it's people want to grab some of the upside then they should be expect to chip in and support the companies when mineral prices are extraordinarily low. I can't see governments or the average Australian being prepared to do that. But fair is fair."

Q5: Should gas supplies be reserved for the East Coast domestic market?

The strongest view in the survey results with almost 80% in favour of a gas reserve and only 13% against. There is a lot of anger and criticism of past governments for poor negotiation skills and failing to recognise the need for energy security.

"It is a farce that the eastern state governments were so shortsighted that they did not insist on some energy supplies that arguably belong to the people of Australia, were not set aside for domestic use."

Q6: Should the October 25 Budget include additional cost-of-living concessions?

Many readers accept the need to tighten their belts, with only 24% in favour of additional cost-of-living relief and 60% against. Many comments on a focus on needs not wants or helping only low-income earners.

"We must learn to live within our means. Having low government debt allowed us to withstand several crashes now, and the more debt the government carries, the less robust we are to shocks. I don't want Australia in the same position as our major allies who are now in a hopeless situation with respect to government debt. We still have the opportunity to get on top of the debt."

A final question asked about other policy issues and received hundreds of responses, as reproduced in our full report.

Thanks again for the excellent comments and response rate.

 

20 Comments
James
September 26, 2022

The stage 3 tax cuts go a long way toward fixing the nefarious and insidious bracket creep phenomenon, typical of lazy governments, that won't make the structural changes to taxation that they should. By OECD standards our taxation system relies too heavily on income tax and top tax rates cut in too early. That's why they should stay! Force government's to have the courage to open an "honest" narrative with the electorate about what is required to provide what people expect. Some adjustment to expectations would be germane while they're at it! Absent from this argument typically is better targeted spending, ensuring costs are kept low and contained and more government accountability for our tax dollars! And of course higher income earners get a bigger figure tax reduction, it's the corollary of them paying more tax (most of the tax paid in fact) under the progressive tax system! 

David
September 25, 2022

As usual there's this binary about the Stage 3 tax cuts. Implement/scrap.

There are other options - delay until before the next election and make an election issue; change the rate/thresholds, acknowledging that it was part of an integrated plan but that we now regard this, given everything else that's gone on, as too generous - are just two.

The reporting on "cost" is always interesting. People seem to forget that we're talking about people being allowed to keep more of their own money. And people who already pay very high amounts of tax.

I never minded paying tax and I never made it to the top bracket anyway, but what I and various other people I know do object to is being regarded as a cash cow, which is what's happening right now.

James
September 25, 2022

A problem with paying tax in Australia, is that most of us realise it's often not wisely spent! There are many instances of egregiously bad decisions costing the tax payer billions, with next to nothing to show for it! For example, the replacement submarine fiasco, the Gonski education funding increases........I could go on but I'd have to curl up in the fetal position for a day!

I think Kerry Packer sums up succinctly what a lot of us think when he said:

"I pay whatever tax I am required to pay under the law, not a penny more, not a penny less... if anybody in this country doesn't minimize their tax they want their heads read because as a government I can tell you you're not spending it that well that we should be donating extra."

Former Treasury policy maker
September 25, 2022

The actual evidence about the impact of tax rates on work incentives is ambiguous at best. It's not enough to show that lower taxes are followed by increased employment. If that came from stronger demand for labour then it's got nothing to do with workers having greater incentive to work more/harder.
What you need to look at is the impact on labour force participation. Some studies show that reducing tax rates increases the participation rate, but not all do. It seems that it depends upon how high the taxes were before they were cut and whether that high marginal rate had discouraged workers. A lot of the time this shows up most strongly not via changes to income tax scales, but to changes like letting aged pensioners earn more income before their pension is reduced, allowing them to do more part-time work. But that's not what most of you are talking about here, is it?
I'd like to encourage folk to stop responding to FirstLinks articles by making baseless assertions. Please back what you say up with hard evidence. There isn't much on this topic and I'd venture to say that the Australian tax rates are not currently providing a disincentive, so tax cuts won't have any impact on how much people on middle to high incomes are willing to work.
But, happy to be shown wrong if someone has decent, peer-reviewed economic analysis that supports a different conclusion.

Kevin
September 25, 2022

During my working life I was always baffled by the attitude to tax.This doesn't seem to have changed and probably never will.
Working in the resources industry wages are good.In Perth people could generally work 60 hours per week on projects .They wouldn't because "the tax man takes most of the money".

The same people would beg to go to the north west " for higher wages",great money up there.When I pointed out that would the tax man not take most of the money up there too eyes would glaze over.

A lot of people knew how much tax they paid to the last $,but have no idea how much went into the bank.A case in point was somebody complaining he worked overtime,the tax man took $100 more than last week when he didn't work overtime. He would never work overtime again.When I explained that he was paid $300 for his work,he got $200 and the tax man got $100.I knew what the answer was going to be,don't be stupid,he said,I paid a $100 more in tax than I did last week,I must be worse off.
This idea never seems to go away,franking credits,negative gearing.If they take some of my pension off me I must be worse off.Strange.

