THE federal government has defended its move to crack down on the cash economy despite claims it wants to lower the tax burden on all Australians, saying it doesn’t believe in a “self-help approach to tax reform”.
In December’s midyear budget update the government announced a review of the $100 note and cash payments over certain limits as it seeks to recoup billions in unpaid tax. The Reserve Bank later came out in defence of the $100 note.
Revenue and Financial Services Minister Kelly O’Dwyer, speaking at the Centre for Independent Studies on Friday, said the estimated $23 billion “black economy” would be a “real focus” for the government.
“We are increasingly losing revenue as a result of the practices that go on there,” she said.
Liberal Democratic Senator David Leyonhjelm has criticised the cash crackdown proposal, saying “the only people who are distressed by the cash economy are the government and the public servants who want to spend taxes”.
“The incentives for a cash economy would be a lot reduced if taxes were a lot lower,” he said in December. “It’s a reaction to the level of taxes we pay.”
Ms O’Dwyer, who was speaking about the “urgent” need to reduce the tax burden on both companies and on individuals via the “stealth tax” of bracket creep, denied that the government was sending mixed messages.
“We don’t believe in a self-help approach to tax reform,” she said. “We think it should apply and be fairly represented across everybody. There are always going to be people who try and avoid their tax, and [for] those in the cash economy it’s much easier to avoid detection.
“This comes at a time where we’re experiencing rapid technological change. A lot of people under 40 don’t really carry that much cash around anymore, but even despite this we have seen an increase in the number of $100 notes in distribution.
“I don’t know too many people who walk around with $100 notes, I certainly haven’t sighted one in a long time, but the point is that there is clearly an issue that we need to grapple with.”
In earlier making the case for company tax cuts, Ms O’Dwyer argued that “taxes on companies are taxes on individuals”. “That places a strong moral obligation on governments to keep that tax as low as is reasonably possible,” she said.
“Any tax on an individual — whether direct or indirect, and no matter how justifiable — is ultimately an infringement on that individual’s freedom.”
On the cash crackdown, Ms O’Dwyer said “at the end of the day, it’s stealing off other Australian citizens if you don’t pay your tax”. “The government has a responsibility to spend that money wisely, of course,” she said.
“But if you don’t collect the tax that’s owed to you as a government on behalf of the Australian citizens, then it means you [either] reduce services or don’t pay for certain infrastructure, or you end up increasing the tax burden on everyone else, and that’s not fair.”
Ms O’Dwyer also strongly hinted that a more permanent solution to the issue of bracket creep, where taxpayers are pushed into higher tax brackets through inflation, was on the cards.
“Within 10 years, [of] those people in this country who pay personal income taxes, the majority will be in the top two tax brackets, which is neither fair nor sustainable,” she said.
At the last budget, the government made what it described as a “modest down payment” to combat bracket creep by increasing the 32.5 per cent marginal tax threshold from $80,000 to $87,000, affecting some 500,000 people. Economists have described the move as “inadequate”, arguing the tax thresholds should be indexed.
“The government is very focused on this issue of how we can reduce the burden and reward people for their effort,” Ms O’Dwyer said. “We’ve made a modest down payment on that with changes to the tax thresholds, but clearly this is an area that internationally there is movement on and we need to be focused on this issue.
“In similarity to company tax, many of our overseas competitors are promising to reduce tax levels on labour income, and decrease the number of tax brackets that are used.”
She pointed to commitments by the Trump Administration to reduce the number of income tax brackets from seven to three, and lower tax rates, or moves in the UK to increase the equivalent of the tax-free threshold.
“This is something the government is very conscious of,” she said. “We live in an age where people are more mobile than ever before. And that means they can go to where rewards are greatest. We need to make sure that we continue to attract and retain talent so that they can contribute to making Australia a more prosperous nation.”
JOBS AND GROWTH 2.0
Ms O’Dwyer also talked of the need to do a better sales job “prosecuting the values case” for tax cuts. “Why is there such scepticism about a company tax cut in the community? The craven politics of perpetual opposition has certainly played a part,” she said.
“So rather than enjoying bipartisan support on the merits and concept of a company tax cut from Labor, we have the spectacle of the Shadow Treasurer and Leader of the Opposition denouncing a policy that they once supported.
“At the moment, the UK is like a petrol station hanging a headline price of 20 cents out the front for international investors. The UK sign has been gradually ticking down, and business has performed well, so much that it’s looking to lower it further to 17 cents.
“The US is talking about hanging a sign saying 15 cents and making the station more user friendly. New Zealand’s petrol station was losing money a few years ago, and while it still has a premium price, lowering the price by 5 cents to 28 cents helped it back into the black.
“It’s a similar story in Canada. Now the Australia petrol station is fantastic — it has a reputation for great customer service and reliable product, but how do we think it’s going to go if it keeps hanging 30 cents out the front?”
Ms O’Dwyer said Australian modelling predicts reducing the tax rate from 30 per cent to 25 per cent would secure a permanent increase in business investment of up to 2.9 per cent over the long term, equivalent to around $6.5 billion in today’s dollars.
With Donald Trump promising to unveil a “phenomenal” tax plan — we don’t know what’s in it yet, but he’s definitely not underselling it — the Turnbull Government could use a few lessons in Trumpian salesmanship.
The US President wants to bring the US company tax rate from its current 35 per cent to 15 per cent. During the election campaign, he campaigned on one word: “Jobs.”
At the last budget, Treasurer Scott Morrison unveiled a confusing, 10-year staged reduction in company tax from 30 per cent to 25 per cent. During the election, Malcolm Turnbull couldn’t help but add some words: “Jobs and growth.”
Ms O’Dwyer maintained it was the right message. “We tried to explain it to the electorate in terms of jobs and growth at the last federal election,” she said.
“Over the course of eight long weeks, these three words were repeated again and again — as political campaigns demand. However, while it was undoubtedly the right focus, some at the time dismissed these words as meaningless. Yet nothing could be further from the truth.”
She said she took the point that “you need to have a simple message and one that is easily understood”, but that the US was a “very different economy and very different society” to Australia.
“[But] I take the point that if you can improve and simplify your message, that’s always better,” she said.
So if Donald Trump describes his tax plan as “phenomenal”, what word would she use to describe this government’s? “Well I don’t think I’m a Donald Trump,” Ms O’Dwyer said.
“I would need two words: prudent and fair.”
Now there’s a campaign slogan.