Turnbull’s taxation tantrum a gift to the nation

Illustration by Rachael Bolton

Something incredible has happened.

Malcolm Turnbull might be the first Prime Minister in history to pick a fight with the public broadcaster and accidentally open the door to a national debate about taxation.

That’s quite a legacy to leave behind.

In case you missed it, last week, the ABC deleted a story on the government’s proposed corporate tax plan by economics correspondent Emma Alberici after the Prime Minister, communications minister, Mitch Fifield and Treasurer Scott Morrison wrote a snarky letter of complaint.

In it, they claimed the article contained “multiple factual errors and misrepresentations,” was neither fair, balanced, accurate nor impartial” and displayed a “lack of understanding about the tax system.”

The ABC argues the editorial policies distinguish between analysis and opinion, and that journalists are restricted from publishing or broadcasting opinion except under limited circumstances.

Personally this all feels like splitting hairs and is kind of besides the point, which in my opinion too many of us seem to be missing: Turnbull just opened the door to have a big, sexy, conversation about taxation. And he’s going to regret that he did.

Turnbull just made taxation sexy


Are you sure about that?

In order to defend themselves against this claim, the ABC had to either demonstrate they knew more about the tax system than the Prime Minister, or conform to his understanding of it, and remove the story. But complying with the Prime Minister not only wrongly implies there is only one way to skin a cat, it defies the position of his own Treasury, the ABS, and even the governor of the Reserve Bank, Philip Lowe who, in an appearance before the House Economics committee, described Trump’s company tax cuts as “very problematic” and said “animal spirits could turn the wrong way” if funded incorrectly.

Not to mention some of the world’s leading conservative think tanks, including the UK’s Institute of Economic Affairs, which in a September 2016 paper titled “Why corporation tax should be scrapped”, argues that company tax is an inefficient way to raise government revenue, negatively impacts growth, investment and entrepreneurship.

“A 2014 review of the literature found that 57.6 per cent of the amount raised by corporation tax is borne by workers,” wrote economist financial services research fellow, Diego Zulauaga.

“The only radical reform that would improve on the status quo without introducing new distortions would be to replace corporation tax with a tax on the income distributed to shareholders. Such a system would overcome the weaknesses of the current system, while also reducing incentives for avoidance, and raising revenue in a growth-friendly way.”

If the IEA is not conservative enough for Turnbull or the ABC, they really have gone bananas.

How can we do our taxes correctly if we don’t properly understand how it works?


The case for cutting company tax altogether

Economist Dr Steven Hail, lecturer at the University of South Australia says Alberici lacks an understanding about the tax system, but not in the way Turnbull imagines.

“She has no idea about the real purpose of taxation,” he told Hello Humans. “She thinks it pays for things. She doesn’t realise, at a federal level, it just creates a demand for the currency and keeps inflation down,” he said.

“Government spending puts government money into the private sector: taxation takes some of that money out of circulation again. It doesn’t pay for public services. Those services are paid for when politicians authorise spending new money on them.

“Malcolm Turnbull claims Emma Alberici does not understand the tax system. He is right. The trouble is, he doesn’t understand the tax system either.

“So we have one person who doesn’t understand the tax system welcoming the ABC censoring another person who doesn’t understand the tax system.”

Both he, and the late American economist, Professor Hyman Minsky of Washington University in St. Louis, and distinguished scholar at the Levy Economics Institute of Bard College concur with the argument for abolishing company tax, in favour of treating profits as part of the earned income of shareholders, whether distributed as profits or not.

As long ago as 1986, he wrote that ‘the elimination of corporate income tax should be on the agenda’.

“I have sympathy for that view,” says Dr Hail. “If people want to go and live abroad to avoid taxation, I am happy to wave them good-bye, and don’t hurry back. Otherwise, it would remove the current absurdity of profits being shifted to low tax jurisdictions via transfer pricing and various other accounting fiddles. It is not as though those big companies pay much of it in the first place, as Alberici rightly pointed out.”

Economics is an art, not a science

The ABC argues that Alberici’s analysis and news piece contravened the terms of its editorial standards which you can read in full here.

But unfortunately this view conforms to the idea that it is even possible to report objectively on issues of the economy, because economics is an art, not a science.

“Recognising that the boundaries of the market are ambiguous and cannot be determined in an objective way lets us realise that economics is not a science like physics or chemistry, but a political exercise,” writes Ha Joon Chang, institutional economist at Cambridge University in his book “23 Things They Don’t Tell You About Capitalism”.

“Free-market economists may want you to believe that the correct boundaries of the market can be scientifically determined, but this is incorrect. If the boundaries of what you are studying cannot be scientifically determined, what you are doing is not a science.”

I happen to disagree with Alberici on some things, including her concern for the deficit which ignores the simple fact that a government that issues its own currency cannot run out of money, making the idea that a budget is something that can be bankrupted a falsehood. And that the dollar value we give to it over emphasises concern for how much is being spent, instead of focusing on what it is being spent on, and how the funds are spent into the economy in the first place. The ABC even published a piece I wrote on this very topic and lo-and-behold, it’s still online. (Queue angry phone-call from the Treasurer). Read it while you can, you guys. And then save it to the Way Way Back Machine.

Regardless, I will defend to the death Alberici’s right to write or broadcast about it. This is a conversation that desperately needs to be had, one which evaluates diverse perspectives. Because there is more than one way for capitalism to exist. And the idea that Turnbull’s view is indisputable and alone in its singular correctness is false. The views of his own conservative constituents prove as much.

This incident is manna from heaven. I cannot think of a more hilarious and Turnbullian paradox.

The Prime Minister is declaring a turf war on taxation that he cannot possibly win. And now the country gets to have a giant conversation about tax that he started.

Turnbull claims to know more about taxation than anyone. Now he has to prove it.

That there is consensus between conservative and progressive economists on the benefits of abolishing company tax demonstrates the need to re-evaluate what we think we know about taxation. At the very least, other options are surely worthy of further investigation.

He may have won the first battle, but in his arrogance, he might yet leave behind an astonishing legacy:

Despite himself, Malcolm Turnbull might be the first Prime Minister in history to educate people about how tax really works, what it is for, and how it could and should work in the future.

In his haste, Malcolm might yet have immunised the country against politicians turning bullshit on taxation.

This is the econ 101 lesson the country needs to have. And I couldn’t be more pleased.

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