PARLIAMENT HOUSE, CANBERRA
MONDAY, 8 FEBRUARY 2016
SUBJECT/S: GST, negative gearing, income inequality, land tax, capital gains tax.
MARIUS BENSON: In the past 15 minutes, Opposition Leader Bill Shorten has called on the Prime Minister to categorically rule out any increase in the Goods and Services Tax. For more on that, I’m joined by Andrew Leigh, the assistant Shadow Treasurer. Andrew Leigh, good morning.
ANDREW LEIGH: Good morning, Marius.
BENSON: We are, I suppose, waiting for the categorical, 100 per cent statement by the Prime Minister. But he has pretty much said: no GST. That's what he said yesterday on Insiders.
LEIGH: Well, at the same time we had Arthur Sinodinos out arguing that there ought to be an increase to the GST, Marius, so it is pretty unclear where the Government stands. All we know is that when they say they're in favour of agility, they've taken every possible position on the GST. Australians who don't want to see a rise in the GST have only one choice at the next election which is to vote Labor, because we have been absolutely clear that we wouldn't support a tax which would fail to add to growth but would worsen inequality.
BENSON: The Government has said it would make its position clear long before the election, so that won't be an issue if the Government now goes ahead as, universally expected, without a Goods and Services Tax increase. If that is the case, you would obviously welcome that decision.
LEIGH: Well clearly, but we'd also welcome a Government which engages in proper processes on tax reform. You well know, as a long-time watcher of politics, Marius, that process matters as well as outcomes. When they came to office, the Government announced a Tax White Paper in the first two years, and business and community groups put hundreds of thousands of dollars into preparing more than 800 submissions to that inquiry. That's now been junked in favour of a Prime Minister who seems to be spending more time listening to nervous backbenchers than going out there speaking to worried Australian families. It ought to be Australian families that are being heard in this process, and we ought to be allowing all that expertise in the community to flow into a tax reform process rather than simply floating thought bubbles so the backbenchers can shoot them down.
BENSON: But the taxpayer at large, the voter at large, isn't desperately interested in the colour of green and white papers, or process. They're interested in outcomes. Reasonably enough, as they lead busy lives and they can't really follow the minutiae of the debate throughout the exchanges day by day. If, as I say universally expected, the GST is scrapped, is Labor fully in support of that?
LEIGH: We absolutely would be. We've been very clear that we believe there are other alternatives to raise revenue. We've put on the table around $70 billion of savings over the course of the next decade. Things such as not proceeding with the marriage equality plebiscite and the Baby Bonus, getting rid of the Emissions Reduction Fund, better taxation of multinationals, high end superannuation changes and the cigarette excise. Those are important changes that have allowed us to say to the States and Territories that we would fully fund needs-based school funding over the decade. The Prime Minister has lost more ministers than he has had positive tax ideas over the last few months since coming to office.
BENSON: Can I go to some of the other proposals that are in the mix with the GST out of the mix. A land tax. Have you got any time for taxing the family home, in particular?
LEIGH: Australia has had land taxes since its inception and they are one of the sources of revenue that the States and Territories – as well as local governments – use. Certainly an economist’s view on land taxes is they tend to be a fairly efficient form of tax, and one of the key tax reform measures in Australia has been the ACT Government's move from stamp duty – which is essentially a tax on mobility – towards land taxes.
BENSON: But a tax on the family home, how do you feel about that?
LEIGH: Well the economic argument against taxing the added value onto land is that it has a higher efficiency cost, a bigger drag on growth if you like. So economists tend to prefer taxes on land, and again that's an area that's very much in the mix when the States and Territories look at how they might go about making their taxes more efficient.
BENSON: But we only pay land tax on things beyond the family home. Should the family home be subject to land tax?
LEIGH: That's not right, Marius. Rates are essentially a land tax.
BENSON: Okay. Let me move on to another one which is negative gearing. Do you want to see changes there to cut back on some of the exemptions?
LEIGH: Well Labor has been clear that we're open to changes, but that there are two absolute pre-conditions. Firstly, we have to improve housing affordability and secondly, it has to not affect existing investors. Housing affordability is a real problem. We've seen the share of young people owning their own homes dropping about 10 percentage points over the last couple of decades. So we do need to make housing more affordable, but we also need to make sure that any changes to that space don't hurt existing investors who've made decisions in good faith based on the tax code.
BENSON: There are different views that if you get rid of those negative gearing benefits, whether or not it affects housing affordability. What's your view?
LEIGH: I think the main experiment here is the story of the changes made in the mid-1980's. The Grattan Institute came out with some interesting work suggesting that the changes we saw in Sydney and Perth were specific to those markets rather than being a product of the policy change. Understanding those past experiences is important, as is thinking about how the benefits of negative gearing are distributed through the income spectrum. It is a tax concession used overwhelmingly by those at the very top of the distribution.
BENSON: So that sounds like it just depends on what lessons you draw from things like that Grattan Institute study of Sydney and Perth markets. What do you draw from that then? If it is for the best off, then is it not something you're in favour of?
LEIGH: The tax concession benefits the best off, so if one were to reign in the concession that would have a progressive impact. This is one of the things we are working on, Marius, but we start in a position now of being well ahead of the government in the tax reform debate. That $70 billion of changes people criticise and say Labor should have come up with more, well fine, but it would be nice if we weren't leading the Government so significantly in the race to achieve clear budget savings and to make sure that we're able to fund our schools and hospitals into the future.
BENSON: A quick final question, do you like the idea of a Capital Gains Tax on the family home?
LEIGH: I don't think that is likely to come up in the Australian debate Marius. Various countries approach this in different ways. The Americans have a mortgage interest deduction. Some countries do tax the family home, but then we have to deduct a whole range of other things so in practice, I think most economists believe that would make it a fairly small-bore tax reform in the end.
BENSON: Okay on that note, thank you Andrew Leigh very much.
LEIGH: Thank you Marius.
MEDIA CONTACT: JENNIFER RAYNER 0428 214 856