Why Can't They Just Plug All Those Tax Loopholes? [S2-01]

Show Notes

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Music: “Insurrection”
Written by Pierre Chrétien
Performed by the Soul Jazz Orchestra
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Transcript

Glenn
Welcome to Why Can’t They Just – a podcast about politics, policy, and getting stuff done. I’m Glenn Davidson and I’m a member of the Labor Party.

Janaline
My name’s Janaline Oh. I’m also a member of the Labor Party, a former diplomat and a climate and anti-racism activist.

Now perceptive listeners will notice that Glenn is new to the podcast, so welcome Glenn. He has very kindly agreed to step up and help me out with this podcast because, well, as regular listeners will know, William has left us for the happy reason that he’s got himself a job and is basically too busy to continue the podcast. So I really wish him well and thank him so much and I’m really excited that he’s got this great new opportunity.

We do also have today, Luke Robertson, who is joining us. Again, new to the podcast, and I might just ask Luke to introduce himself.

Luke
Hi, I’m Luke. I’m a student in Sydney studying Wildlife Conservation Biology and Environmental Policy. I’m also a member of the Labor Party as well as LEAN.

Janaline
Thank you, Luke. So we are all recording this on the unceded lands of First Nations people in Australia. We pay our respects to their elders, past and present and any First Nations listeners that we have today.

Glenn
Thanks very much, Janaline, for the welcome and the opportunity to get involved in some interesting discussions over a range of matters. So let’s start today with talking about tax expenditure, which is an area that is of huge significance to the budget. There are huge amounts of money involved, but they’re not very well, either understood or even necessarily a high level of awareness about what tax expenditures are. So if I could just touch on, you know, a couple of the big ones and seek your views on that. And that includes the concessional treatment of superannuation, the capital gains tax concessions, exemptions from GST, as well as the other sort of tax deductions that your average punter might claim. It’s estimated to be around about $200 billion worth of expenditure to the budget annually, which is a huge amount of money.

There’s a simple question just to get started. Why can’t the government just stop offering all those concessions and get the budget looking a little bit healthier than what it is?

Janaline
Yeah. That is such a great question. On the question of transparency, the government does publish a tax expenditure statement. This was legislated some years ago in order to generate a bit more transparency about tax expenditures.

The current Treasurer also introduced a feature within that statement to essentially make clear where those expenditures are going. So, basically, which expenditures are benefiting which income brackets, principally. Which I think is actually a really important political measure as well as a transparency measure, because I think it will help with the proposition that you put forward, which is how do you start to wind those things back?

One of the responses to why can’t they just abolish all tax expenditures and have all that money available for the budget is that some of those tax expenditures would have to be transferred back in the form of welfare payments. What that does is it has the same effect on the humans, it has the same effect on government revenue and the budget bottom line, but it would essentially look like the government was collecting a lot more revenue and then spending a lot more money. For the people who are interested in the amount of revenue and expenditure as a proportion of GDP, that would lead to a significant increase in both, for the same budgetary effect and the same effect on the recipients. There is kind of an accounting reason that governments do things via tax expenditures. That said, that is not true for the whole $200 billion.

Glenn
So that’s an important point that you’ve raised, the fact that a lot of it does affect people who are low and into the middle income bracket and there would be a significant impact on their quality of life and well-being if those tax expenditures were removed. So things like their personal tax income, tax deductions, Medicare rebates, and with the GST exemption on fresh food and various other personal items that are essential. So that’s fair enough.

But that really only accounts for probably less than half of the overall tax expenditures. So if the tax expenditures are around that $200 billion mark, those expenditures are less than half of that. So that raises the question about what about the other, you know, around about $100 billion, which goes to the top income earners. Why can’t the government just look at paring that back?

Janaline
Yeah, I think that’s a really good question. I think one of the things that is useful for people like us within the Labor Party, who engage in policy discussions within the party, to focus on is actually creating the political space for the government to look at that tax expenditure document and the distribution of where those benefits go and look at the ones that are benefiting the top income earners and look at ways of creating the political space for them to reduce those at very least if not abolish them.

