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, with the complexity forcing more than two thirds of taxpayers to file returns through tax agents. Buried in the complexity are 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 ill-conceived charges on home sales which penalise home buyers and the young. 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 of systems makes government transparency impossible and traps people in poverty. 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. Harassment and micromanagement of welfare recipients does not correct underlying poor incentives. It also does not reduce unemployment, which can be curbed only though job creation.

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 $40,000 in conjunction with a tax rate of 35%. Under this plan the first $40,000 of earnings will be tax-free, with a flat rate of 35% applied on earnings above that. However, people earning less than $40,000 will receive 35% 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 35% of the $40,000 by which they fall below the threshold). The following examples show how income is modified under a negative income tax:

Negative income tax is a progressive tax system which provides a safety net for those unable to earn. It also supplements poverty-level wages, providing those on low incomes with more latitude to improve their training and skills. Other taxpayers gain a significantly higher tax free threshold which efficiently replaces the 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. An adaptable safety net will encourage entrepreneurial activity and stabilise the earnings of farmers and others who receive erratic income.

Trials overseas have yielded positive outcomes including improved graduation rates, reduced domestic violence, improved education and better public health. Economists across the political spectrum have called for further implementations.

Many forms of middle class and business activity are already supported with automatic tax credits: providing social support under the same principle ensures government can no longer take income from citizens while refusing counter-obligations to citizens whose income collapses. A negative income tax will end the churn between tax and welfare systems and sweep out poverty traps, providing a stronger incentive to seek work. By stepping aside, the state can cut swaths of bureaucracy and let entrepreneurship and creativity flourish.

Sustainable prosperity
Case studies demonstrate a clear link between lower company tax and higher employment growth, economic diversification and international investment. The best way to balance economic and environmental priorities is to reduce company tax while also removing fossil fuel subsidies from the system. Pirate Party Australia also believes taxing carbon emissions is preferable to taxing savings and work, and will support efforts to shift the revenue base in favour of the former.

Revenue from lowering income tax can also be made up by removing tax breaks on negative gearing and housing capital gains: both of these loopholes carry significant budget costs and have been major drivers of runaway house prices over the past 15 years.

Finally, the Pirate Party will classify all charities as 'deductible gift recipients', making every charitable donation and activity tax-deductible. At the same time, we will seek to remove tax exemptions linked to 'advancement of religion' since a secular society has no grounds to discriminate between taxpayers on the basis of their beliefs.

State taxes


Many state taxes are harmful. Payroll tax is a tax on job creation and a hidden consumption tax. Gambling taxes are regressive and increase state dependence on gambling, creating harmful policy incentives. Insurance taxes encourage under-insurance and expose the economy to greater risk during downturns and natural disasters. Stamp duty on house sales discourage people from buying and selling property, meaning all potential participants are deterred from entering transactions which benefit both. Pirate Party Australia believes these and dozens of other nuisance taxes should be swept out and replaced with a single low and broad-based tax on land. Land tax is generally considered to be extremely fair and highly progressive. Land tax cannot be evaded and, unlike other charges, can actually increase productive activity. A tax-free threshold will protect agricultural and wilderness land, and full revenue replacement can be enacted with a tax rate of around 1.5 per cent on the remaining stock of land. With land values growing at over 6 per cent per year, this is easily affordable.

The Pirate Party supports reduced bureaucracy and an overall tax and spending ratio below 25 per cent of GDP for all layers of government. We seek to deliver 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

 * Set tax rate to 37.5% with a threshold of 37,500 (generating a basic income of $14,000 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 who meet requirements for schooling and vaccination (where medically possible). Provide 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 tax and income thresholds returning to normal once an individual's taxable income reaches $100,000.
 * Enact progressive 'bands' on incomes over $100,000.
 * 2.5 percentage points, waived for holders of private health insurance.
 * 2.5 percentage points, waived for ...
 * Use 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.

Support community benefit and sustainable prosperity

 * Cut the company tax rate to 25%.
 * Maintain revenue by capping fuel tax credits at $100,000 per year and abolishing aviation fuel concessions, exploration and prospecting deductions, and all tax benefits applied to fund-shifting within corporate groups.
 * Tax trusts as companies.
 * Retain a carbon tax based on the 2012 model (see environment & climate change policy).
 * Extend 'deductible gift recipient' status to all registered charities.
 * Remove 'advancement of religion' as a charitable activity for the purpose of determining tax exemption.
 * Tax exemptions would no longer apply to commercial businesses run by religious organisations.
 * Tax exemptions would apply to 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.

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.
 * The tax will apply at differential levels based on per-meter land value, with a per-meter tax free threshold to exclude low-value land including agriculture.
 * Land in its natural state would be excluded.
 * Provide an option for taxpayers to defer all land tax until sale of the land to protect the income-poor.

Improve 'citizen 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.