John
September 25, 2022

With respect to those who claim higher tax leads to a disincentive to work I would suggest that depends on your actual income. Also I note the ATO reports that the average income is about $68,000 so anyone earning $180,000 plus is doing reasonable well. Further if it is a two income household then $180,000 plus another income means that household is well off. As to the stage 3 tax cuts perhaps the fair thing is to limit the benefit so those on very high incomes do not benefit eg above $250,000 plus.

Roland
September 24, 2022

Most people like radio station WIIFM (what’s in it for me). Tax reform is tax me less, or give me more at someone else’s expense (though we seldom use these words) and almost always tax the rich, which is usually anyone better of than themselves. Driven by populism, envy and laziness, whipped by weak populist motivated politicians supported by the many ignorant wanting more for less or nothing at all. Is it any wonder we are so divided.

David
September 21, 2022

I find it surprising that the readership of this publication is in favour of additional taxes on mining. It wasn't that long ago that this was proposed and shot down in flames. I am assuming that all the managers of their own SMSFs, and recipients of other superannuation are voting to have the value of mining shares reduced and dividends reduced because of new taxes, which will also have the effect of reducing investment in the mining industry. The $50 billion just found by the new treasurer is all from mining taxes as they are, and you are saying it is not enough.

Georgina
September 22, 2022

I couldn’t agree more David! I was shocked at this reader response. The nation (and the federal budget) lives off mining and they pay enormous state-based royalties too. The blasé approach to ‘tax big business’ in support of an ever growing big, interventionist, government is not the answer.

Trevor G
September 23, 2022

Yes you’re spot on with your comment Georgina!

Ian
September 22, 2022

Agreed 100% David. I spent my entire working career in mining which included a number of booms and busts. Some people unfortunately are short sighted and just focus on the booms and don’t take into account the higher risks in mining, significant amount of capital required up front and commodity price collapses.

Jan H
September 21, 2022

Re comment that 50% tax rate discourages people from working more: Does Alan Joyce who received '' I won't say earned-- $23 million approx. do less work? Or is his tax minimised to a lower percentage? Didn't stop him "working hard" to sack staff and ruin Qantas' reputation. As you can tell, these corp exec payments are obscenely high.
Instead of a super mining profits tax, how about a super exec profits tax to even the playing field.

john
September 23, 2022

Could not agree more.I am all for free enterprise BUT perhaps Directors should be accountable for the largesse and report the basis of their decisions at Annual meeting never mind the waffle as to what is being paid to a Director in Belgium and confidentiality reasons. Also what is the criteria used by our Directors in the appointment of experts who recommends the quantum of their own fees and so the wheel revolves to the next decision. Perhaps cynically if the result is not to the Directors liking do those experts get the appointment next financial year.
Mentioning Annual Meetings am i the only shareholder in top 200 Companies who counts himself lucky to get a Notice of Annual Meeting and Voting Form ?. Yes my votes are small in number and probably inconsequential and there is the matter of containing cost,

C
September 21, 2022

I wonder how many of those against income tax cuts earn over $180K. It's funny how people are in favour of higher taxes as long as it doesn't affect them ....... 47% ( including Medicare levy ) PLUS either private health insurance OR another Medicare surcharge PLUS other levies brought in sometimes ( budget repair levy, fires levy etc ) means a top rate of virtually 50% which is absurdly high and a disincentive to do more work.

brian Richards
September 21, 2022

I suspect a significant number subscribe to this newsletter, I doubt those struggling do!. Its about time we recognised the imbalances in incomes, remember the masses are those responsible for a countries not the 10% at the top

C
September 24, 2022

So if the masses want people earning over 180K to pay 90% tax, that would be OK because only the masses matter ?
180K is not the income of a very wealthy person in this day and age and 48.5% personal tax is absurdly high

David
September 22, 2022

My whole outlook to income tax was set in the 1970s when I really needed money to finance a house. I was young, not on a high salary, and had to work extra to earn the money needed. This extra incurred tax at 60%. I learned early on about disincentive. Now I am retired and with my SMSF, I live a happy fulfilling life with sufficient income to meet my needs. I retired as early as I could, as my previous job, while well paid, was full of responsibility and stress. More disincentive! I note Treasurer Jim Chalmers statement "I do think we need to have a national discussion about the structural position of the budget, and how we fund the expectations that Australians legitimately have." More and more people want more and more, and fewer and fewer people want to earn it and give it.

Kevin
September 25, 2022

I always thought tax was a great incentive to go to work.
If I was offered a job at $1 million a week I'd be able to work out roughly that the tax man would want 47% of that. S530K for me,and $470K for the tax man.
I wouldn't even bother trying to work out how much the luxury car tax was on the his and her's Bentley's.

C
September 21, 2022

I wonder how many of those against income tax cuts earn over $180K. It's funny how people are in favour of higher taxes as long as it doesn't affect them ....... 47% ( including Medicare levy ) PLUS either private health insurance OR another Medicare surcharge PLUS other levies brought in sometimes ( budget repair levy, fires levy etc ) means a top rate of virtually 50% which is absurdly high and a disincentive to do more work.

Jack
September 21, 2022

Strange when reading the comments that they seem strongly one way (for example, nearly all comments seem to support cutting out the Stage 3 tax cuts because we can't afford them), but in the voting, it is more balanced (Stage 3 slightly over half against).

 

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