Here’s the text of a letter of mine published in the Australian today.
In the last five years, Australia has enjoyed a windfall gain of nearly 50 per cent in its terms of trade. This has added tens of billions to the coffers of the Federal Budget. Here was a great opportunity to address Australia’s huge unmet needs in health, child development, education, training and infrastructure and to reduce the high effective marginal tax rates (poverty traps) faced by many low income Australians. Yet there are few results to show. Why is this?
A good deal of the answer lies in the Government’s lavish spending on upper-class welfare well illustrated on the front page of your newspaper “wealthy score tax windfall on super” (The Australian 6/9/06), which will cost over 7 billion dollars over four years. But it’s not just superannuation. Wherever you look – in child, maternity and family payments, capital gains concessions, the treatment of trusts, the uncapped negative gearing allowance, the health insurance rebate, First Home Owners grants, the fringe benefit tax treatment of cars, deductions for work-related expenses and the funding of well-endowed private schools – we find an explosion of upper class benefits. These concessions often add to complexity and narrow the tax base. Yet they are poorly targeted: the rich do not change their behaviour on saving, health insurance home-ownership; they just shuffle their money around. If anything, the concessions distort patterns of saving and spending.
Australia has all its priorities cocked up.