Tax scheme is a dangerous gamble with fate

The Morrison government’s tax changes are a line of least resistance, but there are big long term consequences.

Richard Boyle during his Four Corners interview. PHOTO ABC

It was a story made for our times, about the tax man literally seizing the money of unsuspecting people regardless of the impact on their lives.

You may recall the appearance of Richard Boyle, a suspended employee of the Australian Tax Office in Adelaide, on the ABC’s Four Corners last year.

He said that in June 2017 he and other staff were ordered to seize funds from the bank accounts of everyone assessed as being an ATO debtor, without exception. The action commonly requires the bank to continue sending money to the ATO whenever there is a new deposit into the account.

Last month counsel for Boyle, who wants the ATO’s conduct brought to account, told an Adelaide magistrate he would be pleading not guilty to 66 charges arising from his television revelations.

The story fits the old narrative that the money the ATO takes from our earnings actually belongs to us. Early this month the Morrison government gave it official recognition in the folksy subtitle of its latest tax bill, “Tax Relief so Working Australians Keep More of Their Money”.

That’s easy to say, but it’s claptrap. We can always object to the way money taken in tax is spent but that doesn’t make it ours, and dubious ATO practices aside, taxation is not theft. Public revenue belongs to the state.

If we expect to be taxed less we should expect less from government, but the notion of taxpayers’ money has led most Australians to believe that cutting taxes is always good and raising them always bad. Shared by politicians on both sides of the political divide, this mindset has made us one of the developed world’s lowest-taxing countries.

In 2018 the OECD put our tax-to-GDP ratio at 28.8 per cent, slightly above that of the US but well below the ratio in New Zealand, Canada and most of Europe, and little more than half that of some Scandinavian countries, where taxation is widely regarded as an investment in the public good.

Another Australian stand-out is the high proportion of income tax in our total tax revenue – over 40 per cent, nearly twice the OECD average – which means that lowering income tax has an unusually high impact on revenue. That may be why the ATO so zealously pursues revenue goals.

None of that may have seemed important to the government when it brought down this year’s budget with those tax sweeteners in early April, because the looming election looked like handing the budget burden to Labor. But an unexpected win leaves the ball in the Coalition’s court.

An additional stress on the government is its promise of budget surpluses from this financial year. I’m no financial whiz, but a lot of economists warn that after three straight quarters of weak growth and bad job numbers we need more public spending, not less, and the sooner the better.

Income tax cuts now taking effect for lower-and middle-income earners will help our faltering economy, but the legislation that allowed this year’s tax breaks also set up a tax time bomb primed to explode seven years from now.

Under the new act, much larger cuts for higher-income earners will take effect from July 2024. These have been officially estimated to cost the budget $95 billion over the six years to 2030.

Tight revenue goals have already led to excesses such as the behaviour of the Adelaide ATO branch. The added pressure of that legislated time bomb on future revenue collection can only be imagined.

Treasury, which used to take pride in giving frank and fearless advice to politicians often blinded by ideology, should have advised against the cuts. But years of stacking treasury ranks with compliant political appointees has left us without that vital counterbalance.

Further ahead the storm clouds only get darker. Today’s economic conundrums of stagnant wages, low consumption, stalled investment and surplus budgets will look like child’s play compared to the impact that climate change will have on public resources.

Signs are all around us that governments everywhere need to be preparing their systems and people for rising economic pressures from an increasingly disruptive climate. But to listen to the Coalition, no such signs exist, and if they do they can be managed with a bit of tweaking here and there.

Characterising the tax debate as class warfare or the politics of envy is missing the point. Those future income tax “reforms” will only exacerbate inequality. With nature turning on us the last thing we need is public wealth depleted for private gain, or open society replaced by gated communities.

The Morrison government could choose to accept the gravity of our situation and radically change course, which would lose it some skin and maybe even an election. But that would be far better than causing the whole country to crash in a mess of anger and confusion.

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Taking climate change seriously

In preparing Tasmania and its people for the transition to clean transport and industrial energy, the Hodgman government has a huge task on its hands.

