A Desperate Stab at Tax Reform

A Desperate Stab at Tax Reform

Did you hear the latest from Malcolm Turnbull?

He wants to put taxing power back in the hands of the states so they can fund their health and education systems.

On the surface, this is a decent reform. It gives states, other than NSW and Victoria, the opportunity to lure people and businesses by setting more attractive tax rates. Creating tax-based competition among the states is a good way of creating a more competitive and productive society.

But it’s unlikely the electorate will buy it. It opens up the possibility of double taxation.

As far as I can tell, the motivation behind Turnbull’s decision has nothing to do with tax reform — and everything to do with trying to deal with a worsening budget decision.

The timing is a giveaway. The government is obviously working on its budget, due for release in early May. They see that the numbers don’t look good. Structural tax reform is necessary in order to improve the longer term outlook.

What can they do though? They’ve shot down most of the solutions because they hurt the special interest groups aligned with the Liberals (the Australian elite).

The only thing left is to pass the responsibility onto someone else. The states! If things like education and health spending revert back to the states, a large chunk of the Federal government’s spending responsibility disappears.

Conveniently, education and health are hot topics with predominantly Labor voters. Removing these sectors from Federal responsibility works very well for the Libs politically.

Nice try Malcolm. But it won’t work. You’re eventually going to have to do something meaningful, or the electorate will send you the way of Rudd, Gillard and Abbott. Not that the electorate had a say in those decisions. But if you’re going to boot someone out of office for doing nothing, then you had better do something yourself or you will suffer the same fate.

Greg Canavan,
For Markets and Money

Greg Canavan

Greg Canavan is a Contributing Editor at Markets & Money and Head of Research at Port Phillip Publishing.

He advocates a counter-intuitive investment philosophy based on the old adage that ‘ignorance is bliss’.

Greg says that investing in the ‘Information Age’ means you now have all the information you need. But is it really useful? Much of it is noise, and serves to confuse rather than inform investors.

Greg Canavan

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