And I think this is kind of what’s been happening a little bit around the capital gains tax concessions, particularly for real estate and also the debate around negative gearing of investment properties.

Now, these two expenditures were obviously targeted by Labor in the 2019 election, which we lost. I feel like the party and significant parts of the media basically saw that loss as a repudiation of the policies by the Australian people. That may have been the case. But the electorate seven years on is not the electorate of 2019. And the economic conditions, twenty years, sorry, seven years on, are not the economic conditions of 2019. So I think it is timely for the government to take another look at this. There is a massive issue around housing affordability. In Australia, there is a massive issue around young people’s ability to get into the housing market, even as renters in some cases. So I think the electorate is ready for a debate about this.

And I think we have been having, you know, quite constructive debates around this, around intergenerational equity. And I think that the inclusion of distribution in the tax expenditure document really, really helps with that argument. One of the things that is often said around negative gearing and the capital gains tax discount is, ‘Oh, but what about all those nurses and teachers and middle-income earners who are using their investment properties to kind of prop up their retirement nest eggs and give them a bit of extra income?’ The fact is that around half of the people who claim negative gearing only have one investment property. And around another 25% only have two. So if you limited negative gearing to one or two investment properties, you would actually only be targeting about 25% of the people who claim it. Those 25% who claim it are claiming the lion’s share of the expenditure from it.

Glenn
That’s right. It’s interesting that the point you’re making about the 2019 election is fairly critical because the argument was framed in sort of two ways. The Labor Party was looking at the macro level in terms of the amount of money that was being spent on it, and the opponents were doing the whole ’exception proves the rule’ argument. Where, because one nurse or one teacher had an investment property, everybody would suffer if it was changed in any way.

I was looking at the figures earlier today, and there’s around about two and a quarter million people who own investment properties. Two million of them own one or two, with the vast bulk of them are really only owning one.

So that means there’s about 250,000 people in round terms that own three or more, and about 20,000 that own six or more. Now there are 13 million thereabouts taxpayers. So there is a very small proportion of taxpayers who would actually be affected by changes to the negative gearing and the capital gains tax. And as you rightly pointed out, it’s that top portion, the 20 plus thousand or so that have got five or six or more properties that are skimming most of the money out of the scheme. So there’s plenty of scope to wind that generosity back somewhat, but the argument certainly needs to be framed in a much more quantifiable way that is easy for people to understand so that whole teachers and nurses argument that derailed it last time just doesn’t resonate with the broader population.

Luke
Oh, I think the arguments definitely changed in the past few years. I think, within the sort of consciousness of the public, there’s definitely a greater appetite for something to be done on housing. It appears to be a pretty desperate situation. I don’t know if that’s because the housing crisis suddenly appeared in the media in 2022, but the sort of appetite for change has changed a lot in the public, and I think that’s probably a lot to do with the much greater proportion of younger people voting.

Janaline
I mean, obviously, one of the reasons that we’re focusing on tax and expenditure in this podcast today is in anticipation of the budget, which will be on the 12th of May. I reckon, though, in terms of, I mean, in terms of the housing crisis, like there is a lot of credible modelling that shows that it’s not going to have a dramatic impact on house prices. And I think contrary to the arguments of the Liberal Party recently saying, if you increase a tax on something, there will just be less of it, if you take away a tax expenditure, if you take away a rebate for a house, then that house doesn’t disappear.

So, if an investor decides without these generous concessions, it is not worth me holding on to this property, I am going to sell it, the property doesn’t evaporate. It is still there. The chances are, though, that that property can then become available to a first home buyer or to somebody else who decides that maybe they can afford the extra tax and have an investment property and rent it out. But the fact is the house is still there. So, I think these arguments that increasing or reforming the capital gains tax and negative gearing will take housing out of the market actually just don’t really stack up.