Premier Will Hodgman, energy minister Guy Barnett, Prime Minister Scott Morrison and federal energy minister Angus Taylor at Cethana power station last February. PHOTO Simon Sturzaker, Advocate

In mid-2014, a few months after coming to power, the Hodgman government quietly abolished the Tasmanian Climate Action Council.

At the time it seemed odd. It was said to be a cost-saving measure, yet the TCAC’s annual budget, including the cost of flying its chairperson down from Sydney four times a year, was around $150,000 – about what it costs to employ and accommodate a single mid-level public servant.

Tony Abbott’s new government had done something similar eight months earlier when it abolished the Climate Commission, charged with improving public understanding.

But as an advisor to government the TCAC had a different remit. In-house and contracted scientific, legal, administrative and analytical expertise delivered comprehensive reports on Tasmania’s emissions profile, with cost-effective ways to reduce them and adapt to a changed climate.

Having isolated itself from professional advice, the government has struggled ever since to grasp why reducing emissions was so important then and why it’s so much more important now.

The TCAC’s former members determined to stay together, providing information and advice about how their state should address climate change. Six months later they formed a self-funded group, Climate Tasmania, with expertise in climate science, agriculture, economics and the law.

A year into its new life I was invited to join (needless to say, not as any kind of expert). We’ve had some ups and downs since – we’re currently having to find a new meeting venue – but we’re determined to keep plugging away in the hope that some are listening.

Looking around, we see little to be cheerful about. The Morrison government avoids discussing climate; when pressed it drags out pumped hydro, a multi-billion-dollar infrastructure scheme still very much on the drawing board. Its campaign rhetoric told us it doesn’t like electrified transport.

Here, the Hodgman government has always insisted that it takes climate change seriously, a position reiterated by newly-installed environment minister Peter Gutwein last week in response to a Climate Tasmania push for stronger state climate legislation.

He said the government was putting “up to $30 million” into “Battery of the Nation”, a scheme to use cheap off-peak power to pump water back up into dams so it can be reused to deliver “low cost, reliable clean energy” to Australia via a new Bass Strait power cable.

He told the Examiner that the government was also providing funds to set up a statewide electric vehicle charging network and to help local governments buy electric vehicles.

A vehicle charging network and pumped hydro have been in the public domain for a long time. Electric transport advocate Clive Attwater mapped out a $1 million charging network back in 2015, and I first reported on pumped hydro (a technology that’s over a century old) back in 2010.

Pumped hydro and a new undersea cable will make it easier to export our renewable energy, but greater wind and rooftop solar capacity gives our state system much more bang for the buck. For their part, electric vehicles are a no-brainer, considering Tasmania’s renewable energy capacity.

The government’s support for electric vehicles is tacit acknowledgment that burning fossil-fuel for transport – which involves $1 billion a year leaving the state to pay for the fuel – should be treated as an issue in its own right, not something to be offset by growing forests. That is most welcome.

Less welcome is the government’s continuing inability to grasp that climate change is not a peripheral environmental issue but a whole-of-society one demanding the attention of every state agency and every minister.

The government must acknowledge that like the rest of the country, Tasmania faces massive social and economic disruption if it doesn’t have a transition plan in place. It must ask itself how our state is to make the shift while ensuring that vulnerable people aren’t left behind.

It needs to start preparing, thinking hard about what is needed now and what will be needed over coming decades. And then, probably with federal help, it needs to secure necessary funding – something the state’s health crisis has shown is far from guaranteed.

This is the basis of Climate Tasmania’s proposals for a revised Climate Change (State Action) Act. The abolition of the TCAC robbed the 2008 Act of most of its value; Climate Tasmania believes this can be restored and augmented by redrafting the legislation to focus on a “just transition”.

Emissions targets remain important, and if we want to earn a reputation as a climate action leader (a title the government has already claimed) we should be setting ambitious targets, including interim targets and even annual ones. Ambition is not a crime.

But it’s crucial that the state’s climate measures win and retain widespread public support. That cannot happen unless the government shifts its focus to carefully and comprehensively managing the social and economic transition we now have to make.

