Features Australia

Up the pointy end

5 August 2017

9:00 AM

5 August 2017

9:00 AM

Bill Shorten has ramped up Labor’s efforts to stoke envy among the many by maligning the success of the few, taking aim at trusts and other trimmings of our so-called ‘two-class’ tax system.

According to Shorten, most Australians live their lives under the thumb of the ‘economy class tax system’, getting by with access to only a few vanilla deductions. The ‘business class’ on the other hand, have access to a laundry list of suped-up deductions and loopholes that allow them to opt out of paying tax altogether.

Not since Arthur Calwell has a Labor leader pursued an electoral strategy so brazenly aimed at duping the electorate into thinking the earned success of others is the root of their problems.

The good news is that the rump of Shorten’s claim about a widening gap between wealthy elites and the hapless everyman is complete guff. Australia’s Gini-coefficient – the leading measure of inequality – finds income disparity has been falling since before the GFC.

But even then, Shorten’s strained analogy gets it back to front. In business class, passengers pay a pretty penny to enjoy a few flutes of champagne at the pointy end of the plane. By contrast, high earners – along with large companies; especially the big banks and miners – pay for virtually Australia’s entire tax-take without getting a brass razoo in return.

The oft-cited statistic that only half of all households are net taxpayers actually gives a deceptively upbeat impression of the true state of how unevenly our tax burden is spread. Once all government transfers and subsidies in cash and kind are accounted for, roughly only the top fifth of households put in more than they receive. If we put a price on government-funded services like schools and hospitals the number of lifters vis a vis leaners shrinks to a lonesome few. And that’s before the cost of vital services like roads, infrastructure, and police are ever factored in.

When viewed in this context, the amount of tax minimised through discretionary trusts looks like chump change. Even if we naively assume a 30 per cent tax on trust distributions wouldn’t simply prompt scores of trust users to park their capital in a company or partnership structure or offshore, the proposal is set to raise a miserly one billion in revenue a year. For perspective, that equates to 0.75 per cent of the annual income tax receipts of the top 10 per cent, or 6.2 per cent of the annual interest bill for our national debt.

In any event, Shorten’s central point that the tax treatment of trusts is a subsidy paid for by the community is a total nonsense. Rather, the fact that trust distributions are taxed according to the income of the beneficiary, not the donor, merely reflects the reality that for all practical purposes, the funds are indeed the income of the recipient.

In this sense, trusts tend to be used for socially useful ends; pooling assets to allow greater investments, giving gifts with strings attached, and supporting dependant family members; all things the Labor party of yesteryear would have supported. Under Labor’s proposed changes, an elderly parent reliant on trust income to supplement a part pension would be slapped with a 30 per cent tax, even if their income barely tipped the tax-free threshold.

Knowing all this, anyone who can show me a childcare worker, nurse or teacher who pays more net tax than a millionaire is welcome to join me for a bicycle ride to the moon.

What’s more, the heavy-lifting taxpayers making upwards of $200,000 hardly deserve to be typecast as the high-flying millionaires Shorten would have you believe they are. In reality, the vast share of high-income earners only ever get the privilege of working nearly half the year to pay their tax bill after many years of working punishingly hard on significantly less money.

The legal profession, for instance, is quintessentially associated with yuppies living large in the big end of town. Yet surveys suggest even a lawyer bright enough to join one of the top-ranking national firms is unlikely to bring home more than $180,000 before chalking up nine years of working at least sixty hours a week. And that’s only after four to six years of toiling over textbooks and accumulating debt while earning nothing at all.

The same can be said for electricians, whose apprentice wage of $29,000 jumps to $68,000 upon qualification, and eventually tops $110,000 for an electrical supervisor after about a decade in the job. Experienced tradies with some entrepreneurial spine can easily earn $150,000 plus by starting their own business.

To be sure, a handsome pay packet isn’t always the product of earned success. An unskilled labourer working on a unionised construction site in Victoria makes a tidy $151,000. But this is the exception, not the rule. Indeed, analysis of household income data shows that well over half of people earning in the top 20 per cent were replaced just eight years later.

The lesson here is that the path to being an upper-income earner actually looks a lot more like what Mark Latham called the ‘ladder of opportunity’, with those at the top often the same kind of people as those below them, just at different stages of their careers.

Oddly enough, history tells us that perhaps the surest way to increase the amount of tax paid by the rich is to cut punitively high tax rates.

When Ronald Reagan slashed the top rate of income tax in the 1980s from an eye-watering 70 per cent to 28 per cent, tax receipts – including the amount paid by the dreaded one per cent – rose from $500 billion to one trillion over the decade. Fancy that Reagan, the 20th century’s most famed champion of what Wayne Swan derides as trickle-down economics, had more success than anyone on the Left at getting the rich to pitch in for the common good?

Shorten’s heavy-handed rhetoric about tax-cuts and concessions depriving money from our cash-starved schools and hospitals to subsidise millionaires belies a sobering truth: the well off in Australia don’t pay their fair share of tax. They pay just about all of it.

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