Too timid on tax reform

Committee for Economic Development of Australia chief economist Cassandra Winzar (7) said the treasurer needed to move from consultation to action this year because “we haven’t seen a lot of reform yet, other than small changes,” such as winding back the tax concession for superannuation balances over $3 million.

“We need more detail and action on key areas such as housing, jobs and skills and the energy transition, which are crucial for our longer-term economic prosperity,” she said.

Australian National University economics professor and former RBA board member Warwick McKibbin said, “fundamental reform to raise productivity is the key to Australia’s future.”

“Far more could be done in this area,” Professor McKibbin said.

“For example, tax reform, moving from income to consumption taxes and dealing fairly with bracket creep as well as scaling back the size of government will inevitably be needed.

“Transparent carbon pricing would make the climate challenge more achievable at a lower cost.”

Professor McKibbin scored Dr Chalmers an eight of 10, saying he was one of Australia’s best treasurers.

“However, if he was involved in the design of the industrial relations changes in the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022, I would make it 6,” Professor McKibbin said.

“This re-regulation of the labour market will further reduce Australia’s low productivity growth.”

UNSW economics professor Richard Holden (7), said Dr Chalmers should have reined in Workplace Relations Minister Tony Burke’s “damaging and radical IR agenda”.

“That just makes unemployment, inflation, and interest rates worse going forward,” Professor Holden said.

Amid the biggest inflation challenge in 30 years, Prime Minister Anthony Albanese signalled last week he is preparing to unveil new cost-of-living measures.

Nicki Hutley backed the government’s previous cost of living measures. Eamon Gallagher

Labor MPs have been called to a caucus meeting in Canberra on Wednesday to discuss the politically fraught issue of cost-of-living, ahead of the prime minister’s address to the national press club on Thursday.

Dr Chalmers’ efforts to help the RBA contain inflation received mixed reviews.

Nicki Hutley (6.5) said the government’s cost-of-living subsidies for healthcare, rent, childcare and utility bills were helpful in anchoring inflation expectations.

But former Treasury official Steven Hamilton (six) said, “his big failure is not doing anything to reduce inflationary pressures in the economy.

“Had the treasurer taken inflation seriously from day one, I think the inflation and interest rate trajectories could have been meaningfully lowered,” Mr Hamilton said.

The publication of the Financial Review survey, conducted in late December and early January, follows a major report by the International Monetary Fund last Friday advising that the RBA should lift interest rates further and the Albanese government deliver federal and state spending cuts to reduce inflation to target before 2026.

Tax reforms crucial

The IMF stepped up calls for “comprehensive tax reform” to fix weak labour productivity growth, recommending relying more on the GST, taking pressure off personal income tax paid by workers and cracking down on capital gains tax breaks.

Seven of the 10 economists explicitly urged the treasurer to develop a serious tax reform agenda approaching the next election.

Mr Downes said, “the longer you go without tax reform, the larger the problems in the system become.

“The government doesn’t have a mandate for tax reform from the last election, and there are no votes in talking about it.

“But from a national interest perspective, the treasurer needs to develop an agenda to take to the next election.”

Dr Chalmers has ruled out changes to the 10 per cent GST and spoken of doing “modest but meaningful” tax changes in “bite-sized chunks”.

Measures announced to date include for high superannuation balances, a planned slight tightening of the petroleum resource rent tax (PRRT) on oil and gas producers, tougher multinational tax rules and measures related to franking credits for capital raisings and share buybacks.

Ms Hurley said “small measures” such as tightening tax deductions for oil and gat giants subject to the PRRT were welcome, “but they don’t have the type of impact, or raise the type of headlines, you see from floating the dollar or major tax reform.

“If Chalmers wants to get an A+ or be up for an award like his Labor predecessors, Swan and Keating, then he’s going to need to get bolder and braver on tax reform, the green economy, climate and insurance challenges, and of course productivity,” Ms Hutley said.

Political constraints and ‘timidity’

Mr Miller (5.5), GSFM’s investment strategist and former junior Treasury economist for Paul Keating, said there appeared to be “timidity” on meaningful reform.

“The tax system is not fit for purpose, given the heavy reliance on income tax and a relatively low take from indirect tax.

“Meaningful reform that encompassed cutting income taxes, increasing indirect taxes and perhaps the institution of some form of wealth tax might better balance the tax system.”

“Chalmers big weakness is talking a big game: recognising the big structural challenges facing the economy (such as productivity or tax) and then failing to craft any coherent reform measures to address those measures.”

Saul Eslake (7) said Dr Chalmers had managed the tension between providing politically necessary cost-of-living relief to lower-income households and not doing much to stoke demand and add to inflationary pressures.

“Critics of Chalmers for not doing major reforms need to acknowledge that the government doesn’t have a mandate for major reforms because it didn’t ask for one, and might not have won the election if it did,” he said.

“Between now and the next election, he needs to articulate the case for major reforms, so that the government goes to the next election seeking (and if history is any guide, getting) a mandate for major reforms in their second term.”

Former Treasury official Stephen Anthony (6.5) said Dr Chalmers needed to start making the case for reform with the public and his parliamentary colleagues.

“He needs to use Infrastructure Australia to discipline the misuse of public funds in low-grade infrastructure by certain state governments,” Mr Anthony said.

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