Turning left at the end of the world
A few years ago the president of one of those numerous archipelagoes peppered across the Pacific Ocean made an accusatory statement about Australia that threatened a diplomatic incident. Listening to an interview on the BBC with the then Australian foreign minister my mind was tuned to expect a suitably circumlocutory diplomatic reply. “Frankly, he is talking a load of crap” was the actual response - the minister probably calculating that the Polynesian ruler would be too busy eating his mother-in-law to be bothered to take the matter further.
The Aussies are a truly wonderful species – they say what they think and they do what they say and to hell with the consequences. In fact, despite my buttoned up Britishness, some of my best friends are Australians and I can always expect to be sent home laughing at some outrageous statement that I could never have got away with myself. What I would not expect is to be taught a lesson by them in the fundamentals of taxation. But that is exactly what is happening at the moment – and they are acting in a far more mature manner than their counterparts in Europe and North America – which, to be fair, is not saying much.
As of the beginning of July Australia is introducing two new taxes, neither of which are particularly loved by Labor prime minister Julia Gillard but appear important to her coalition partners, the Greens (that is the Green Party rather than Mr and Mrs Bruce Green of Wallamaloo Street, Perth). The Mineral Income Rent Tax (30%) which will apply to sectors of the hugely profitable mining industry is designed to redistribute wealth while the Carbon Tax is designed to substantially cut greenhouse gases. The Carbon Tax, initially fixed at a fairly random A$23 per tonne of carbon emissions will morph into a Cap and Trade system in 2015 allowing the market to decide the fair price while limiting overall emissions. As both taxes, especially the carbon tax, are regressive – they affect lower income people most because they up the price of basic goods like electricity – much of the revenue from the new taxes is to be funneled back to consumers by direct monetary grants and tax breaks as well as assistance to farmers and industry to meet lower emissions targets.
But what really caught my eye was the expected effect of all this on this week’s Budget speech to be delivered to Parliament by Wayne Swan (not – as you might think – a gyrating contestant in the latest season of America’s Got Talent, but Australia’s Finance Minister and current holder of Euromoney’s Best Finance Minister Award).
There has been a lot of lobbying for a significant corporate tax rate cut to be partly funded by the revenue from the two new taxes. Currently at the unfashionably high rate of 30%, the recent Henry Tax Review recommended lowering the rate to a more competitive 25%.
No way, mate! The government is determined to push the country into budget surplus in the next financial year, so the rate is going to drop all the way to…29% and to hell with any whinging possums who don’t like it. Here is a case of fiscal responsibility (Greeks might like to look that up) coupled with a gutsy position that racing to the bottom in tax rates is not some Holy Grail. The concept of competitive tax rates is problematic. While competition may be healthy in predominantly all sectors of the economy – that is not what taxes should be about. Taxes are about funding what is needed outside the scope of the market to maximise the lot of civil society as a whole. The fact that corporate taxes have been abused by countries from Ireland to the Baltic States - especially in their lust for the refugees from the American system – does not turn tax competition into a moral goal, let alone an ideal. The race to the bottom should not be confused with the Laffer Curve -seeking the rate at which government revenue is maximised is what fiddling with the tax rate should really be about.
The tax world needs more Australias. Amen.
Of course, Australia is not perfect. It did a pretty good job in the, not so distant, past of making the indigenous population miserable – including forcibly removing children from their families which was heinous. When then prime minister Kevin Rudd made his famous apology in Parliament to the Aborigines in 2008 it took me back to the Wimbledon of my youth. In 1971 the Center Court rang to the Umpire’s call “Game, set and match to Miss Goolagong” as that exotic young lady took the Women’s Singles title. When she won it the second time ten years later, I had a creeping suspicion that she would take out a duster and can of silver polish to clean the winner’s dish – “Game, set and match to Mrs Cawley” was just too Australian. G’day, cobbers!