Because in some ways, actually, what it does is it makes it a lot less profitable, for example, not to rent out your property. So there are situations where investors, because they get this massive tax discount against their other income, might actually choose not to rent out their property for a period of time, because maybe the rents are not as high as they had hoped, and because they get this massive discount tax concession on their rental loss.

So I think there is a chance that it might actually lead to some properties coming back onto the market because it becomes less tenable for landlords to leave properties vacant. So I don’t think pulling out anecdotes to say, ’this person’s going to do this or this person’s going to do that’ are really that helpful. I think the government needs to actually look at the market as a whole. I think you’re right that in 2019, Labor tried to make a kind of macroeconomic argument and, of course, you know, the Liberal and National Parties and their friends in the media immediately went and found, you know, five people who could tell a compelling personal story.

Glenn
Yeah. And this is the classic sort of Liberal National Party approach to things where it’s all or nothing. And, you know, the exception proves the rule. So, you know, you don’t have to remove the generosity or the provisions under the CGT and negative gearing for everybody. You can certainly trim back the generosity for the top 20,000 that own the six plus houses and maybe the quarter of a million who own three or more, but still leave things in place for the two million or thereabouts who only own one or two so that the supply is not significantly affected. But the way these arguments are framed is that if you tweak this little bit here, the whole sky, the whole edifice will fall down. There’s no nuance in the argument.

And I think that was probably where the Labor Party failed back in 2019. It let those arguments, the teachers and nurses argument, as I like to refer to it, run without countering it with some logical, at least not countering it in a compelling way. I mean, other countries have negative gearing and capital gains tax concessions, but not with quite the same unique mix that we’ve got that benefits that top end of town to the extent that it does. And so that would also be another dimension about bringing about more fairness by aligning us more with best practice elsewhere in the world.

Janaline
Yeah, and look, I think the government, to be fair, is making that argument more convincingly now than they did in, than Labor did in 2019, obviously not in government at that point.

I do just want to challenge, though a thing that you slipped in about, you know, not affecting supply. I actually don’t think any of these measures are going to affect housing supply. I think they will change the nature of who owns the houses within the existing supply. I don’t think any of these measures are necessarily going to lead to new housing supply or remove housing supply. As I said, these houses don’t just evaporate.

A thing that might encourage new housing supply, though, is a thing that has also been floated— the idea of allowing these concessions for new builds, but not allowing them for existing housing. And I think there are probably some quite good arguments for doing that because that potentially would increase supply. And obviously increasing supply is, you know, the main game here. We need more houses and we need more affordable houses.

I think I feel like on the housing issue, though, I feel like the government is sort of trying to take a bit of an all-of-the-above approach. And I think that is probably the right approach to take. I’d like to hear Luke’s view, though, because, you know, people like Glenn and me are sitting comfortably in houses that we got from our Gen X and Boomer privilege.

Luke
Uh, I think I have seen that modeling. I’ve seen a lot of it where it suggests that it will have a much more modest impact than I think it’s made out to be. But I don’t think that’s the point. I mean I think a really big point, I think I touched on this earlier, that it’s emblematic. It’s an acknowledgment to the public that treating housing as an investable asset you know in the same way which you would treat other sort of speculative assets is causing negative impacts. I think just to do that is a big step in the right direction to at least prove they have an appetite for it. So I think the budget will be a big test, but absolutely, I mean I know myself and so many other people are just sick of seeing, you know, that housing prices have again gone up above inflation. I mean, in Sydney, it’s the worst. You see some crappy rental or a tiny little house with mold and dirt and it’s going for like three million dollars and that’s just you know, that’s like monopoly money at that point.

Glenn
So again, perhaps, Janaline, if you just give the snapshot of what the diesel fuel tax rebate is all about and what the proposal is that’s coming forward from the Labor Environment Action Network.

