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 of Markets and Money and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to Markets and Money for free here. If you’re already a Markets and Money subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Markets and Money emails. For more on Greg go here.

Leave a Reply

Be the First to Comment!

Notify of
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@dailyreckoning.com.au