Barry grabs the money first

Sounds like a good idea to me:

NSW Premier Barry O'Farrell ... playing hardball with the federal government. Picture: Brad Hunter Source: The Australian

PREMIER Barry O'Farrell has threatened to punish the federal government by increasing state mining royalties if it fails to help fund the North West Rail Link and other infrastructure.

Increasing royalties would hurt the federal Budget because, under the super profits mining tax deal, any increase in state tax on mining leads to the federal government taking an equal amount less in royalties.

A similar move by West Australian Premier Colin Barnett stripped $2 billion from the federal Budget.

Any increase in NSW royalties would put Treasurer Wayne Swan's $3.5 billion surplus for 2012-13 at risk.

"We reserve the right to consider all measures in the budget," State Treasurer Mike Baird said yesterday.

"Our desire is to have a constructive relationship with the federal government but, we will make no apologies for standing up for NSW.".....

Who pays tax

Sinclair Davidson over at Catallaxy files has been doing the numbers. As can be seen its the rich who pay most of the income tax in Australia.

Why Australia is the best country in the world

Australia has the smallest government and one of the most equal societies in the world. So says David Alexander in the current CIS Policy. Anyone interested in social policy should read the article. The reason seems to be our targeted welfare system and relatively minimal handouts to the rich. Note, we seem to have become a more equal society under Prime Minister Howard the Great.

Reform Taxation and Reform the States

I had another article published at Menzies House:

Let’s face it, our state governments are a disgrace. Problems such as lack of public transport, poor roads and failing hospitals are primary the responsibility of the states but they seem incapable of doing much about them. So poor have state governments become at doing their job that there are increasing requests for the Commonwealth government to take over various responsibilities such as hospitals and even calls to abolish the states altogether. 

It was not always so. Not all that long ago we had Premiers like Wran, Bolte and of course, Sir Joh, men who understood they were leaders and were willing to use the economic tools they had to maximize the economic development of their state. Increasingly our Premiers are degenerating into managers who at best do the bidding of the bureaucracy.

One of the reasons for the current state of affairs is that the States are losing control of their finances. The more dependent they become on Commonwealth grants the less responsibility they have and they can always blame Canberra for their woes. Say what you want about the pre-GST state taxes, but at least they were under the direct control of the State governments. The GST on the other hand is dished out accordingly to a formula without their direct control.

Recently there have been suggestions the GST rate be increased in order to cut federal taxes. The big problem with that is that the GST taxes are all allocated to the states. Merging it into a Commonwealth tax as well would just confuse the matter further.

Here's a better idea. The GST raises about $45 billion, income tax about $137 billion. So give the GST completely to the Commonwealth. At the same time transfer a percentage of the income tax base to the States. While we are at it transfer other federal grants the same way. It would be a tax collected by the feds but under the control of the states. The percentage would differ from state to state but that’s OK as the swap would be revenue neutral. However, if they want to cut or increase the tax they could do so. No longer would they need to beg the feds for funds. States would have an incentive to cut taxes to increase economic growth in their states. The Commonwealth government could increase the GST rate to cut other taxes. Premiers would again be in control of their financial destiny and hopefully we would get better government.

National emergency declared

This is just outrageous. The mining companies are mounting an advertising campaign against the Rudd governments' mining tax so what do they do? Use the national emergency powers to bypass their own rules tnd attack the miners:

WAYNE Swan is preparing to escalate his pitched battle with the mining industry over the resource super-profits tax, obtaining a special exemption under national emergency powers to waive the government's own advertising rules for a campaign against the miners.

The exemption granted this week to the Treasurer by Special Minister of State Joe Ludwig will allow the government to rush out an advertising campaign to counter a mining industry blitz against the new 40 per cent super profits tax....

Mr Swan on May 10 sought permission from Senator Ludwig, in his role as Cabinet Secretary, to mount a tax reform advertising campaign.

How many millions will they spend? We have a federal government which has no respect for the Australian people.

To increase infrastructure spending reform welfare spending

Infrastructure and its requirement for capital seems to be on everyone's mind at the moment. . Most recently the Sydney Morning Herald reported a Price-Waterhouse study which claims we can not meet expected infrastructure demands due to a lack of capital. It demands we give up our cars, live in smaller homes and generally change our life styles. Drastic measures indeed but what about other options? 

Well, a better option may be to increase our savings so we can have more capital. Now having a government that collects in taxes about 30% of our GDP limits what we can save. Especially since so much of of that tax is used to fund a social welfare system that discourages saving. Our welfare system is mostly income redistribution (the exception being the Superannuation Guarantee) it takes money from ordinary working mugs and gives it to people who aren't working or who the government thinks don't earn enough. A lot of this is just income churning, over your life time you get about the same amount back as taken it. The main beneficiaries are the public servants who administer the schemes and the politicians who promote them. The last budget allocated $110,884 million for social security and welfare so if a reasonable percentage of that could be converted to savings there would be no lack of capital for infrastructure.

So how can we do this? How can we convert our welfare system to a “wealthfare” system, one based on savings and investment?

We could expand the Superannuation Guarantee into an Australian version of Singapore's Central Provident Fund. That depends on compulsory savings to provide Singaporeans with welfare benefits and capital for national development. However the compulsory saving rate is up to 34.5% (ouch) and I don't like compulsory anything nor do I trust government officials with my money. We need more liberal alternatives. 

Back in the good old days of John Howard and budget surpluses Peter Saunders from the CIS proposed Personal Future Funds. All Australians would have such funds funded by the budget surpluses. Eventually the personal savings would replace unemployment benefits and allow voluntary medicare opt-outs. The days of budget surpluses are now over but perhaps there is still room in the budget to introduce such a scheme which could be expanded once the budget is back in the black.

