Tax & welfare policy (v2.0)

Policy
49

It looks like a pretty good policy, and there’s a lot to like about it. Having said that there are some questionable features.

The basic income special case “top ups” seem to me to defeat some of the purpose of moving to a basic income in the first place. Surely it would be preferable to merely increase the basic income amount. If you must include top ups for some reason, it would be very wise to do this only where easily feasible.

Aged and disabled persons, veterans, and full-time carers should
receive an increase in the basic income to match existing pension
levels.

This line for example seems pretty terrible considering how variable existing pension payments are and how much goes into deciding how much they are. Essentially it seems to suggest that aged pension, disability support pension etc. will be abolished in name only. Something like a permanent 10% extra basic income or something upon reaching the pension age or becoming permanently and totally disabled would be much easier to manage if special case increases in basic income must be considered. I’m not advocating that precise proposal, just pointing out that it’s possible to come up with something better.

Volunteers engaged in at least 15 hours of volunteer or community work
per week should receive an additional $2,000 annually to cover incurred
costs.

Testing this sounds administratively costly. Part of the appeal of basic income is how efficient it is to administer, and this component actively works against this. It also sounds very open to abuse. I understand that we want to incentivise volunteering in some way, however we should search for better means of achieving this.

In general, I would have thought that special case top ups are just not a good idea, as they ruin much of what makes basic income proposals appealing. I would like to hear reasoning for why this might not be the case.

The land tax proposal is very opaque, non-specific and difficult to evaluate. Like with basic income, I think providing examples and more reasoning for its benefits would be a very good idea.

Land tax bills would be debited from basic income payments, with an
option for taxpayers to defer all land tax until sale of the land to
protect the income-poor.

Basic income is to be part of the income tax system. If you want to tax land, there doesn’t seem to be any good reason for linking it to basic income - why not just tax the damn land and avoid complications? Land owned by businesses and other similar entities are also obviously not applicable to the basic income stuff. I would say this section in particular needs revision.

Abolish the private health insurance rebate, medicare levy and deficit
levy, and replace with a single health services levy of 3% on incomes
over $80,000.
This levy will be deducted with income tax, and waived for holders of private health insurance.

I don’t like this. Just increase the income tax, hypothecated taxes are dumb. At the very least, the wording could be improved to make more clear that it will work like a marginal tax rate, where it’s an extra 3% of every dollar earned above $80000 as opposed to once you reach $80000 of income you start paying an extra 3% tax on your total income. (perhaps this could be achieved by changing “3% on incomes over $80,000” to “3% of income over $80,000”)

There are other things that jump out to me as being questionable, but I would struggle to mount detailed criticism. Overall though, it’s a nice policy with lots of clear improvements over what Australia currently has in place. Much of it is what people would describe as being completely politically unfeasible, but if I cared overly about that I wouldn’t have joined a minor party.

50

Good feedback. thanks. Some of your views (especially on land tax) are actually reflected in the upcoming revision of the policy - see here.

On the simplicity argument - I agree with you that simplicity would be ideal, but the maths can’t be made to work. If we have a universal basic income with no top-ups, and we set it to a newstart-ish level, we hose carers, pensioners and the disabled. Not practical. If we lift the basic income as a whole to a pension-ish level and make it universal, it will blow the top off the cost (we’re talking an extra $70-$100 billion each year).

A basic income with conditional top-ups is not perfectly simple, but it does preserve most of the benefits while keeping the whole thing cost-controlled (especially once you account for the removal of bureaucracy). From where it sits now, we could make the whole policy cost-neutral if we wanted. One way would be to make the pension module contingent on an assets test, with the home counted as an asset. That would ensure pension top-ups only went where they were needed and it would stop taxpayers from subsidising inheritance. The policy doesn’t specifically call for this, but if we later wanted it to be cost neutral, there’s paths to get there from where we are.

The figures won’t add up without some layering. On reflection though, I probably agree with you that the volunteer levy isn’t one we have to keep- it’s not needed for the maths to work and may not pass muster in terms of costs and benefits. I’ve removed it from the update proposal but would like to see some future policy addressing volunteerism in some other way.

51

“all tax benefits applied to fund-shifting within corporate groups.”

IMO things like this, cracking down on corporate loopholes should be the priority. If companies can pick and choose which laws they are subject to then its a race to the bottom, which makes me nervous about things like;

“Encourage states to apply different models to produce optimal builds and encourage tax competition.”

But im not knowledgeable enough about it to articulate my concerns, i guess it takes a lot of research to see the flaws. Its all probably been tried somewhere before.

52

Good feedback. thanks. Some of your views (especially on land tax) are
actually reflected in the upcoming revision of the policy - see here.

Wish I saw this earlier.

Can I see which specific figures you’re working off of to cost the income tax policy?

A basic income with conditional top-ups is not perfectly simple, but it
does preserve most of the benefits while keeping the whole thing
cost-controlled (especially once you account for the removal of
bureaucracy).