Janaline
Yeah, so one of the things that LEAN is proposing to the government is a fairly modest change to the diesel fuel rebate. So for people who don’t know what the diesel fuel rebate is, everybody pays tax on petrol and diesel. It’s a fuel tax that was introduced a few decades ago ostensibly to pay for roads. It’s been quite a long time since that money stopped directly paying for roads and just went into consolidated revenue, and then some of the money from consolidated revenue gets used for roads, but there’s not a direct link anymore.

The fuel tax is not, however, paid by people who don’t use public roads. So mostly the people who don’t use public roads are either large mining companies or farmers on private agricultural land. There are separate rebates for heavy trucking and transport. That is not relevant to what we’re proposing.

The proposal that LEAN has put forward is that this fuel tax credit at the very, very top end, is really distorting the incentives for very big mining companies to decarbonise on site. So what this means is there are 15 companies in Australia that under normal fuel tax conditions, that is 53 cents per litre – so not taking into account the three-month halving of the fuel excise that the government announced recently – but under normal fuel tax conditions, 15 companies get $50 million or more per year back in diesel fuel rebate.

That’s a lot of diesel, because obviously if they’re getting 53 cents per litre back, and they are getting more than $50 million, then that is more than 100 million litres of diesel that they are each using each year and in fact, I saw in the Australian Financial Review recently, an estimate that BHP had got $600 million back in a year. That is 1.2 billion litres of diesel that they are using. That is a very large amount of diesel.

So, if these companies stopped getting the rebate, it would make investment, particularly in things like electric mine trucks, more viable in terms of planning out their investment strategies.

So the problem at the moment is that because of the rebate, the investment that they make in a mining truck takes about twice as long for them to recover than it would if they didn’t have the rebate. So, without the rebate, investing in a mining truck would mean that they recover that investment in five years. With the rebate, it’s looking more like nine or ten years. So, obviously, for a company that is trying to maximize value to shareholders, that is a significant issue. So they will save money over the long term. However, in the short term, the upfront investment cost takes longer to recover because of the diesel fuel rebate. We think this is a terrible idea.

Because the other thing that all of these companies are subject to is a thing called the safeguard mechanism, which is the government’s principal mechanism for reducing industrial emissions. So under the safeguard mechanism, 215 companies in Australia have to reduce their emissions by a certain amount every year. Each one of these 15 companies is covered by that. But what they’re doing to reduce their emissions is, instead of reducing them on site by electrifying their mine trucks, they’re continuing to use diesel, getting the rebate, and then using that rebate to buy carbon credits and still having significant money left over. So, to us, it creates an inefficiency within emissions reduction policy, and obviously, as the Labor Environment Action Network, our principal concern is emissions reduction.

So removing the diesel fuel rebate above $50 million means that other people are not affected. So farmers and truckers and anybody else in the market is not affected. Only those 15 companies. 13 of those companies are mining companies. Two of them are coal freight companies. So the big mining companies have argued, but the technology’s not quite there. Yet Fortescue, which is one of the big recipients of the diesel fuel rebate, has decided it wants to go to real zero, not just net zero, and so they have decided that, notwithstanding the diesel fuel rebate, they are still going to invest in mine electrification. They are taking delivery of two electric mine trucks this year.

BHP has an electric locomotive. Rio Tinto has a fully electric mine site in the US. Half the mining trucks in China sold are electric. So the technology is there, it is available. There may be some modifications or regulatory issues to resolve in order to use them effectively, but the fact is they can do it. Fortescue is demonstrating that they are doing it in Australia this year.

I think the time is ripe to actually take this measure. It could release, we think, about $2. 2 billion a year because these companies have been receiving, I think in 2023-24 they received about $2. 9 billion in diesel fuel rebate. So it’s not $200 billion but it is significant. It’s not a small amount of money.

