Policies/Tax and Welfare
Official Party Document
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- 1 Preamble
- 2 Policy text
- 3 References
Australia's tax and welfare systems have grown so complicated that they are almost impossible to understand. Our tax system has grown to encompass more than 120 taxes, and the complexity conceals growing distortions which favour speculation and hurt work and saving. It also imposes huge inefficiencies, forcing more than two thirds of taxpayers to file returns through tax agents. and imposing deadweight 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, 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. Our systems thus punish the drive to be self-sufficient, and radical change is needed to prevent the growth of inter-generational poverty in Australia.
Basic income through reverse taxation
The advance of digital technology potentially threatens vast numbers of jobs, 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.
Pirate Party Australia 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 tax 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 just over $14,000 (representing 37.5% of the $37,500 by which they fall below the threshold). All thresholds and levels would then be indexed to inflation to preserve their value. The following examples show how income is modified under a negative income tax:
|Income before tax||Tax threshold||Gap between income & threshold||Tax rate||Change in income||Income after tax||Effective tax rate|
A basic income system will provide a platform beneath which nobody can fall. It will ensure nobody can be forced into exploitative work or abusive domestic conditions under the threat of homelessness and poverty. Low, unstable wages will be stabilised and topped up, smoothing the path for those seeking to improve their skills and shift from welfare into work. A higher tax-free threshold also provides a simple and transparent replacement for the present cluttered array of thresholds and offsets. Negative income tax is a progressive tax system which currently has near-unified support among economists. The basic income guarantee will be an enabler of 'positive liberty', granting freedom to seek education and training, volunteer, create art and culture or raise children without bureaucratic obstacles and complex payment rules. It will be a platform on which entrepreneurship and creativity can be built.
A basic income guarantee 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 welfare 'churn' since no taxpayer will receive benefits or vice versa. This will reduce swaths of bureaucracy and save significant costs, making the plan readily affordable.
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 tax breaks applied to 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 supports proposals to extend tax relief to businesses through a reduction in the base rate of company tax, but believes such reforms should be paired up with abolition of fossil fuel rebates and closure of tax loopholes. 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', since 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 increase state reliance on problem gambling and create harmful policy incentives; insurance taxes lead to under-insurance and expose the economy to greater risks, and stamp duties discourage buying and selling property and prevent beneficial exchanges from occurring. Pirate Party Australia believes states should be funded differently—through a simple land value tax.
A 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 them, land supply is fixed and taxes on it may actually provide public benefit by encouraging productive land use. Land hoarding will end, and landholders will have strong incentives to increase the rental supply, which will cut rents. The Urban Land Institute describes land taxes as 'a golden key to urban renewal—to the automatic regeneration of a city—and not at public expense'. Land tax is also impossible to evade and represents the most efficient and progressive tax available to governments.
Pirate Party Australia would exempt land in its natural state, and apply a per-meter tax free threshold to exclude agricultural land. We believe land tax should be applied on a progressive scale, with the highest rates applying to the most valuable land. Low-income land owners would be able to defer payments until land is sold or transferred. A land tax averaging 1.5 per cent will not unduly penalise land owners (who are seeing land value grow by over 6 per cent annually). However, it will provide enough revenue to replace a huge array of Australia's most harmful, regressive, and annoying taxes. 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 strengthen the incentives for work and innovation.
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.
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 $14,062 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.
- 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 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.
- Reset Medicare levy to apply only on incomes over $75,000, with a reduction of one percentage point for holders of private health insurance.
- 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 improve transparency and sustainability
- 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, 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 differential levels based on per-meter land value to produce optimal 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.
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.
- 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.
- 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.
