Prime Minister Malcolm Turnbull has given an interesting interview today to Neil Mitchell on 3AW radio, where he has spelled-out his framework for tax reform:
Malcolm Turnbull: We have to look at the tax system. The tax system is the single biggest thing that the Federal Government does that incentivises and dis-incentivises economic activity. If you tax something, people will do less of it – generally. So what you have got to do is make sure that you raise no more money than you are currently and certainly no more money than you need – you’ve gotta keep spending under control and so forth… [You’ve got to] raise it in a more efficient way…
Neil Mitchell: Have we got a revenue problem or a spending problem?
Malcolm Turnbull: We have a budgetary problem and we have an economic growth problem. And the budgetary problem is that we are spending more than we are receiving in revenue. And the economic growth problem is that we are not growing fast enough and need to ramp it up.
Neil Mitchell: Do you increase revenue or cut spending or both?
Malcolm Turnbull: You can obviously do both, but already tax revenues are a high percentage of GDP, and we are not a high tax government and we don’t want to increase the level of taxes.
Neil Mitchell: Do you want to ease it?
Malcolm Turnbull: Yes, over time subject to responsible Budget management.
Neil Mitchell: That’s not close is it?
Malcolm Turnbull: With the deficit there I think… the key is to balancing the Budget is basically this: you want to grow your economy at a faster rate than your expenditure is growing. Your tax revenues are a function of the growth in the economy. So if your economy is growing faster than your expenses, over time, that deficit will shrink.
Neil Mitchell: So, in simple terms, tax cuts aren’t close?
Malcolm Turnbull: I wouldn’t necessarily agree with that, no… There are a lot of changes that can be made to the tax system, which would improve the efficiency of the system… The tax system as it stands delivers a certain amount of money every year. The question is, can it be adjusted… Change has got to be orderly, it’s got to be well understood, it’s got to be well explained, it’s gotta be accepted.
Neil Mitchell: Superannuation, negative gearing, capital gains, GST, everything’s gotta be on the table?
Malcolm Turnbull: Everything is on the table, that’s right… We will certainly be making decisions in the lead up to the Budget and obviously if we have major tax reforms, we will take them to the next election.
Most importantly, Prime Minister Turnbull views tax efficiency as the key aspect of reform, and unlike his predecessor has not ruled anything in or out, including superannuation concessions, negative gearing or the CGT discount. Any significant reform would also be taken to next year’s election.
My only minor area of disagreement is the view that tax levels are too high relative to GDP and necessarily should come down. Provided the revenue is raised in an efficient manner, and spending is well-targeted and efficient, I see no problem with raising taxes if it leads to better infrastructure, social services, or other public spending.