Now our proposal is that that money go into a fund that is available to all safeguard mechanism companies to help them to decarbonize. Now that means that companies that don’t receive the diesel fuel rebate, like cement manufacturers, like aluminium companies, like smaller mining companies, could still apply to that fund to help them with onsite decarbonisation. So, hopefully, they would then be able to take a bit more of a risk on investing in new technology to help them decarbonise on site, because it wouldn’t be costing their shareholders, they would be getting financial assistance.

So, our view is that this reform is relatively modest. It could also free up an awful lot of fuel for the market. So, you know, the current crisis in the Middle East is definitely showing the vulnerability of having a dependence on imported fossil fuels. Just having these really, really big users use less or potentially over the medium term not use diesel at all would free up an awful lot of fuel for people in remote communities who don’t have so many options for electrification, or farmers or truckers.

So we see a lot of benefits of this policy. We think it is relatively easy to do and it would actually help, with maybe not the immediate crisis, because obviously these companies aren’t going to buy mining trucks the minute the budget comes down. But over the next couple of years, as the long tail of this crisis pans out, it will help to put fuel back into the market and it really helps to set us up to deal with a future crisis.

Glenn
Really the key points to come out of that are that there are 15 companies that are highly profitable. You know, Australian companies as well as some foreign-owned ones. There’s roundabout somewhere between two and three billion dollars that is already in the government’s coffers that are being refunded to these companies. So, BHP, I think you mentioned, was up around about the 600 million, but yeah, the average is probably closer to 200 or less. That’s not a bad tax refund for those companies. The important thing is, too, that the technology is available, as you mentioned and being used in China, and Fortescue was already buying two trucks this year. So it’s doable. I think those mining trucks have a working lifespan of about 10 or 12 years, or whatever. So there’s a period of transition. Clearly, some will be close to the end of life. Some will be much sooner.

But the incentive is for companies to move across to electric vehicles and free up some of that diesel, as well as all of the climate benefits that come from that down the track. And the resilience benefits, as the lessons of the last month or so are showing us very, very clearly.

Another one that’s very controversial is the concessional treatment of tax on superannuation, which means that you could basically put before tax income into a super scheme and only be taxed at 15 cents in the dollar rather than, you know, 30, 37 or 49.

So it benefits, you know, those on higher marginal tax rates. And when it’s paid out of the super fund, there is no tax on it at all. And so that’s really distorted the system so that it favours very much particularly wealthy retirees at the expense of others. Do you want to talk a little bit about that, Janaline, and why the government is having so much trouble making that scheme fairer, particularly as part of this intergenerational fairness and equity issue that we’ve got running.

Janaline
Yeah, I think it’s a huge issue. I mean, it was a bit controversial when John Howard introduced it. Because it was so clearly going to benefit wealthier people. The government did try, in the last term, to introduce a less concessional tax rate on the earnings of superannuation balances of over $3 million.

Now, not very many Australians have super balances of over $3 million. I think the government’s estimate was it was around 80,000 people. Most people have an average super, I think the average super balance is around $150,000 to $200,000. So significantly less. They couldn’t get it through the last parliament because David Pocock opposed it.

In the current parliament they have slightly modified the proposal around how those tax payments get calculated. So there was a big argument about whether it was possible to tax unrealised gains. So what that means is, if you’ve got a super balance of $3 million and it increases in value because shares go up to, let’s say, $3. 1 million, the government’s proposal was for that $100,000 extra to be taxed at 30%. At the moment, it’s only taxed at 15%. So it’s still a concessional rate, but it’s a less concessional rate. The argument was that, because that $100,000 is actually just a paper valuation. So they haven’t sold the shares. They haven’t got the extra $100,000 in cash.

So that is an unrealized gain and there was a whole lot of argument about sort of a kind of quite arcane philosophy of tax argument about whether you should be taxing unrealized gains. I would note that my rates tax unrealized gains. My rates are based on the value of my land, which has gone up dramatically in the last 10 years, that is an unrealized gain. I haven’t sold any bits of my house during the last 10 years, but I’m paying a lot more in rates than I was 10 years ago because of the unrealized gains on that property.

