Political clashes and big ideas: The final day of the reform roundtable

Treasurer Jim Chalmers started off the final day at the roundtable (21 August) by expressing hopes the attendees could reach consensus on some reform ideas.

“Tax reform isn’t just about budget sustainability. That’s part of it, a big part of it, but not the only part of it,” he said on Thursday.

“It’s also about how we incentivise work, how we incentivise investment, how we lift productivity, how we make the system simpler and more sustainable, and also how we improve intergenerational equity.”

The Australian Financial Review reported that participants found the third day of the roundtable, which concerned tax and budget sustainability, more challenging and divisive than any other.

Changes to superannuation tax concessions, the GST, company taxes, negative gearing and the capital gains discount were reportedly discussed. Chalmers and Shadow Treasurer Ted O’Brien also reportedly got into a “fiery” exchange over their differing fiscal strategies.

“I set a test for the treasurer today to stop the spending spree, which starts with quantifiable fiscal rules,” O'Brien reportedly said outside the roundtable.

Former RBA governor Philip Lowe expressed concerns about public spending and said a lack of fiscal restraint from successive governments had made the RBA’s job of keeping inflation under control harder.

“After COVID, we haven’t really got back to a clearly articulated framework for decision-making with fiscal policy,” Lowe said in remarks released on Tuesday.

“Those frameworks are really important in disciplining the political process. It seems to be ‘where there is a need, we’ll spend’.”

Alongside fiscal sustainability, tax reform was a central discussion on Thursday. Economists Aruna Sathanapally (Grattan Institute), Bob Breunig (ANU), and Chris Richardson (independent) delivered keynote speeches on how to improve Australia’s tax system.

On Monday, Chris Richardson told ABC RN Breakfast that the roundtable’s success “would absolutely depend on compromise.”

“If everybody jumps into their usual foxholes, it does get harder,” he said.

Ahead of the roundtable, he wrote for the Financial Review that he saw three key opportunities for reform in Australia’s tax system: better taxation of gas through the PRRT, charging banks more for taxpayer-funded insurance and fixing cigarette taxes, which had tax rates “way above our enforcement.”

In her keynote speech on Thursday, Sathanapally said reducing Australia’s reliance on personal income tax appeared to be an area of consensus among experts, and therefore a key target for reform.

ATO tax statistics showed that 51.6 per cent of Australia’s tax take came from income tax in 2022–23, well above the OECD average of 23.6 per cent.

She argued that without reform, Australia would have a growing reliance on income tax, penalising workers more heavily as the population aged.

“If we do nothing, our default fiscal repair strategy is to increasingly rely on taxes on employment, and in fact worse: to rely on inequitable taxes on employment, given the opportunities for wealthier Australians to minimise their taxes.”

This echoed the sentiments of economist Robert Breunig. Ahead of the roundtable, Breunig told the Financial Review that he would advocate for a flat tax on personal savings and investments of between 7 and 20 per cent, and a reduction in personal income tax.

In a working paper, Breunig and his colleagues argued that Australia’s current taxation settings were worsening intergenerational inequities due to the tax system’s over-reliance on income tax, and concessional treatment of other forms of income such as investments.

“The tax system is penalising people in their 30s and 40s and then making them super wealthy towards the end of their life, and they could probably use a bit more of that money when they’re paying for childcare and trying to get a mortgage,” he said.

“If we tax savings a bit better it means you can improve equity and can also afford to cut the corporate tax rate to increase productivity.”

Sathanapally also called for higher resource taxation and boosting the GST, calling it the least economically damaging tax currently available to the states.

“The GST goes to the states, and is the only untied revenue they receive. The states’ other major sources of revenue are generally the worst taxes from an economic perspective,” she noted.

“Increasing the GST would hurt poorer households more, and that matters. But it is possible to compensate people for these regressive effects and still raise revenue.”