Policies/Economic Reform

=Economic reform=

Merger of tax and welfare systems, and establishment of a basic income
Australia's tax and welfare systems have grown so complicated that they are almost impossible to understand. The tax system now comprises more than 120 different taxes, and includes a range of bad incentives which favour property speculation and penalise work and saving. The complexity nullifies any chance at real government transparency; it also forces more than two thirds of taxpayers to file returns through tax agents.

The welfare system also faces problems with complexity. 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, and over $80 billion is "churned" (collected as tax and then returned to the same taxpayers as welfare) each year. Recipients leaving welfare for work often 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 creates a risk of inter-generational poverty.

Basic income through reverse taxation

Significant reforms are needed to improve transparency and fairness in the system. This need will only become more urgent as automation advances, potentially changing the face of the labour market and putting the system under more strain than ever before. As the challenges of the 21st century unfold, a comprehensively different model of tax and social support will be needed.

We believe it is time to combine the disparate systems of tax and welfare together, unifying them into a single system underpinned by a basic income guarantee. This basic income guarantee would be paid in the form of 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 provides social support directly through the tax system rather than through a separate welfare system. Pirate Party Australia proposes a tax threshold of $64,000 should be used in conjunction with a tax rate of 37.5%. Under this plan, the first $64,000 of earnings would become tax-free, with a tax rate of 37.5% applied only on earnings above that. However, people earning less than $64,000 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 $24,000 (representing 37.5% of the $64,000 by which they fall below the threshold). The following examples show how income is modified under a negative income tax:

A basic income system protects against poverty by providing a platform beneath which nobody can fall. This removes the financial dependence which traps people in abusive relationships, and overseas trials show that income guarantees are one of the most effective ways to reduce domestic abuse. A basic income would improve the bargaining power of workers and stabilise low and volatile wages, smoothing the path for those seeking to shift from welfare into work.

There would also be a material reduction in the size and reach of government. Swaths of bureaucracy and welfare 'churn' would be cut. And a fundamental power imbalance between the individual and the state would be corrected, since government would no longer be able to take income from citizens while refusing counter-obligations to citizens whose income collapses.



Most importantly, a basic income is a platform for 'positive liberty', granting everyone the freedom to seek education and training, volunteer, create art and culture, or raise children without bureaucratic obstacles and complex payment rules. A basic income is a platform on which 21st century entrepreneurship and creativity can be built.

On the tax side, a higher tax-free threshold will improve progressiveness in the income tax system. It also provides a simple means to replace the current mass of thresholds, offsets and tax breaks, which unduly favour wealthy investors and those who can afford tax accountants. Negative income tax is one of only a few tax and welfare proposals which has near-unified support among economists, demonstrating its merit as a serious economic reform.

Balancing revenue

A shift to negative income tax will reduce income tax receipts by over $30 billion per year, with the bulk of benefit flowing to low income earners. Some of this could be made up through a price on carbon emissions (see climate change policy), and a removal of fossil fuel rebates. Revenue could also be supported by abolishing tax breaks on negative gearing and capital gains: these loopholes have created a huge bias towards property speculation and locked a whole generation out of home ownership. The remaining, substantial tax reduction should simply be left intact as a means to support labour and enterprise in Australia.

On the spending front, a negative income tax can replace the bulk of existing welfare and its associated bureaucracy, as well as a range of expensive and underperforming "employment services" whose function can be served in the private market. US cost estimates based on Congressional Budget Office data suggest that a shift to negative income tax requires only a tiny lift in spending, and Pirate Party calculations suggest the same is true in Australia. Any additional cost is likely to vanish over time as incentives for welfare recipients improve.

Charity and fairness

A few other tweaks would improve the function of our tax and welfare system. All charities should be classified as 'deductible gift recipients' in the future: this will make every charitable donation and activity tax-deductible. At the same time, tax exemptions linked to 'advancement of religion' should be removed, since a modern secular society has no grounds to discriminate between taxpayers on the basis of their beliefs.