So it is not an unheard of proposition to do this. I think, it is very very fair because it is dealing with the accumulation of wealth. It is effectively a kind of wealth tax, to be honest. So I think there are a lot of arguments to do that. The government decided that, in order to get it through the Senate and in order to deal with these concerns being raised, they would modify it.

So what they’ve done is they’ve changed the way in which they calculate how they collect the tax for balances over $3 million and they’ve got a much, much higher tax rate on balances over $10 million so they’ve basically tried to neutralize the effect of changing how they calculate the collection of the tax at that $3 million mark by having a much higher rate at the $10 million mark, which again, given that it is a kind of wealth tax, I think, makes a lot of sense.

I’ve got to say personally, I don’t really see why anybody needs $10 million in their super fund because I just don’t see how - I mean, the purpose of superannuation is to enable you to have a comfortable life in retirement. $10 million stops looking like a comfortable life. It starts looking like a big tax-free inheritance fund for your children. And in fact, in the kind of public debate around the changes to superannuation, quite a few of the people that were interviewed as ordinary people who were going to be negatively affected, were farmers who were saying, well, you know, we are very concerned about this because it means that when we die, our children will have to sell the farm in order to get a decent inheritance. So basically, they’re effectively saying, we are using this as a highly concessional way of passing a massive inheritance down to our children. I mean, from an intergenerational equity point of view, that is perpetuating massive intergenerational inequity. I cannot see a good argument for it. So, I absolutely support the reforms the government’s already put through on super balances and I think that should continue to be a live debate. I think we should continue to have a debate about what is needed for a comfortable retirement and what becomes essentially a tax-free inheritance slush fund.

Glenn
It comes back to that framing of the argument that all or nothing, if it affects one person, it affects everybody. And it really should be possible to mount a compelling argument that being less generous to the most wealthy and privileged people in our society does not penalise those at the other end of the spectrum.

Luke
I recall the debate when it was happening and I was pretty disappointed with Jim Chalmers back down. But anyway, I just wanted to share an anecdote that I remember from election day, sorry, the day before on the pre-polls.

I was in Bennelong. I remember there was a group of Liberal volunteers who had just gotten these new sets of pamphlets that Albo was coming for your super. And I asked them. I asked them, you know, do you guys know that that only applies to people who have over three million dollars in super and they all said no. They were like, ‘Well, if you have three million dollars, it’s yours; you earned it, so you shouldn’t no one else should get to touch your money.’

But I remember it was a pretty easy argument to win on the booths.You could just ask the voters whether they had three million dollars in super and it was pretty quickly solved. Be nice if everyone did though.

Janaline
Yeah, I think somebody calculated that in order to accumulate $3 million in super based on current contribution settings, you would have to be earning more than $200,000 a year for around 40 years. That’s quite a lot. I think it does come back to just the framing of the argument, but I do think it is incumbent on those of us who would like to see further reform to help contribute to the debate around the fairness of it, the intergenerational equity, and also, just you know, again, helping people to understand that we’re talking about massive amounts of money here that are, frankly, is out of reach for the vast majority of Australian taxpayers.

I think Liberal Party did some modeling that showed that, because the government wasn’t indexing the $3 million that by 2080, something like, 20% of taxpayers would be covered by this. So in 50 years, it would still only cover about 20% of taxpayers. Genuinely, guys.

Glenn
Yeah, but the point of all this really is that there’s around about $100 billion of this $200 billion on tax expenditure that is an extremely generous gift to people who don’t really need it. And really, we should be able to do something about that.

Okay, so we’re coming up close to our time, but I think it’s important that we have a little bit of a chat about the goods and services tax, the GST, which has been in now for quite a few years. It was the tax that John Howard said he would never ever introduce, and he did and it’s come in. It’s now part of our life.

