Tax reform: Aastory of bluster, bulldust and bedlam

For many years, tax experts, economists, think tanks, professional bodies and others have called on the government of the day – whether Labor or Coalition – to undertake genuine tax reform. And good on ’em for doing so. But you might have noticed something.

It doesn’t work.

Well, that alone doesn’t work. The experts advocating for tax reform continually point to the deepening societal challenges that such changes could help resolve. And a more visionary and authentic reform agenda would ultimately make Australia a wealthier, more compassionate, and happier nation.

And yet, those calls for reform largely fall on deaf ears.

Thankfully, the experts remain determined – but it's clear that getting the politicians to act will require something more. But what, exactly? To answer that, we first need to understand where we are and how we got here.

Reform gridlock

Labor and the Coalition are entrenched in a protracted gridlock over tax reform, one that took me an entire book to unpack. This is why experts telling politicians what to change has produced limited results. Rather, the solution to breaking the gridlock is to be found in understanding how it arose, and thus why the politicians refuse to make any meaningful changes.

The gridlock is not due to ignorance or uncertainty over what we should change. Rather, it arose purely from political competition, but with no ideological or merit basis behind each side’s opposition to the other side’s proposed changes. It was simply a case of opposing a particular reform merely because the other side proposed it first.

But more than that, over several decades, both Labor and the Coalition have maintained a strategy of stockpiling respective arsenals of ready-to-launch scare campaigns against each other’s tax policies. The Coalition’s arsenal includes scare campaigns over issues like negative gearing and a carbon tax. Labor’s arsenal, on the other hand, contains largely one super-scare weapon – the GST.

Mutually Assured Destruction

We’ve arrived at a Cold War-style standoff – classic mutually assured destruction. Both sides remain on high alert, fingers poised over an array of scare-campaign launch buttons, ready to strike at the slightest provocation. The moment someone from one side dares to raise a desired reform, or the media pounces on them like with that skirmish last year over negative gearing, the other side hits the relevant launch button.

A whirlwind of media hysteria follows: wild claims, counter-claims, denials and obfuscations of apoplectic proportions. And the outcome? The ABC’s Annabel Crabb summed up well the recurring pattern in these skirmishes: Everybody goes bananas, then nothing happens.

Stuck in their corners

The irony is that this strategy, over the course of more than three decades, has become self-defeating. Labor and the Coalition's wedging each other over tax reform has served only to paint themselves into respective corners from which they cannot step out without losing face.

For example, Labor cannot have a serious discussion about reforming the GST (which is the key to holistic, system-wide tax reform), as that would expose that they’ve been scaring people over the tax for decades, and ditto the Coalition over negative gearing. However, genuine and holistic tax reform requires addressing matters that span both sides’ arsenals of stockpiled scare campaigns. Thus, politically, both sides have closed off their own ability to implement genuine reform.

But it gets worse.

Because they’re stuck in their painted-in corners, unable to implement any major reform to our tax system, all they can do is tinker. And then they insult our collective intelligence by labelling these puny policy punts as “reform”.

So, there you have it. Labor and the Coalition have spent decades stockpiling arsenals of scare campaigns, resulting in condemning themselves to their painted-in corners from which they cannot step out, because that would expose their decades of duplicitousness.

That is why the politicians refuse to consider any meaningful reforms.

This was on display in August’s Economic Reform Roundtable. Although Treasurer Jim Chalmers’ decision to include tax reform in the discussion was welcome, he was always going to participate in that discussion with his feet firmly planted in his side’s painted-in corner (and same for shadow treasurer Ted O’Brien).

It’s no wonder experts’ reform proposals just bounce off the political class. In response, we chastise politicians over the absence of genuine reform while mocking the tedious tidbits of tinkering they portray as meaningful change.

As fun as that is, we need a new approach.

What now?

To improve the prospects for genuine tax reform, I urge people to deepen their understanding of the political journey that has led to today’s tax reform gridlock. That is, understand how both sides, over a long period, have managed to paint themselves into their corners.

Only then will it become clear that the solution to breaking the gridlock lies in figuring out what will motivate the politicians to get off their arsenals and step out from their painted-in corners in a face-saving way.

My book, Tax Wars, sets out to do precisely that. It explores the political stories behind Australia’s tumultuous tax reform journey over more than three decades. Through these stories, a pathway emerges that just might offer a way to break this seemingly unbreakable gridlock.

And that would usher in a new era of genuine tax reform, which is essential to achieving a wealthier, more compassionate, and happier Australia.