The Phaserl


A Desperate Stab at Tax Reform

by Greg Canavan, Daily Reckoning:

Did you hear the latest from Malcolm Turnbull?

He wants to put taxing power back in the hands of the states so they can fund their health and education systems.

On the surface, this is a decent reform. It gives states, other than NSW and Victoria, the opportunity to lure people and businesses by setting more attractive tax rates. Creating tax-based competition among the states is a good way of creating a more competitive and productive society.

But it’s unlikely the electorate will buy it. It opens up the possibility of double taxation.

As far as I can tell, the motivation behind Turnbull’s decision has nothing to do with tax reform — and everything to do with trying to deal with a worsening budget decision.

The timing is a giveaway. The government is obviously working on its budget, due for release in early May. They see that the numbers don’t look good. Structural tax reform is necessary in order to improve the longer term outlook.

What can they do though? They’ve shot down most of the solutions because they hurt the special interest groups aligned with the Liberals (the Australian elite).

The only thing left is to pass the responsibility onto someone else. The states! If things like education and health spending revert back to the states, a large chunk of the Federal government’s spending responsibility disappears.

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