Hooked on sugar-hit policies, we keep ignoring the tax elephant in the room

Opposition Leader Peter Dutton has announced that businesses with a turnover of up to $10 million would be able to deduct up to $20,000 of meal and entertainment expenses provided to clients, employees and vendors as long as it was business-related, without incurring fringe benefits tax should he win the next election.

Treasurer Jim Chalmers responded to the announcement by calling the policy “a complete farce”. But the same media blitz highlighted that at almost the same time one year earlier, the treasurer announced the government’s plan to give working Australians an income tax cut that will leave us with an estimated average of $1660 more in our pockets by the end of this financial year, but that will have little or no benefit within two years.

In an ideal world, politicians will put sugar-hit policies to one side for the next few months, and focus on real, lasting reform instead: tax reform.

Boring though it may sound, this is one of the few topics on which you’ll get almost unanimous agreement from economists (an otherwise unheard of event) because, as it stands, Australia’s tax system is not fit for the future. Very briefly, our tax system heavily relies on individual income tax to generate revenue, which is a major problem with an ageing population that will not only stop working, but also have increasingly expensive needs (more spending on healthcare and pensions).

Admittedly, tax reform policy isn’t something that can be done on the run – it takes time to formulate. But luckily for Labor and the Coalition, independent MP Allegra Spender has done a lot of the groundwork already.

Late last year, after 18 months of round tables with experts, community groups and unions, Spender released a green paper on the country’s tax system that handily highlighted six priority areas for reform that could assist the economy, including rebalancing tax so that it favours home ownership over investment in existing dwellings, and so that it doesn’t penalise certain groups.

The paper noted that changes such as reducing capital gains tax concessions and narrowing negative gearing could fund cuts to personal income tax and would help more people get into the property market.

No treasurer or shadow treasurer wants to be seen simply adopting a policy created by a member outside their own party. And it would take a brave treasurer (or treasurer to be) to pitch major tax reform for other reasons. These are big ideas that would hit a lot of people where it hurts – namely those who’ve spent years arranging their assets and incomes to get the most out of the current tax system.

Voters are also not used to being convinced of the need for major tax reform. The last major tax reform successfully introduced by a federal government was the introduction of the goods and services tax a full 25 years ago.

But the risk of not taking action is that we continue with sugar hits that, over time, will make us addicted to short-term solutions rather than addressing the root cause.

Rachel Clun is a former economics correspondent for The Age and The Sydney Morning Herald.

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