Independent tax commission won’t work in practice

This week in The Drum, former Liberal leader John Hewson called for an independent tax commission to break the political deadlock over the budget. He argues that that tax commission would provide 'fiercely independent advice' on tax reform to the government, along a similar model to the Reserve Bank.

Let's leave to one side the obvious retort that you don't need a tax commission to cut taxes, only to take the heat for what taxes are going up; there is another problem.

There are two reasons why the independence of the RBA is largely unchallenged. First, the RBA has overseen a long period of fairly stable inflation and economic growth. Secondly, there is a broad political consensus on the role and purpose of monetary policy.

There is no similar consensus on tax policy.

The hoary old chestnut of taxation is that you are plucking the goose to get the most feathers for the least hissing. However, especially for the progressive left, the issue is no longer about minimising the pain of taxation but making sure that the pain comes from the right 'goose'.

For example, the current bugbear with superannuation is not the still growing cost of the pension; it's that the tax concessions mostly go the rich. Another telling point is that while Australia's company tax rate is higher than the OECD average and Australia is too reliant on personal income tax, all the discussion around the budget is how it is unfair on low income earners.

Many on the left seem to be coming to the view that taxation is primarily a tool for combating inequality; not just funding government services but reducing the incomes of the so-called '1%'. The government spends $400bn a year, yet the call is to look for more revenue, not whether government is doing things it shouldn't be.

In practice weighing the inefficiencies of taxation against the benefits of government spending involves social and political judgements, not just economics. Unfortunately, as evidenced by the completely opposite positions taken in the current budget mess, the gulf between the major parties on the role of the state is probably as broad as any time since Whitlam.

In that environment it's hard to see how a tax commission could actually be 'independent'. Instead the tax commission would get stacked with political appointments and any 'difficult' reforms ideologically favoured by the government will just be pushed onto the unelected commission.

At best, an independent tax commission would paper over the cracks of an increasingly partisan and dysfunctional political environment. At worst, it would remove what little control the voters have over a key element of economic policy.

Simon Cowan is a Research Fellow at The Centre for Independent Studies.