Pirate Congress 2015/Motions/Policy and Platform/Tax and Welfare Update

Preamble
Australia's tax and welfare systems have grown so complicated that they are almost impossible to understand. Our tax system includes more than 120 taxes, and experts have warned that the complexity conceals distortions which promote speculation and borrowing at the expense of work and saving, burdensome business and payroll taxes which hamper entrepreneurialism and job creation, and complexity which forces more than two thirds of taxpayers to file returns through tax agents. . Our tax system is estimated to impose efficiency losses of over $20 billion on the economy every year.

The welfare system faces similar problems: it has grown in ad-hoc fashion to encompass more than 20 separate payments, each with different means tests, sub-payments, administrative arrangements and compliance regimes. Administrative costs for tax and welfare run to over $5 billion annually, with $80 billion "churned" between systems (collected as tax and then returned to the same taxpayers as welfare) each year. The complexity makes a mockery of government transparency and leads to poor alignment between systems. Recipients leaving welfare for work face a combination of large benefit cuts and income tax, which can lead to effective losses of more than 70% of earned income. This punishes the drive to be self-sufficient, and risks inter-generational welfare dependency. This leads to significant ‘poverty traps’ since the poor lack incentives to work – a situation which has led to increasing harassment of welfare recipients.

Basic income through reverse taxation
The advance of digital technology places many jobs at risk, making it increasingly urgent to reduce tax on labour to keep it competitive. At the same time, a host of issues around transparency, bureaucracy and misaligned incentives need to be addressed. Ultimately, what is required is a comprehensively different model of tax and social support. The Pirate Party proposes a replacement of current systems with a unified tax and welfare system underpinned by a negative income tax.

Negative income tax is tax in reverse - money paid by the government to those with low or no taxable income. It is social support provided directly through the tax system rather than through a separate welfare system. The Pirate Party plan is for a tax threshold of $37,500 in conjunction with a tax rate of 37.5%. Under this plan the first $37,500 of earnings will be tax-free, with a flat rate of 37.5% applied on earnings above that. However, people earning less than $37,500 will receive 37.5% of the shortfall transferred to them from the government in the form of negative income tax. Thus, persons earning nothing at all are guaranteed a basic income of $14,000 (representing 37.5% of the $37,500 by which they fall below the threshold). The following examples show how income is modified under a negative income tax:



Negative income tax will improve government transparency in the tax system. It is also one of the few reform proposals to win near-unified support among economists. This reflects its capacity to end welfare churn and remove poverty traps from the system. It will underpin a progressive tax system which provides an automatic safety net for those unable to earn. Poverty-level wages will be stabilised and supplemented, with overseas experience showing a link to improved educational outcomes, greater bargaining power for employees, higher social mobility and lower domestic violence. Higher earners will gain a significantly higher tax free threshold which replaces the existing cluttered array of existing thresholds and offsets. 'Positive liberty' will increase with the freedom to seek education and training, volunteer, create art and culture or raise children without bureaucratic obstacles and complex payment rules.

It will also play a role in re-balancing the power of individuals with that of the state. Many forms of middle class and business activity are already supported with automatic tax credits: providing social support under the same principle will mean government can no longer take income from citizens while refusing counter-obligations to citizens whose income collapses. A simple and adaptable safety net will remove swaths of bureaucracy and allow entrepreneurship and creativity to flourish.

Balancing revenue
A shift to negative income tax will reduce income tax receipts by around $30 billion per year., with the bulk of benefit flowing to low income earners. Pirate Party Australia would restore some revenue through abolition of existing tax breaks on negative gearing and capital gains. These tax breaks reward speculation and penalise work, and have helped to lock a whole generation out of home ownership. Pirate Party Australia would also extend tax relief businesses through a reduction in the base rate of company tax. Such a chance should, however, be paired up with abolition of fossil fuel rebates and closure of tax loopholes used by multinationals. Pirate Party Australia will also support a tax on carbon emissions so long as the revenue is entirely offset by reduced taxes on savings and work.

Pirate Party Australia would classify all charities as 'deductible gift recipients' in the future. This will make every charitable donation and activity tax-deductible. We will remove tax exemptions linked to 'advancement of religion' as a secular society has no grounds to discriminate between taxpayers on the basis of their beliefs.

More productive land, more productive people – reforming state taxes


State taxes are well known to be regressive and inefficient. Taxes on payrolls penalise job creation. Gambling taxes encourage reliance on problem gambling as a revenue source and create harmful policy incentives. Insurance taxes lead to under-insurance and expose the economy to greater risks. Stamp duties discourage buying and selling property and prevent beneficial exchanges from occurring. Pirate Party Australia supports removal of all these and dozens of other nuisance taxes and a substitution of a single land value tax.

Land tax is best seen as a charge to supply government services - such as transport, infrastructure, and police protection - to a location. Where taxes on enterprise and work will tend to reduce and discourage them, land is always fixed and taxes on it are non-distorting. INSERT TREASURY REF HERE. Indeed, land taxes may encourage more productive use. Landlords will have stronger incentives to rent idle rooms, increasing rental supply and reducing overall rents. Land tax is impossible to evade and represents the most efficient, progressive and non-distorting tax available to governments.

