Academic journal article The Economic and Labour Relations Review : ELRR

Dracula in Charge of the Blood Bank

Academic journal article The Economic and Labour Relations Review : ELRR

Dracula in Charge of the Blood Bank

Article excerpt

1. Introduction and Summary

An Australian pension review was chaired by Dr Jeff Harmer when he was Secretary of the Department of Families, Housing, Community Services and Indigenous Affairs. The report was published in 2009. It was coordinated with the Australia's Future Tax System (AFTS) review, which was chaired by Dr Ken Henry when he was Secretary of the Department of the Treasury. The tax review was published in 2010. A common feature of the reviews, then, was that neither was chaired at arm's length from the Commonwealth Public Service. This stands in contrast with, for example, the work of the Asprey committee, which in 1975 recommended a broad-based federal indirect tax for Australia. AFTS panellists have likened their endeavours to Asprey's, but that committee was chaired by a judge of the New South Wales Court of Appeal.

That the chairs of the Harmer and Henry committees were at less than arm's length from the central bureaucracy has had predictable consequences. Positive ones include an impressive grasp of Australia's tax-transfer system, and moves towards rectifying anomalous tax expenditures originating in regional vested interests, such as the Fringe Benefits Tax treatment of cars, 'which may encourage individuals to travel unnecessary kilometres' (AFTS 2010b: 46). One negative consequence was disregard for the principle that investors, short of a national emergency, can expect that the rules will not change dramatically if investments outperform. Another was that growth-enhancing measures, such as cuts in business taxes, were to be in the 'short to medium term' and 'subject to economic and fiscal circumstances' (AFTS 2010a: 86), even while pension rises were unconditional and unaccompanied by serious new carrots and sticks for self-funded retirements.

The key Harmer recommendation resulted in an increase in the common value of the single rate of Age Pension and Disability Support Pension (DSP) from 25 per cent to 28 per cent of male total average weekly earnings. The key Henry recommendation was a Resource Super Profits Tax (RSPT) that would have initially taxed mining 'rents' at a headline rate of 36 per cent, on top of the pre-existing 30 per federal tax on mining profits. These recommendations represent two sides of the same coin: higher federal spending alongside higher federal taxes. The pension rise can be expected to reduce participation in the labour force, unless future governments can devise measures to restrict early retirement via the DSP. The proposed tax rise would discourage mining activity as miners considered their options to delay or abandon projects.

One giveaway of a process controlled by a central bureaucracy is lack of disclosure and transparency, and that is pervasive in the reports under discussion, particularly Henry's. For example, the Harmer-Henry recommendations envisaged that about 60 per cent of the median retiree's income in 2047 would come from the Age Pension rather than superannuation, notwithstanding the elapse of 55 years since the introduction of the Superannuation Guarantee (SG). So the SG is not viewed as supplanting the pension's longstanding role as the major source of retirement income even after the SG is fully mature. Yet this piece of information has to be gleaned from an undiscussed portion of a chart and lacks comment. Likewise, Henry says that his recommendations would be revenue neutral in 'steady state', yet he does not provide the information needed to check out the relevant calculations. Whereas he envisaged a drawn-out transition from the current 30 per cent rate of company tax to a 'steady-state' rate of 25 per cent, the RSPT was envisaged as coming on stream by the 2011-12 budget. In this way, Henry called for a tax reform that was strongly revenue-positive for several years--or possibly much longer than that--yet failed to put numbers on the expected departure from revenue neutrality.

Less predictably, Henry also sought to improve the tax-transfer position of people at the lower and upper extremes of the income distribution relative to people in the middle. …

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