Pirate Party Australia advocates the following reforms:

Combine tax and welfare into a single, fair system through a negative income tax
 * Set tax rate to 37.5% with a threshold of $64,000 (generating a basic income of $24,000 p/a).
 * Adjust tax thresholds (and basic income) in line with inflation.
 * Time negative income tax payments to supplement regular wage payments, or transfer fortnightly to those with no income.
 * Ensure basic income is available to all persons aged 18 and over, following graduation from school.
 * Ensure 'neutral' and equivalent tax 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 and asset 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:
 * An additional $6,000 in child support to primary caregivers, with additional per-child payments 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.

Enact changes to broaden and improve tax collection. Improve citizen and charitable focus in the tax system
 * Cap fuel tax credits at $100,000 per year and abolish aviation fuel concessions, exploration and prospecting deductions.
 * Tax trusts as companies.
 * Restore a carbon price based on the 2012 model (see environment & climate change policy).
 * 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.
 * 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.

Return to contents

Reinstate the Commonwealth Employment Service
Rent-seeking in the employment services sector needs to be addressed. It is clear that the existing Job Active system is a dismal failure which handicaps job seekers more than it helps them, while syphoning off large amounts of public money for private profit. The system has now reached breaking point, while costing $7.3bn per year - half of which is spent on administration. The Commonwealth Employment Service (CES) was a vastly superior model by comparison and produced far better outcomes at much lower cost. At its peak, the CES handled 41% of job vacancies and had various specialised and experienced staff that served the unemployed well, while providing employers with a low cost "one stop shop" for workers. Small business has joined calls for a reinstatement of the CES, which would be more beneficial for them in finding staff. The CES should be reinstated to replace Job Active and resume their previous responsibilities.

Pirate Party Australia advocates the following reforms:

Reinstate the Commonwealth Employment Service (CES)


 * End rent seeking in the employment services industry by replacing Job Active with the CES.

Return to contents

Endorsement of limited experimentation involving novel approaches to economic problems
Unemployment has been a topic of regular debate in Australia since the government abandoned its commitment to full employment in 1974. Pirate Party Australia believes policies around employment should be subject to constant testing and review in light of their profound importance to human well-being. As part of an approach to experimentation, we support trials of Job Guarantee Schemes in specific areas. We also endorse testing and data collection for other novel approaches which attempt to grapple with the growing problems of precarious employment, underemployment and wage suppression in Australia.

Pirate Party Australia also endorses novel economic approaches in other areas, such as Local Exchange Trading Schemes and distributed digital currencies. While digital currencies carry risks around Tax Havens and Criminal Money Exchange, it also represents an alternative to monopoly held by financial industries, along with various other benefits as detailed in the above policy. Pirate Party Australia regards an endorsement of the personal freedom to adopt such approaches as a worthwhile end in itself.

Return to contents

State reforms: housing affordability and the land value tax


Long before the creative commons were fenced off by intellectual property laws, a similar process led to the locking up of the physical commons. Events such as the Enclosure laws—under which the nobility of the UK granted itself exclusive control of the nation's land, and drove out the commoners—have been repeated in many forms across many countries, and significantly shaped the world we live in today.

Land value tax is a way a modern economy can both improve its function and compensate those who are priced out of access to the land. A land value tax is best seen a charge for services to a location. All landowners require government regulation and enforcement to protect their exclusive right to landholdings—a land value tax ensures these services are paid for by those who use them.

Making state taxes work

High returns for housing speculators come at a significant cost to others. First home buyers are increasingly excluded from the housing market entirely, or forced into crippling debt. Australia's household debt has grown by $1 trillion over the course of the housing boom, and nothing has been bought except property which Australians already owned. High debt costs drain funds away from useful consumption and investment, and constant repayments make it hard to engage in entrepreneurialism and risk-taking. Housing debt locks people into "safe", unfulfilling jobs.

Australians also labour under many harmful, regressive and annoying state taxes. These include taxes on payrolls, which penalise job creation; gambling taxes, which increase state reliance on problem gambling and create harmful policy incentives; insurance taxes, which lead to under-insurance and expose the economy to greater risks, and stamp duties, which discourage mutually beneficial transactions such as the buying and selling of property. State taxes are the biggest culprits in a tax system which imposes deadweight losses of over $20 billion on the economy every year.

