Debate on tax and 'small government' flares again

Recently debate has arisen once more about rates of tax in this country. Again Joe Hockey has come out with totally unfounded claims  that individuals on average pay half of their income in tax.

In response ACOSS chief executive Cassandra Goldie has argued that in fact middle income earners pay only 11 per cent of their income in personal tax, and higher income groups only about 20 per cent.

Peter Martin of 'The Age' further explains how: "ACOSS [arrived] at the figures by including all household income in its total, including untaxed or lightly taxed…Income washed through superannuation, family trusts and negatively geared properties."

Martin also explains how:

The bottom one-fifth of households pay 3 per cent of their income in personal tax, the next group pays 7 per cent, middle group 11 per cent, the second-top group 15 per cent and the top group 20 per cent…

But [this] progressivity vanishes when other forms of tax are included. Including the goods and services tax and other consumption taxes such as petrol and tobacco excise, the lowest earning household pays 24 per cent of its income in tax and the highest earning household only a little more at 28 per cent.

So the existing system is also barely progressive when taken as a whole; and the Conservatives want to dilute or reverse this even more!

And also recently Gareth Hutchens of 'The Age' has questioned the facts surrounding Joe Hockey's claim that increased taxation through bracket creep is 'the only alternative' if Labor does not support the Conservatives' austerity agenda. In addition we should also question improper reliance on the GST and other regressive taxes and charges – including user pays mechanisms.

The Liberals' offensive against any and all forms of progressive redistribution rests upon their commitment to a classical liberal economic philosophy which naturalises the inequalities in wealth, income and power that arise under capitalism. Employers rather than workers are seen as 'the real wealth creators'. Workers are seen as freely entering into contracts with employers. Their bargaining power as relates to skills in the marketplace are recognised; but the influence of trade unions in improving that bargaining position of workers is not. Differences in recompense based on demand and supply in the labour market are also 'naturalised'. Because of this 'naturalisation' government intervention in the economy is rejected outright – except perhaps in cases where this paradigm is enforced – for instance, through impositions against the industrial liberties of organised labour. Hence the Conservatives and economic libertarians press for 'simpler' tax and lower tax because that means less redistribution.

It follows there is the question raised by economic liberals of whether or not we are better off to determine our own 'needs structures' freely through consumption. This deserves genuine consideration.

Many socialists today would recognise the place of 'the market' as a medium by which workers and citizens in their capacities as consumers hold corporations accountable through the play of market signals and forces. Importantly, though, this should entail the organisation of people in their capacity as consumers – both to improve the quality of information they can access – but also improving their market power through collective bargaining. (ie: as consumers)

But there are problems with this 'market utopia'. Information is not perfect. Consumers are not sufficiently organised. There are monopolies and oligopolies which minimise the effective role of competitive market forces and signals. And there is the possibility of consumers prevailing to the expense of the more poorly organised workers. That is: the prospect of more – not less –exploitation.

Also where there is intense competition there is the problem of investment in 'the means of production' growing so disproportionate compared with recompense through wages that the market is no longer able to absorb these costs – or provide sufficient consumption power to absorb what is produced.

But if all this is true what are the alternatives?

Firstly Labor should support a progressive restructuring of the tax system as a whole. That must mean winding back superannuation concessions for the well-off  - a good proportion out of about $50 billion in total by 2016-17. In total superannuation concessions cost about as much the entire aged pension budget. It could also mean partially withdrawing dividend imputation (tax breaks ostensibly to negate 'double taxation') - justified on distributive grounds – and with exemptions for 'small investors'.

Further – it could entail an active restructuring of income tax – as opposed to 'passively' waiting for bracket creep to 'do its work'. 'Passive' reliance on bracket creep for lower and middle income tax thresholds would have a regressive distributive effect. (perhaps hence Hockey's support) But restructuring and altering income tax scales and rates could allow bracket creep to work for higher income earners, delivering billions while actually reducing income tax for those on low incomes. A new top income tax rate could also be established for the millionaires. And restoration of a robust 'resource rent' tax for mining could deliver billions; as could 'super profits' taxes in crucial areas such as banking. Finally: with modest increases in corporate tax we could signal our desire to end the 'race to the bottom' that results in effective 'corporate welfare'.

If an incoming Labor Government succeeded in raising at least $45 billion in new Commonwealth revenue (in today's terms) through these and other measures in its first term upon retaking government it would be in a strong position to deliver on Australian taxpayers needs in education, health, transport, communications, welfare and more. Specifically it could fund big initiatives such as the National Disability Insurance Scheme progressively. And it could also provide for another area of critical need – for a National Aged Care Insurance Scheme. Without austerity.

In response the Conservatives and economic libertarians would insist that public provision 'rejects the market' which is the proper arbiter of all goods and services.

But Labor must reject such claims for several very practical reasons; as well as for the sake of economic justice.

Firstly 'collective consumption' as taxpayers can often secure for us 'a better deal' than in our capacities as isolated private consumers. Private infrastructure means user pays – which hits low and middle income citizens hardest. It also involves higher rates of borrowing – with the cost structures passed on to consumers. Finally it involves private profit margins and dividends – which demand that as much income be extracted from consumers as is possible. And in the case of private toll roads, for instance, can mean the exclusion of public transport investment to artificially support the particular private investors.

Competition in place of 'strategic and natural public monopoly' also passes on increased underlying cost-structures to consumers. A 'hybrid' economic system which delivered those efficient cost structures on would mean more consumption power – not less. Business actually gains from this. Both through cheaper infrastructure and services – but also through the increased consumption power of workers and citizens.

Hence there is 'the bottom line' that tax-payers would have more to spend in the areas where choice is most important as a consequence of the savings from strategic 'collective consumption'; including of'social insurance' for instance. 'Market forces' do not necessarily make enough of a difference when it comes to roads and rail; or in the provision of water and energy; or in areas that are properly the reserve of 'natural public monopoly'. (eg: energy, water, communications, and transport infrastructure) Often it all comes down to a contest as to which provider can most efficiently fleece consumers with unintelligible deals and plans foisted upon people who would much rather take 'the basics' for granted. And in areas like Education – 'market choice' just sorts us out on the basis of our capacity to pay. That is, on the basis of class. And that is unfair.

But if ordinary people secure a 'better deal' through collective consumption (as taxpayers) in these areas that frees up more money for determining our needs structures in the areas where diversity of choice really counts. For instance, including but not limited to consumption and other participation in culture, sport, fitness, social activity and art.

The time has come to question neo-liberal shibboleths around 'small government' and 'the market'. An alternative is possible which delivers a better deal for the general public in our capacities as workers, citizens and consumers. But which has also learned from the mistakes of the old socialism which thought it could supersede 'the market' entirely.