Published on: 21 Oct 2022
SYDNEY, Friday, 21 October 2022: Australia’s 29th Prime Minister Malcolm Turnbull AC addressed the challenges of reforming Australia’s tax system in his VIP presentation at The Tax Summit 2022, hosted by The Tax Institute, revealing the problem with the tax system is not that there is a lack of consensus on what reforms are needed, but that doing so could ignite a media firestorm.
There is close to universal agreement that governments should remove inefficient taxes, such as stamp duty and payroll tax, and broaden the base of the GST so as to become less reliant on income tax revenue.
But any politician brave enough to attempt to do any of those things will likely set off the media. If they survive that, as Turnbull did after making changes to the tax arrangements around superannuation, they will find the losers are enraged while the winners are at best indifferent.
Turnbull began his presentation by pointing out the differences between the changes to income tax arrangements made in the 2018 Budget and the Stage Three tax cuts subsequently championed by his successor.
“In the 2018 Budget, there were a number of measures designed to put more after-tax dollars in the pockets of people on middle incomes,” he said. “I wanted to eliminate the 37 cent tax bracket altogether and increase the threshold for the 45 cent bracket from $180,000 to $200,000… that would have meant 94 per cent of Australian taxpayers would pay a marginal tax rate of more than 32.5 cents… essentially a flat tax.”
Turnbull went on to note that taxpayers are unlikely to care much whether a flat tax is 32.5 cents on the dollar or 30 cents on the dollar. However, reducing the rate to 30 cents, as Morrison and Frydenberg did after Turnbull’s self-described “defenestration”, means over $95 billion less will be collected between 2024-2030. “From an incentive point of view, it doesn’t really matter if it’s 32.5 or 30 cents. But it matters a hell of a lot for revenue,” he said.
Asked to speculate on why the rate was lowered, Turnbull said, “It’s the streaker’s defence – it seemed like a good idea at the time!” He then reminded the audience that in the pre-pandemic era when Morrison and Frydenberg were boasting about an imminent Budget surplus, “There was a lot of money sloshing around [and] Liberal Governments are generally keen on cutting taxes.”
Albanese would pay a heavy price for abandoning Stage Three tax cuts
Turnbull argued the ALP had boxed itself in by pursuing a small-target strategy and supporting the Stage Three tax cuts for years. “The difficulty is that if you go along with everything the Government wants while you’re in Opposition… you wear it like a hairshirt when you get into Government.”
After conceding that Australia is currently in “a very different fiscal situation” than it was prior to the pandemic, Turnbull said, “The problem Albanese has is that he’s been elected to office in large part on the issue of integrity and morals. They won a narrow majority and a lot of it hinged around Morrison’s, and by extension, his government's perceived untrustworthiness – telling lies, gaslighting, that sort of stuff. So those people on the Left who are encouraging Albanese to break his election promise to not undo the Stage Three Tax cuts don’t have his best interests at heart… in politics, your friends can get you in as much trouble as your enemies.”
Turnbull argued that if Albanese wanted to change his mind about the Stage Three tax cuts at this point, he had little option other than to take any proposed changes to an election, as John Howard did when he changed his mind about the GST.
After observing that Howard came close to losing the ‘GST election’, Turnbull noted, “The melancholy political reality of tax reform is that if you make a change that benefits people, they may or may not acknowledge that… but if they do, it will be in a very softly spoken manner. If they get a dollar of benefit, they are likely to say it should have been $1.50.
“On the other hand, if you take away one cent of a dollar away from them, they will get their pitchforks and flaming torches… A classic example was the super reforms of 2016, which only adversely affected four per cent of people with superannuation… the reaction was furious. We were getting letters to the party, [Liberal Party] directors were getting letters saying, “Malcolm Turnbull is a Communist”.
Is it possible to have a rational discussion about tax reform?
Asked by moderator Ellen Fanning if it was possible to have anything other than a “fevered” debate about changing a tax system nearly everyone believes needs to be changed, Turnbull noted, “It should be possible but historically, it has proved [difficult]... Governments should be able to consider options but they get pressured [by the media] to rule things in or out.” As Turnbull explained, not ruling out an option results in the media giving the public the impression the Government will definitely pursue that option. Then, if that option isn’t pursued, the Government will be accused of backflipping.
“One of the problems I used to have with Scott Morrison when he was Treasurer was that Scott used to front-run things in the media, ideas for tax changes, economic changes… this was more briefing than leaking… I’m happy to accept he genuinely thought this was a way of, you know, floating ideas and flying kites. [But] it was catastrophic for us. Because if you float something you have to provide an answer – are you going to do it or not going to do it? You get into a terrible tangle.”
While Turnbull’s presentation mainly focused on tax, he did make the following observations about other newsworthy events:
On the UK: “I knew Boris was wild and woolly. I thought Liz Truss was more sensible. But she turned out to be even crazier. This by the way is an example of a very important thing to remember about politics. The truest thing you can ever say about politics is that it can always get worse. People say, ‘Oh, we’ve hit the bottom.’ No, it can get worse.”
On Xi Jinping’s third term: “He’s really strengthened his personal control of the CCP and the CCP’s control of China. There is no point in kidding ourselves, this isn’t a good development… the truth of the matter is that dictators do not get better with age. I offer Vladimir Putin as Exhibit A.”
On the Budget: “They will find lots of pet programs from the previous government they can cut. [I believe] they should levy some sort of super profits tax on the energy sector. There are some windfall profits being made as a result of global adversity, occasioned by war, which means, among other things, we have to spend a lot more on defence. Interestingly, in the UK, the energy sector has been saying to the government, ‘Shouldn’t there be some sort of super profit tax [if only temporarily]? If one sector is having massive windfall gains and that is imposing costs on the rest of the community, there has to be a way of equitably capturing some of those profits so they can support the community.”
On his ill-fated Innovation Agenda: “Innovation is scary… A lot of people think that it means some kid with an iPad is going to take away their job. On the other hand, if you’re not prepared to innovate, you get left behind. It’s a very competitive world.”
The Tax Institute (TTI) is the leading forum for the tax community in Australia. It is committed to furthering tax education, representing its members and continuously improving the tax system for the benefit of all. On 25th October, the Labor Government will deliver its first Federal Budget since elected. TTI’s experts will be producing insights and analysis to guide members through the tax measures announced and their impact on clients. TTI spokespeople will be available on the night for comment on tax measures. TTI’s in-depth report and access to its post-Budget analysis webinar are available on request.
About The Honourable Malcolm Turnbull AC
Malcolm served as Australia’s 29th Prime Minister from September 2015 to August 2018. As Prime Minister, he reformed Australia’s personal income tax, education and childcare systems, oversaw the legalisation of same-sex marriage and announced the construction of Snowy Hydro 2.0, the biggest pumped hydro scheme in the southern hemisphere. He also embarked on the largest peacetime investment in Australian defence capabilities and set out Australia’s first national cybersecurity strategy.
Prior to his political career, Malcolm practised law and established an investment banking career. Specialising in media and technology, Malcolm worked with some of the most prolific media moguls of the time, including Rupert Murdoch, Kerry Packer, Robert Maxwell and Conrad Black. Since leaving politics, Malcolm has resumed his business career.
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