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Do something about climate, says Big Money

An omen: big reinsurers are voting with their chequebooks

Floods in Nebraska last March, said to be at “historic” levels, may have begun to concentrate the mind of Warren Buffett, whose home town of Omaha is in the background. PHOTO Christopher Heady, Twitter @heady_chris

In the land of Big Money, Legal and General is about as Establishment as it gets. This venerable British institution, which began life in 1836 offering life assurance for London lawyers, is now among the top 10 global investors, and Europe’s second-biggest.

Last month, L&G’s investment management arm, LGIM, announced that it was dumping shares in five giant companies it has determined are not doing enough to address climate change: ExxonMobil, insurer Metlife, Hormel Foods (maker of Spam), US retailer Kroger and the Korean Electric Power Corporation.

They were added to a long list of companies L&G had previously judged to be laggards, including Subaru, Russian oil giant Rosneft, China Construction Bank and Japan Post Holdings.

In divesting $5 billion worth of shares, LGIM has publicly named and shamed the companies concerned, which it believes are failing to address what it calls the “climate emergency”, something it believes has potentially “drastic consequences” for markets, companies and clients’ assets.

Throughout its existence the core business of L&G has been life and general insurance, but in 2014, in a sign that the company was taking special note of climate change and the disruption it causes, it launched a reinsurance company.

Reinsurance is risk management, writ large. In covering insurance companies against claims that could otherwise bankrupt them, reinsurers identify major risks and put a price on them, and when disaster strikes they seek to spread the cost burden through mutualised global arrangements.

As an insurer L&G didn’t need much outside advice about large-scale risk: financial crashes, loss of life, limb and property, mining and transportation disasters and such like. But the leading reinsurance companies are the best guide to where most future risk lies. Follow the money, as the betting market would put it, and the biggest money is on climate change.

The world’s biggest reinsurer, Germany’s Munich Re, has been tracking climate change risk for more than 40 years, and has widely publicised its resolve to get authorities to act on climate change.

Munich Re has put a lot of effort into attribution of climate risk – identifying the extent to which any given weather event is made more likely by climate change – with the aim of getting governments to implement long-term adaptation measures.

Swiss Re, number two in the global pecking order, is equally concerned about climate risk, warning that its “risk landscape” is already shaken up by the effects of climate change – higher temperature, rising sea level, melting ice, more heatwaves and erratic rainfall patterns.

Two other big players, London-based Lloyd’s and the French company SCOR SE, which is underwriting major renewable energy developments, expect climate losses to continue to grow. Lloyd’s has identified tropical windstorms and flooding as the biggest global reinsurance risks.

One company among the top global reinsurers takes a different view. This is Warren Buffett’s giant US conglomerate Berkshire Hathaway, whose 70-odd reinsurance companies add up to the third biggest reinsurance enterprise in the world, behind only Munich Re and Swiss Re.

The flexibility afforded by Berkshire Hathaway’s huge array of business activities – financial and insurance, food, drink, furniture, clothing and jewellery manufacturing, retail, railways, airlines, home appliances, newspapers and energy, among others – offers a shield of sorts in the event of massive reinsurance losses.

Buffett, known as one of the world’s shrewdest investors, felt confident enough to write in one of his company newsletters that “the chance of any event causing Berkshire to experience financial problems is essentially zero. We will always be prepared for the thousand-year flood; in fact, if it occurs we will be selling life jackets to the unprepared.”

Buffett accepts that “we have one planet, and we ought to pay a lot of attention to what’s going on.” He told physicist James Hansen at a 2016 shareholders’ meeting that “climate change is an incredibly important subject”.

But he added that it would not hurt his insurance business and was immaterial compared to other influences. He has said that financial crashes like that in 2008 are a much bigger threat than climate.

His European counterparts beg to differ. Having invested time and capital to understand risks attached to high carbon emissions, they fear the potential for cascading climate events, piled one on top of another, to put unprecedented pressure on economic, legal and administrative systems.

Devastating Texas floods and California wildfires in recent years, and the record-breaking rain and flooding in and around Buffett’s home state of Nebraska last March, were big financial blows to his company. The 88-year-old may yet be persuaded to reconsider his position.

Eventually Berkshire Hathaway will join the rest of the big reinsurers. As the irresistible climate freight train makes its presence felt everywhere, money for new fossil fuel enterprises, including coal mining and power generation, is going the way of Darling River water.

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