The best way to solve both problems at once is a tax switch: a progressive removal of taxes on work and savings, and replacement with a single tax on the value of land. A land value tax is different from other taxes in that it does nothing to discourage work and enterprise: instead, it encourages better use of land. Work, savings and innovation would be rewarded more, while the value of shared natural resources would fund public works. Shifts of this kind have been shown to produce huge benefits for economic growth and job creation. Importantly, improvements to land are not penalised, since the tax levies only on the unimproved value of land. However, land speculation and hoarding would be sharply discouraged, and idle or unused property would be forced into the market. This extra supply will do much to reduce homelessness and bring house prices down, opening the housing market to first home buyers.

Other benefits may also follow. Public transport raises land value, so a land value tax will encourage governments to build it. And as cities contain the vast bulk of land value, the tax burden on regions would fall. This would encourage decentralism and enrich economies and communities outside the cities. And as land tax is already raised locally, a tax switch would allow state governments to remove their revenue collection bureaucracies, sharply reducing their overall size.

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 stands for a vibrant economy built on economic justice and a smaller, smarter government which frees its citizens to truly reach for life and liberty.

Pirate Party Australia advocates the following reforms:

Simplify state taxes
 * Abolish payroll tax, insurance taxes, stamp duties on cars and houses, gambling taxes and existing land taxes.
 * Institute 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.
 * Encourage states to apply progressive rates and different structures to enable 'competitive federalism' and optimal tax builds.
 * 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.

Return to contents

Distributed digital currencies
Distributed digital currencies such as Bitcoin (also referred to as cryptocurrencies) are an emerging and potentially highly disruptive technology, and are the subject of numerous official inquiries around the world. Existing payment methods carry significant risks - such as the need for consumers to share credit card details - and also impose dead-weight middle-men costs. Digital currencies offer a solution to these issues and a potential diversity of new financial services.

Digital currencies allow the population of a country to avoid potential currency devaluation as a result of fiscal and monetary policy. They offer a mechanism for risk-free online purchases, with transaction fees and middle men removed. Digital currencies also offer much to retail businesses. Existing payment systems are structurally unsuited to online transactions: paying online with a credit/debit card involves divulging card details to a slew of interested parties, with all costs associated with poor practices or fraud falling on the retailers, and ultimately on consumers. Distributed digital currencies correct this issue inherently and eliminate the need to divulge account details, ensuring vendors have access to incoming funds immediately with no risk of fraud.

Pirate Party Australia anticipates a large future for the general distributed currency concept, but to be successful Australia needs to actively engage in its development. Pressure from incumbent financial organisations seeking to restrict competition must be resisted, as self-exclusion will deny Australia potentially enormous benefits.

Pirate Party Australia advocates the following reforms:

Support the development of new technology businesses Change tax regulation to support distributed currencies in the broader community
 * Ensure clear guidelines and a suitable regulatory environment are available for businesses.
 * Treat restriction of basic banking services to crypto-currencies businesses as an illegal restriction on trade, excepting where trade poses direct financial risks to the bank.
 * Ensure crypto-currency businesses with control over customer funds are subject to equivalent regulation to banks.
 * Ensure crypto-currency businesses without control over customer funds are not subject to traditional banking regulations, but are encouraged to self regulate.
 * Re-define digital currencies from a commodity to a currency for tax purposes.
 * Count digital currency gains through 'mining' or speculation efforts as capital gains.

Return to contents

Sovereign Wealth Fund (SWF) as a Resource Tax
Mining as an industry has numerous conflicting considerations. There are environmental issues, land rights, and economic issues around employment, taxation, royalties and other regulation. This policy is focused on the economic issues.

The Australian economy is heavily weighted toward primary industries. According the RBA, resources represent over two thirds of Australia's exports, and Australian Bureau of Statistics data show a 500% growth in mining derived revenues since the 1980's.

From the industry perspective, the economics of mining industries is that they start with the richest, most accessible deposits, then over time they shift to less rich, less accessible deposits, and productivity declines. The Productivity Commission's report into mining from 2008, showed slowly declining productivity, amidst long term investment in technology and automation that was yet to yield returns. A more recent report from 2020 highlighted the industry's need for "regulatory certainty". This is because they need to perform a lot of exploration and upfront investment before ever seeing any mining returns. Without certainty about taxes and regulations, they are taking on unmanageable risk.