- Department of the Treasury. Australia's Future Tax System. Report to the Treasurer. Part One — Overview, page 11. http://www.taxreview.treasury.gov.au/content/downloads/final_report_part_1/00_AFTS_final_report_consolidated.pdf
- Department of the Treasury. Australia's Future Tax System. Report to the Treasurer. Part One — Overview, page 13. http://www.taxreview.treasury.gov.au/content/downloads/final_report_part_1/00_AFTS_final_report_consolidated.pdf
- Eslake, Saul. Australia's tax reform challenge - Australian Parliamentary Library lecture, page 3, 21 September 2011
- Department of the Treasury. Australia's Future Tax System. Report to the Treasurer. Part One — Overview, page 31. http://www.taxreview.treasury.gov.au/content/downloads/final_report_part_1/00_AFTS_final_report_consolidated.pdf
- Alex Robson, The Costs of Taxation, Policy Monograph 68, May 2005, page 8, https://www.cis.org.au/images/stories/policy-monographs/pm-68.pdf (Accessed 10 February 2014)
- Dawkins, Beer, Harding, Johnson and Scutella, Towards a Negative Income Tax System for Australia, The Australian Economic Review, vol. 31, no. 3, page 238.
- Buddelmeyer, Dawkins, Freebairn, and Kalb, Bracket Creep, Effective Marginal Tax Rates and Alternative Tax Packages, Melbourne Institute, page 4, http://www.melbourneinstitute.com/downloads/reports/webreport.pdf (Accessed 10 February 2014)
- Pech and McCoull, Intergenerational Poverty and Welfare Dependence: Is there an Australian problem?, Commonwealth Department of Family and Community Services, http://www.aifs.gov.au/conferences/aifs6/pech.html (Accessed 12 February 2014)
- "The Future of Jobs", The Economist, January 18 2014. http://www.economist.com/news/briefing/21594264-previous-technological-innovation-has-always-delivered-more-long-run-employment-not-less (accessed 29 May 2014)
- Belik, A Town Without Poverty?, The Dominion, http://www.dominionpaper.ca/articles/4100 (Accessed 10 February 2014)
- Vooruitgang, Why we should give free money to everyone, de Correspondant, https://decorrespondent.nl/541/why-we-should-give-free-money-to-everyone/31639050894-e44e2c00 (Accessed 10 February 2014)
- The Earned Income Tax Credit, Center on Budget and Policy Priorities, page 2, http://www.cbpp.org/files/policybasics-eitc.pdf (Accessed 12 February 2014)
- Friedman, Negative Income Tax - I, Newsweek, 16 September 1968, page 86, http://0055d26.netsolhost.com/friedman/pdfs/newsweek/NW.09.16.1968.pdf (Accessed 12 February 2014)
- Eslake, Saul. Australia's tax reform challenge - Australian Parliamentary Library lecture, page 3, 21 September 2011
- Business Tax Working Group - Final Report, Chapter 1, http://www.treasury.gov.au/PublicationsAndMedia/Publications/2012/BTWG-Final-Report/html/Chapter1 (Accessed 12 February 2014)
- OECD Country Notes - Australia, page 100, http://www.oecd.org/eco/growth/Australia.pdf (Accessed 12 February 2014)
- Crowe, Cut taxes, add jobs, OECD tells Australia, February 21, 2014, http://www.theaustralian.com.au/business/economics/cut-taxes-add-jobs-oecd-tells-australia/story-e6frg926-1226833759091 (Accessed 10 February 2014)
- Khadem, Nassim. Small business’s $12,000 GST compliance burden. BRW. 18 December, 2012. http://www.brw.com.au/p/sections/fyi/small_business_gst_compliance_burden_4vet5VSU3DEdILVGBMPG5I (Accessed 1 March 2013).
- Wood, Ong, Cigdem and Taylor, "The spatial and distributional impacts of the Henry Review recommendations on stamp duty and land tax", Australian Housing and Urban Research Institute, February 2012, page 42. www.ahuri.edu.au/publications/download/ahuri_80647_fr2 (accessed 23 May 2014).
- Cord, How Much Revenue Would a Full Land Value Tax Yield?, American Journal of Economics and Sociology, Inc, July 1985, http://www.jstor.org/stable/3486038?seq=1#page_scan_tab_contents (Accessed June 22 2015).
- Threshold applies for 2015-16 financial year.