Ideas@TheCentre
Remember the Henry tax review?
It is just a little more than two years since the review of Australia’s Future Tax System (AFTS, better known as the Henry review) was released to the public, with its 138 recommendations.
The Gillard government, notwithstanding its enthusiastic embrace of an audacious 40% resources super profits tax at that time, was lukewarm about the Henry package as a whole. Eager to burnish its economic reform credentials, the government now likes to make out that it is following what the 2012 Budget papers describe as a tax reform ‘road map’ consistent in many ways with the Henry recommendations.
This week’s federal budget, however, provides further evidence of just how much of the Henry review is not being implemented. The road map lists no fewer than 40 tax and transfer policy initiatives, 32 of which the government claims to be ‘consistent with’ the Henry recommendations. This is a generous interpretation. Many of the 40 measures are small adjustments, and many of the 32 only partly implement the relevant Henry recommendation.
The strongest claim to consistency is that the government is substantially increasing the tax-free threshold and eliminating most of the low-income tax offset (LITO). That’s a step in Henry’s direction, but otherwise the personal income tax scale bears little resemblance to what Henry recommended.
Likewise, we are to have a Minerals Resource Rent Tax (MRRT) that bears little resemblance to the one recommended by Henry. The company tax cut that was supposed to accompany the resource tax – a cut of five percentage points as recommended by Henry – was whittled down to a puny one percentage point and has now been abandoned altogether.
The government’s approach to superannuation policy is also fundamentally different from Henry’s. Even the government’s acceptance of a standard personal tax deduction and a discount for interest income – both proposed by Henry – has been abandoned in the latest budget. And almost everything the government does makes the tax/transfer system more complex, in contrast to Henry’s big push for simplification.
The point is not that everything in the Henry report is good and should be implemented, but that what Kevin Rudd called ‘root and branch tax reform’ – reform that is comprehensive and balances all legitimate objectives of the tax/transfer system – remains as elusive as ever. What we are seeing now is an opportunistic cherry-picking of the Henry recommendations driven by the government’s hunger for revenue and redistribution.
Robert Carling is a Senior Fellow at The Centre for Independent Studies.