From a long term nation building perspective, minerals are a limited resource, and although we are gaining efficiency in their extraction, we will eventually face diminishing returns. Living off the recurring income from taxation and royalties of a limited and diminishing resource is not a sound long-term strategy for Australia.

A general effect of taxation, is that it tends to reduce the thing that is taxed. In relation to mining, we don't want to reduce employment or exploration, but we do want to retain more of the value that is generated from the extraction. We can accumulate an increasing portion of mining profits into a sovereign wealth fund. We also do not want to make sudden regulatory changes that would prevent future investment.

Pirate Party Australia advocates the following reforms:

Establish a Sovereign Wealth Fund from resource royalties

Gradually reduce mining corporate taxation over time, so that exploration and operational costs reduce and, in lockstep, gradually increasing royalties on resources extracted, so that taxation reflects actual resource extraction, rather than employment or exploration costs. Taxes on resources with high negative externality effects, such as carbon producing coal and gas, would increase according to our existing climate policy. As royalty payments increase, redirect the increase into an Australian Sovereign Wealth Fund (ASWF). Where Australian government funded mineral exploration is the basis for new mining sites, there should be an open commercial auction for the rights to exploit the new sites. Manage the long term investment of the ASWF, as a broadly internationally ethical and diverse investment fund, where only future profits above inflation may contribute back to national interests such as healthcare, pensions and other social security needs.

Return to contents

Closing Capital Gains Tax Loopholes
"Capital gains tax (CGT) is the tax you pay on profits from selling assets, such as property." Capital Gains taxable profit comes from increases in value of a property between buying and selling it. CGT applies when the profit has been "realised", so that it doesn't force business disruption. CGT applies at your income tax rate, to avoid tax dodges by shifting asset profits vs. income. However, current CGT regulations provide unfair benefit to wealthy asset holders vs. regular income earners. There is a 50% discount on CGT, after an asset has been owned for 1 year. Further, CGT is commonly avoided by borrowing against the market value of an asset.

There are a few clearly identifiable factors that may contribute to capital gains, some of which are more clearly reasonable targets for taxation than others.
 * Speculation - the value went up due to increased speculation (or demand) on property value.
 * Economic Growth - the economy grew over time, lifting all property prices with it.
 * Improvement - the owners improved the property, such that its value increased.
 * Inflation - the currency in which the value is denominated, became devalued.

Speculation and Economic Growth are gains achieved without the owner contributing any actual value to the economy. As such, we should view them as valid targets for taxation.

Improvements to the property do in fact require the generation and contribution of economic activity by the owner. As such, we should not view such investment as a valid target for taxation.

Inflation is a change in the value of the dollar that we're counting value in, and as such we should discount any apparent gains according to inflation before applying CGT.

Meanwhile, inheritance should not force a CGT event, since it does not inherently create a realisation of any capital gain.

Pirate Party Australia proposes the following reforms:
 * As per current Capital Gain Tax law:
 * Owner-occupiers continue to be CGT exempt on their primary residence.
 * Capital loss on sale, may offset current or future capital gains
 * Your CGT taxation rate is the same as your income tax rate.
 * Remove the 1 year 50% CGT discount rule.
 * On Asset Purchase, record CGTBasis = Asset purchase price.
 * On Asset Sale, CGT applies to (SalePrice - DepreciatedImprovement - InflationIndexedCGTBasis)
 * DepreciatedImprovement is the depreciated cost of declared asset improvements.
 * InflationIndexedCGTBasis is CGTBasis with CPI applied since CGTBasis was recorded.
 * On Asset use to Secured Debt,
 * If (TotalSecuredDebt - DepreciatedImprovements - InflationIndexedCGTBasis) > $0.00,
 * Apply CGT to that amount.
 * Record new CGTBasis = TotalSecuredDebt
 * On Asset Transfer as Gift, Inheritance or change of CGT exempt owner-occupier status,
 * New holder may request a formal reevaluation of their asset to record a new CGTBasis.
 * Without reevaluation, the prior owners CGTBasis applies.

Return to contents