Another option is to replace Income Tax with an Expenditure Tax. There are only two things people can do with their money, spend it or save it. An Expenditure Tax would allow the deduction all savings from income and whats left over, expenditure would be taxed, preferably at a single rate. Combine the Expenditure Tax with welfare reforms that encouraged the replacement of state benefits with the extra personal saving and investments and we can start hacking into that $100 billion welfare bill. 

I'm sure there are other alternatives but surely cutting taxes, reducing welfare expenditure, increasing savings and investment makes more sense then living in smaller houses and giving up our cars.

Rudd's Christmas gift: higher taxes

The Howard government was able to provide income tax cuts virtually every year after the budget went into surplus. Thanks Rudd's big government we will be getting tax increases instead:

ACROSS-THE-BOARD income tax cuts are off Labor's agenda as the Henry review looks instead to ease the burden on individual taxpayers by simplifying returns and reducing churn in the tax and family payment systems.

The compromise at the heart of the report now in the hands of Wayne Swan marks the first occasion that a major tax reform will not be accompanied by tax cuts for all.

The budget cannot afford them for at least six years.

Don't let anyone tell you leaving the tax  brackets unchanged isn't a tax increase either, bracket creep will mean we  will all end up paying more.

Questions to my Labor voting libertarian readers, missing Howard yet?

More new taxes

Looks like the we will be getting more taxes:

THE Federal Government's biggest tax inquiry in more than two decades is set to propose a national land tax, a new resource tax and a road congestion tax for the nation's clogged cities.


The Henry Review, by treasury head Ken Henry, is also expected to canvass a federal clawback of GST revenues to fund the Rudd Government's proposed takeover of the public hospital system.


Dr Henry's report, which is due to go to the Government at the end of this month, is also believed to favour a national payroll tax to replace state-based payroll taxes.


The national land tax would also replace existing state-based stamp duties payable on the sale of properties. But while Dr Henry is believed to support the tax, Treasurer Wayne Swan could still rule it out as too politically dangerous...

What annoys me the most is not that the government wants to clean up taxes but that it wants to take over state taxes. The net result will be weaker state government and a more powerful central government.

A world money tax

This is worrying, now there are moves to an international financial transaction tax.:

Mr Brown told G20 finance ministers meeting in Scotland that "a global financial transactions levy" would be one way "to reflect the global responsibilities of financial institutions to society."

Although the British Prime Minister warned of the need to avoid "prohibitive costs" on the banking sector, he said: "I do not think these difficulties should prevent us from considering with urgency the legitimate issues."

Mr Brown stressed Britain would not act alone on the so-called Tobin Tax, saying it would also have to be implemented by all the world's major financial centers, including the US, Europe, Asia, the Middle East and Switzerland.

Fortunately  it would require the co-operation of the world's major money centers, something I would think is unlikely. Any country not participating in the tax grab would see a capital pour in.

Update: How we are moving towards a World Government. 

An income tax holiday

The cost of Mr Rudd's stimulus package is expected to be $97 billion over four years. What could be achieved if a tax cut was offered instead. How about a one year tax holiday:

If the Rudd government had implemented a one-off income tax cut the average Australian taxpayer would have received a one-off tax cut of more than $8,200 in 2008-09, according to new research released today.

The total size of the Rudd government's fiscal policy decisions taken during 2008-09 is expected to be $97 billion over four years. If the government instead gave a one-off personal income tax cut equal in size to this, the average individual Australian taxpayer would have paid $8,228 less in tax last year.

Alternatively, for about the same total cost, the government could have cut income tax to zero for everyone, except the richest three per cent of taxpayers....

Off course there's one big problem with such a plan. The government wouldn't be able to pork barrel  marginal seats.

The IPA paper is here.

End stamp duties

I was very pleased to read today that the Victorian government is proposing something I have been promoting for some time. Replace State stamp duties by a giving the states a percentage of Commonwealth income tax- a defacto state tax.

THE states would scrap all stamp duties in exchange for a $20 billion a year share of income tax revenue under a radical revamp of fiscal relations put to the Rudd Government's tax review.

The Victorian Government has proposed that the states scrap stamp duty on property, cars and other items in what it acknowledges would be the most significant tax reform since the GST.

It claims the abolition of stamp duties would stimulate investment and generate billions of dollars of additional company tax revenue for the Commonwealth to help pay for the change, The Australian reports.

Lets have some competitive federalism. Competition keeps prices down, competion can keep taxes down too.

We are taxed more

I don't think this will come as a surprise to anyone:

THE amount of tax paid by the average Australian has jumped by up to 40 per cent in just five years, according to new statistics.

In one state, the average person is forking out 62 per cent more in State Government and local council taxes than they did in 2003.

Figures released by the Australian Bureau of Statistics (ABS) reveal the average Australian paid $16,401 in taxes to local, state and federal governments last financial year - a 36 per cent rise since 2002-03.

However this makes no sense to me:

General manager of Taxpayers Australia Heather Schache said it was unfair that people in certain states were being slugged with such high taxes.

“There’s always been issues with state taxes… since the introduction of the GST,” Ms Schache said.

“It really is quite ridiculous that our states are operating with different tax systems.”

Why is it ridiculous ? Does she really believe if we had one tax system taxes would be less? Why?
We benefit from competitive federalism, if you think taxes are too high in one state you can move yourself or your business into a low taxed state. The fact that some states are lower taxed is an incentive for the others to improve.