It all goes to the states. All the money raised from that goes to the states. But the interesting point is that, at 10%, we’re substantially lower than the world average. A lot of other places have their GST set at 20 plus percent, and without the carve-outs that we’ve got. So my question then, Janaline, is why can’t we bring our GST model into line with the world’s best practice? And look at ways of compensating those at the lower end, uh, lower end of the scale, while still collecting money from those people who are big spenders because they are quite wealthy and who can’t avoid paying the GST.

Janaline
Yeah, look, I’m a big fan actually of expanding consumption tax. And again, as you say, they are regressive. So it needs to be accompanied by some pretty robust and stringent measures to make sure that people at the bottom end of the scale are not disadvantaged. So whether that is through the transfer system, whether it is through some sort of tax offset - I would rather use the mechanism of a tax offset than, for example, raising the tax-free threshold because raising the tax-free threshold actually benefits people at the higher end of the incomes to go as well. But I think something like lower income tax credits are a way of managing the regressive nature of increasing the GST because the main point about increasing the GST is that no tax accountant, however clever they are, can avoid it.

And so I’m in favour of things like wealth taxes in principle. But you have to be really careful about how you set them because either they don’t collect much money or they are so broad that they actually capture people who aren’t that wealthy. With respect to the GST, nobody can avoid it. And if you accompany it with a pretty substantial increase in, for example, luxury goods tax, then you are really targeting the higher end of people who can consume more. It also will capture a lot of middle income and upper middle income people. But what that means is, if you capture more people, you don’t have to raise it by as much. You can tax more people less.

In Europe, I think the EU has a sort of understanding that member countries will have a GST equivalent of at least 17%, which is obviously substantially higher than Australia’s. I do think there is a good argument for either removing the exemptions from the GST for simplicity of administration or increasing the level to at least 15%. Or both. But accompanied by very stringent and contingent protections for lower-income people in the form of specifying transfers or lower-income tax credits.

And I think one of the things that we should consider is a mechanism that they use in the US, which results in a sort of negative taxation. So, if you fall below a certain income level, you don’t pay taxes, but you get a credit which is the same as a transfer but it tapers so that you don’t fall off the cliff when you get a job. I think this has been a really effective way of not discouraging people from getting work, but still ensuring that they get something.

If you made an increase in the GST contingent on those sorts of measures being carried out and you actually linked it in the same legislative package - because one of the dangers is that you increase the GST, you have a one-off compensatory payment to lower income people, and then, a future government, or the same government in, you know, greater budget difficulty a couple of years on, gets rid of the compensatory payments but keeps the high tax and so lower income people suffer.

I think there’s got to be a mechanism for actually linking those that says that, you know, the GST at a certain level will trigger these sorts of payments for lower income people and that will help to deal with the regressive nature of it.

Glenn
Yeah, it’s interesting that the example you were citing there in the US, where you get the credits even if you haven’t paid tax, reminded me that there was the other big elephant in the room that we haven’t talked about today and that’s the franking credits and the issues around that, part of which of course is legitimate – that company tax shouldn’t be paid twice, but, I still have a difficulty with the idea that people get refunds on tax they haven’t paid in the first place. And that is a big expense to the budget, the franking credits.

Janaline
I am 100% in agreement with that. I can definitely see a legitimate argument for franking credits to be deducted from your tax. I do see a legitimate argument for that. I do not see a legitimate argument for giving people cash because they had shares in a company that paid tax and they are not paying tax.

Glenn
But we’re pretty well close to time. I think we’ve given tax expenditure a pretty fair workout today, being the 22nd of April 2026, a couple of weeks before the budget. So it’ll be interesting to see how much advice, how much of our advice and, you know, points of view the government takes into account in framing the budget.

Glenn
That wraps up another episode of Why Can’t They Just. I’m Glenn Davidson.

Luke
I’m Luke Robertson.

Janaline
I’m Janaline Oh, and this is Why Can’t They Just?