In order to have conditional top ups to various parties up to existing levels (which are variable and complex), surely most of bureaucracy would have to be retained. This all seems to me a bit like wanting to have your cake but eat it too. Basic income is administratively cheap because it doesn’t have to worry about speding money on testing and targeting, so surely a basic income that tests and targets is not administratively cheap? I suppose I need to see how it has been costed.

Also, what happened to the consumption tax stuff?

Availability of basic income will extend to persons aged 18 and over, following graduation from school.

How are non-graduates treated under this policy?

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53

Yeah, that version is a raw, unapproved draft. It could change significantly before it goes to a vote.

Our calculations are based on table 9 from the tax office detailed statistics page. If you want to see the calcs that sit on top of the data PM me an email address and I’ll send you the lot.

Nearly all the bureaucracy is gone here. About 15 tax thresholds and offsets are cleared out. The basic income wholly replaces the mishmash of unemployment benefits and student payments. As for the pension, its not all that variable and complex. It’s the “total” line listed here. We’d just have it as a single payment without separated parts like the energy supplement.

The intent with specifying graduates is to avoid starting to pay people who are halfway through year 12. That would probably have bad outcomes in terms of education. If you leave at year 10 you’ll still have graduated, but no basic income until 18.

Oh and consumption tax isn’t in this draft. Two years ago it was a striking thing to be proposing, but the mainstream debate has overtaken it, and I can’t see anyone caring much now. Also, we had feedback that people wanted a bit more progressivity in the policy. Tilting the balance towards the land tax accommodates that and creates space in the policy for the land tax idea to be better explored.

54

Citation needed. If dropping out of Year 11 and 12 makes it that you would be eligible, you are making it more enticing to just drop out—the opposite of your argument. Just set the eligibility age to 16 (Year 10 graduation age) otherwise you’re just begging for more bureaucracy, I’m sure.

55

Is there a “terms of reference” for the tax policy ?

Is there a demographic that the pirate party is targeting ?

As a general principle i think its good to give details on areas that we can “sell” to the target audience, and in other areas just define “principles” to we would work towards.

56

Hello. Regarding the land tax:

@MarkG

If people have to pay for land in its natural state the imperative will be to develop it to make the money back. It would amount to yet another incentive to demolish urban green-space and pristine land.

In Melbourne, land within the Urban Growth Boundary that is planned for development is inevitably going to be developed. Any land planned for open space or conservation will be set aside for that purpose. Nobody gains from fenced-off empty land anyway, except for land bankers. You are only reducing housing affordability.

Also this policy appears to be regressive, as it mainly impacts cheaper areas and people who cannot afford to live closer in.

On the new policy page:

A land tax averaging 1.5 per cent will not unduly penalise land owners (who are seeing land value grow by over 6 per cent annually).

Not everyone is seeing these gains. Maybe in the ‘good’ middle suburbs like Ashburton, and in the inner city.

In the existing policy:

The tax will apply at differential levels based on per-meter land value

I noticed that this is not in the new tax policy page. Actually I thought that was a good policy, at least compared to a flat tax. It is progressive, and it encourages better use of high value land.

57

Regarding the topup taper-out, has anyone defined a formula for that yet? The only thing stated is that the taper should be complete by the $100K income mark; sure, but where does the taper start?.

I’m also of the opinion that the topup taper rate should be much lower than the base tax rate, as the effective marginal tax rate for those in the taper zone is the sum of those two rates.

For these reasons, I think it would be better to give a start threshold (presumably that same $40K earned-income mark) and a low, fixed, known-sane taper rate. For someone with three kids (about $15K in payments), that’s almost a 60% combined marginal tax rate above $40K E.I., for those payments to taper out by $100K E.I.
If we instead set the taper rate to 15% (for 50% total) tapering would be done by about $125K E.I.

58

MarkG is correct; it is not “negative gearing” which is the problem. Business lose money all the time on different projects (risk vs reward) - not just on property; stopping them claiming a reduction in net income (hence a reduction in tax) from the areas they lose money on is a terrible idea.

The problem, as correctly identified, is the differential tax rates on capital gains vs income.

If an investor makes a loss on one property of $10,000 a year, due to high leverage (high interest payments), and is in the top marginal rate they save $4,500 in tax per year.

When they sell the property five years later, because of their high leverage they may make an extra +$50,000 profit (than they otherwise would have).

The problem is, instead of paying $22,500 in tax (which would net off the savings they made on income and end up with no net tax benefit), they get a 50% discount on capital gains, and only have to pay $11,250 in tax. That is where the rort is, not in the fact that they can deduct losses (negative gearing), but because of the tax discount on capital gains.

All the “cost” you see of negative gearing is just shifting the tax burden to sale time; they pay catch up tax with the increased profit on sale – the problem is they only pay half the catch up.

Scrap the CGT discount; don’t worry about claiming losses.

59

There is no need for a taper at all for children (and possibly the other items as well); just think of the $6,000 for a child as equivalent to an additional 16,000 tax-free threshold for a third person in the family (rather than the 37,500 threshold if they were an adult).

Or better yet, just make the basic income available to all citizens from birth.

Our current system pays a lot for pre-school age children, particularly for sole parents (which would help allowing them to work), but then drops off once they get to school age. Once they have left school they can get full unemployment benefits.

