Henry lives! Big new taxes coming ... some day
The Henry Review of Taxation is alive and kicking, the flame kept burning in places as diverse as the federal Treasury, the Moody's ratings agency and anywhere that the nation's future is seriously considered.
And the great irony is that inevitable “big new taxes” will need to be introduced by the coalition parties. Wonder how that will play at the Billy Tea Party end of the spectrum ...
There's also irony in that this week's effective ditching of the business lobby's immediate corporate tax cut hopes is an another step towards achieving them. The demonstrated inability to massage a revenue-neutral tax cut underlines the need for greater changes.
The latest instalment of the Henry revival came in yesterday's speech by Treasury secretary Martin Parkinson. There was nothing particularly new in it, but retelling the story of our fiscal reality is a necessary part of inching unwilling politicians towards taking up the responsibilities of their office. (That the job has to be primarily left to a public servant rather than our elected representatives says plenty about the current crop.)
While it came from a rather different angle, Wednesday's warning by Moody's about state government credit ratings is part of the same offensive. Moody's concentrated on the spending side of the states' ledger, but the revenue corollary was obvious.
The states are at various stages of fiddling with costs, but all remain largely in denial about the tax reforms they must eventually face. As the most vociferous of the current cost-cutters, Queensland's Campbell Newman is setting himself up for a credibility check in next month's budget unless he addresses the revenue problem as well. From north of the Tweed come whispers of “watch this space”. We'll see.
When the Henry review was first released, both sides of politics at best paid lip service to the very fine work and proceeded to run away from anything that looked politically challenging. Given that Wayne Swan managed to make very challenging something that shouldn't have been politically difficult – introducing a broad resources rent tax – it's little wonder the hard stuff was shirked.
However, whoever is in government over the next decade will find it much harder to run and impossible to hide from the shortcomings of our present tax mix. Demographics alone are bearing down fast, never mind issues of competitiveness and equity.
The next government can grandstand all it likes about Magic Pudding Hockeynomics, painlessly slicing billions from the budget and effortlessly burying legions of public servants, but the big ticket items remain pretty much locked in and growing.
A succession of governments of both colours have done remarkably well in preserving one of the world's best social safety nets at relatively little cost thanks to careful targeting of spending. It has enabled Australians to be among the ranks of the lower taxpayers in the developed world – not that the average Australian believes it.
The ball was dropped over the last two terms of the Howard/Costello government when a resources rent tax should have been introduced, when superannuation generosity for those in the top tax bracket was taken to ridiculous lengths and when welfare targeting was replaced with a scattergun approach to middle class welfare and tax cuts as votes were shamelessly purchased, a process made worse by Rudd and Swan joining the auction.
The current government has managed to trim back some of the excess of those years, but also has embarked on its own increased spending ambitions. The national disability insurance scheme and implementing the Gonski Report are noble goals, but they also have to be paid for.
What Martin Parkinson, Henry's successor as Treasury secretary, belled today is that maintaining existing services without revenue reform will be hard work and increasing spending becomes impossible.
And what that gets back to is the Henry stuff politicians don't want to deal with – moving more of the tax burden onto land, labour and consumption. Yes folks, big new taxes, if not serious expansion of existing revenue sources.
Having refrained from making any rational contribution to the nation's tax debate, that's all in front of shadow treasurer Joe Hockey. If he is given to thinking about what happens after the next election, he might well find the prospect of a populist prime minister and roosting campaign promises more than a little daunting.
I thought Joe looked a little worried in the first interviews he gave after May's federal budget. For a moment or two, I thought the mask slipped as he saw the fiscal IEDs Swan was leaving by the roadside. I can imagine the trademark wince he wears when dissing Labor tightening a little more every time he hears Tony Abbott suggesting another way of currying favour, from maternity leave to boosting defence spending.
The next government will be just as “interesting” to watch as this one.
Michael Pascoe is a BusinessDay contributing editor.