Abbott blind on tax


By Leith van Onselen

Tony Abbott has repeated that the Coalition will detail plans for “have a go” tax cuts, in a bid to boost productivity. From The SMH:

“We will have more to say about keeping taxes low in the lead-up to the election, but bracket creep is a problem and that is why Joe was absolutely right to put it on the agenda on Monday,” Mr Abbott said.

“We want to help hard-working Australians. It’s in our DNA”…

“Lower taxes, less regulation, higher productivity, that’s what we are on about every single day and that obviously is Joe’s overwhelming focus.”

One has to ask: if Mr Abbott is so concerned about productivity, then why did he make the “captain’s call” ruling-out changes to negative gearing or the capital gains tax discount?

Over the past two decades, there has been a massive shift in lending away from productive businesses towards unproductive housing, with business lending now at a record low share and housing lending at a record high:

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This trend has accelerated since the Global Financial crisis, whereby loans to businesses have grown by a paltry 4%, versus 50% growth in housing lending:

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Obviously, Australia’s peculiar tax rules favouring property investment have played a role in this shift.

The upshot of which is that Australian productivity is now very poor, due in part to:

  • massive over-investment in non-productive capital;
  • inflated land prices; and
  • a lack of innovation.

One can only wonder how Australia look if the billions of dollars of excess capital that has been poured into housing, due in part to Australia’s warped tax incentives, had instead been funneled into businesses and infrastructure, as occurs in places like Germany?

Instead, Australia has been left with non-mining companies that are struggling to compete and an infrastructure deficit that is unlikely to ever be bridged.

Australia needs genuine tax reform that broadens the base and unwinds the myriad of distorting, expensive and inequitable concessions. Not isolated cuts to income taxes, which can only be achieved via slashing public expenditure.


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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.