While a low broad tax is ideal, any implementation should include exemptions for land in its natural state, and per-meter tax free threshold which exempts agricultural land. A land tax averaging 1.5 per cent on remaining land will generate revenue sufficient to replace the entire gamut of existing taxes and is easily affordable in a climate where land values are growing at over 6 per cent per year. Australia has long rewarded land speculation and taxed work and enterprise to a standstill. By taxing private ownership of a shared inheritance, we can allow people to keep the value they actually create and provide stronger incentives to work and build.

Pirate Party Australia believes combined tax and spending across all layers of government should be kept below 25 per cent of GDP. Deficit reduction should be accomplished through economic reform rather than higher taxes, and no reform is more important than the removal of inefficient, investment-stifling and regressive taxes. Pirate Party Australia seeks to bring about a tax system worthy of the digital age and a smaller, smarter government which frees its citizens to truly reach for life and liberty.

Policy text
Pirate Party Australia would undertake the following staged reforms:

Combine tax and welfare into a single, fair system through a negative income tax
Apply a 2.5 percentage point levy on incomes over $100,000, with a waiver where private health insurance is held.
 * Set tax rate to 37.5% with a threshold of 37,500 (generating a basic income of $14,062 p/a).
 * Adjust the tax threshold in line with changes in the consumer price index.
 * Time negative income tax payments to supplement regular wage payments, or transfer fortnightly to those with no income.
 * Availability of basic income will extend to persons aged 18 and over, following graduation from school.
 * Ensure 'neutral' and equivalent treatment for all forms of income including fringe benefits, share transfers and dividends, earnings through interest, rental or private company income, and inflation-adjusted capital gains.
 * Phase out negative gearing over five years; allow investors to carry forward losses and deduct them from capital gains to reduce tax liability on property sales.
 * Ensure superannuation contributions are tax-free, with withdrawals taxed as normal income (subject to credit where contribution tax was previously paid).
 * Limit tax exemption to charitable donations and items purchased for the purpose of disability support.
 * 'Top up' the basic income in special cases:
 * A $2,000 annual levy to cover incurred costs for volunteers engaged in at least 15 hours of volunteer or community work per week.
 * An additional $6,000 in child support to primary caregivers, with additional per-child payments with the rate reduced by 25% for each subsequent child.
 * A top-up to match existing pension levels for aged and disabled persons, veterans, and carers.
 * A top-up to match existing rent assistance for low income earners lacking public housing.
 * Taper out all ‘top-ups’ as income rises, with top-ups removed once income reaches $100,000.
 * Use the basic income to replace existing welfare programs including Newstart, Age Pension, Austudy, Family Tax Benefits parts A and B, School Kids Bonus, Income Support Bonus, Low Income Super Contribution, the Disability Support Pension, and Carer Payments.
 * Use the higher tax threshold to replace existing tax offsets for senior Australians, mature age workers, overseas civilians, entrepreneurs, low income earners, holders of private health insurance, termination payments, zone offsets, notional tax offsets, and tax exemptions for foreign employment income.

Adjust other Federal taxes to support sustainable prosperity

 * Cut the company tax rate to 25%.
 * Cap fuel tax credits at $100,000 per year and abolish aviation fuel concessions, exploration and prospecting deductions, and all tax benefits applied to fund-shifting within corporate groups.
 * Tax trusts as companies.
 * Restore a carbon price based on the 2012 model (see environment & climate change policy).

Simplify state taxes

 * Abolish payroll tax, vehicle registration charges, insurance taxes, stamp duties on cars and houses, gambling taxes and existing land taxes.
 * Substitute a per square-metre land tax based on unimproved land value with coverage extending to owner-occupied housing.
 * Apply a per-meter tax free threshold to exclude low-value land including agriculture.
 * Ensure no tax liability applies to land which is preserved in its natural state.
 * Protect income-poor taxpayers by allowing tax payments to be deferred until land is sold or ownership is transferred.
 * Encourage states to apply different models to produce optimal builds and encourage tax competition.

Improve citizen and charitable focus in the tax system

 * Provide secure online mechanisms to allow citizens to easily review their financial relationship with government and conduct digital tax transactions.
 * Ensure data and reviews on the function of taxes and transfer systems are made public.
 * Remove ATO powers to impose or enforce confidentiality clauses on taxpayers.
 * Undertake transparent annual reviews of tax policy implementation by the Productivity Commission.
 * Assessment will include impacts on income distribution, job creation, business response and unaccounted side effects.
 * Extend 'deductible gift recipient' status to all registered charities.
 * Remove 'advancement of religion' as a charitable activity for the purpose of determining tax exemption.
 * Retain exemptions for non-commercial income earned by religious organisations if the organisation meets any other categories for exemption including provision of charity, education, culture, community service, or health.