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Don’t let political hot air blow tax reform off the table

1 Jul 2020

This week marks the release of the draft report of the NSW-led Federal Financial Relations Review.

The report picks up on the Prime Minister’s comments just over a month ago – when he put federation reform at the heart of a new, permanent National Cabinet process – and lays out a raft of ideas for strengthening the fiscal foundations of our federation.

We called this review because there has been broad agreement for many years that the current state of federal financial relations is broken. Too many taxes. To many unwieldy agreements. Too little consistency and transparency. And all coming at a great economic and financial cost to the people of our state and nation.

So we asked the panel: how can we fix it? Now comes the hard bit: considering the options and deciding what to do next.

The main challenge in achieving reform is not usually economic or bureaucratic, it’s actually political. Making decisions for which you will be held to account is scary at the best of times. Making decisions that fundamentally change the way a nation’s finances are structured takes things to another level of daunting altogether.

But if you’re not in politics to change things for the better, you’re in the wrong game.

This draft report represents the views of an independent panel. Over the coming weeks and months, we will engage with the panel’s ideas, and consider them carefully.

So while it’s not government policy, it’s a starting point. That means the journey lies ahead, and it will no doubt be long and hard.

But a starting point also means we’re no longer standing still. We’re moving again towards a goal, and that’s the important thing.

Reform is not an end in itself. It’s about creating a better future for families, communities and the country.

Our government is only interested in reform if it will make NSW a better place to live, work and raise a family. We want lower taxes. We want more job opportunities. We want everyone in NSW to share in the benefits of a more prosperous state.

The naysayers will say it can’t be done, or that reform will make your life worse. Already they have struck up their “no we can’t” chorus. Expect them to sing it loud and long.

My outlook is “yes we can”. We really can reform federation to realise a vision for an Australia with more opportunity for all, and I believe there are three keys to success.

First, any reform we pursue must be good reform. That means looking carefully at the options presented by the Review, rather than taking them off the table before anyone has had a chance to consider them.

The number one feature our Government is looking for in any tax reform is that it makes the overall tax burden on the people of our state lower, fairer and more efficient.

If it ticks those boxes, we should seriously consider it.

Good reform also means being willing to sacrifice degrees of perfection in order to achieve material improvement.

We are all in furious agreement that the current tax mix in Australia leaves abundant room for improvement. But change inevitably means there will be both winners and losers, and sometimes the most ideologically or theoretically pure reforms result in losses to a minority that just aren’t fair.

Australians won’t stand for a system that hurts those who are already doing it tough and neither will we.

Success may therefore require small compromises that can end up being the difference between achieving big overall benefits, or nothing at all. So good reform must be practical reform, and we should aim for the biggest benefit at the lowest cost.

The second key to success is looking at the system as a whole. Lowering the tax burden might involve increasing one tax, so you can abolish others. If the net result for taxpayers is a lower tax bill, that’s a win.

We need to approach reform from a whole-of-federation perspective, understanding that making taxes lower, fairer and more efficient is a task that can only be accomplished with states and the Commonwealth working in harmony, not in conflict.

Finally, success will most importantly depend on winning the confidence and support of the people.

We are elected to provide leadership and direction, but the final say rests with the people. If we can convince you that it’s the right thing to do, political attacks are just hot air.

In the face of the present economic challenge, maintaining the status quo will have grave economic consequences for Australians. Doing nothing is no longer an option.

So I encourage everyone to look at the review’s proposals in a constructive light, and be a part of this important mission: to change our federal financial system for the benefit of all of us, and for generations to come.

– Originally published in the Australian Financial Review – 1 July 2020

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