If during school age you replace part of the basic income with a school voucher (and possibly some of the child care subsidies), it would lead to a consistent comprehensive system.

e.g.

  • Ages 0-5, child gets full basic income (14,000 per child)
  • Ages 5-16/18, while at school, can get half basic income (7.000 per child) – or half tax free threshold if earning – plus an education voucher for 10,000 (about what it costs per student at the moment); this could even continue into university, supplemented by student loans.
  • After leaving education, it reverts to the full tax-free threshold

This means that a family of three adults living together with a combined income of 150,000 pays the same tax (14,000), as a family of two adults plus one young child. For a family of two adults plus a school age child, they pay 21,000 tax but get a 10,000 education voucher.

For the worst off in society, the extra 6,000 (or 7,000 or 14,000) per child makes a big difference; even for those in the middle the extra money makes sense, especially if basic income is something for all citizens, regardless of age.

For those at the top, children are citizens too so no need to suddenly stop giving them an income because they are young or their parents are rich; the same as the basic income, while the first thought may be why pay basic income to a billionaire, the real answer is they more than pay it back through their other taxes.

60

That raises an interesting philosophical question. Are child benefits:

  1. an entitlement – a fixed universal reward for parents to compensate them for their efforts in bringing up future citizens?

  2. a safety net – a targeted investment to stop childhood poverty in light of its awful long-term effects on income, social mobility, criminality, etc?

The policy presumes option 2, though the underlying basic income guarantee softens it a bit by helping parents (on all incomes) spend more time with their kids after birth.

Cost is part of it too. Under option 2 the overall basic income policy costs about the same as the current welfare system. Option 1 blows the top off cost-wise; +$10 bil at least. Pricey.

61

I believe this is an excellent idea. Could not agree anymore!

62

What is the current (if any) allowance for children in the Negative Income? Think a 10% tax rate for every citizen under 18 would be generous.

Top up for pensions? Would rather raise the threshold or tax % for everybody. Pensions could technically take a hit as lower tax rates should allow people to save more for their retirement.

Disability top up? Who means tests this? Again like above would rather slightly increase the BI and not have any means testing or top ups at all.

63

From the ‘special cases’ section here:

  • ‘Top up’ the basic income in special cases:
    • An additional $6,000 in child support to primary caregivers, with
      additional per-child payments reduced by 25% for each subsequent child.
    • A top-up to match existing pension levels for aged and disabled persons, veterans, and carers.
    • A top-up to match existing rent assistance for low income earners lacking public housing.
    • Taper out all ‘top-ups’ as income rises, with top-ups removed once income reaches $100,000.
64

The chart and table are inconsistent because the chart is showing effective marginal tax rates whereas the table is some kind of effective average tax rate.

The EMTR chart is also wrong for Newstart as it misses out the income test free area.

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65

I was going to include an EMTR chart for Newstart allowance but couldn’t seem to get one to ‘take’. So, here’s a link to one showing the current NSA EMTR, PTR and NETR: http://ravebydave.blogspot.com.au/2016/04/emtr-and-related-charts.html

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66

Flipping back to the tax side of things, this Conversation article makes some interesting points.

The core thing appears to be that lower corporate tax rates increase the relative competitiveness of [partially]-foreign-owned corporations.

A commenter asserts that the corporate tax rate might as well be the (top) marginal personal tax rate.

67

I like the concept I’m just a bit unsure if we set the amount of basic income too high. You want safeguards to prevent the basic income from going towards crime, addiction problems, or reckless spending on non-necessities while neglecting basic needs (plasma tv debacle all over again) and also to prevent encouraging those who are able to live frugally off that amount from not working at all.

We are not at that stage of automation yet or in the foreseeable future (ie 20 years) to do away with menial jobs.

It is important as a society that as many have jobs as possible.

Only excuse not to work if under retirement age and still collect government benefits is to literally be unable to work out reduced ability to work (eg: DSP). A bit of money towards luxuries (not cash unless assessed as fair) can be afforded there for those people.

I think that basic income should be provided as an electronic benefits card with strict control of what’s allowed to be purchased with it all it is only enough to cover a basic amount of necessities (rent of a small place in a modest area, nutritional food, utilities with reasonable usage).

It should be by design that it is only enough to get by with no frills everything. Some benefits should be able to be put into pools eg: a little bit of money (eg: $5/week, cumulative) can be put towards some very basic luxury items like chocolates bars, or big screen TVs.

The idea should be that it is that it’s not enough to everything you want, if you want more it needs to be worked for.

Basic income should also apply to children, so parents get a dedicated budget to help provide necessities for their kids and to eat 3 healthy meals a day, rather then coming from their income (eg: don’t give the parent more income to cover the child’s, give the child their own). This would also really help in child support cases so that child support payments are not being placed directly in the hands of a parent, the benefits are in the child’s name.

All businesses and landlords should be able to easy jump on board in providing electronic benefits as a payment options, with strict regulation fit accepting necessity payments so they stick to the rules

1 Like
68

Hi Simon,

Thanks for commenting on our policy.

Reading through your comment, the central premise seems to be that you have concerns about the way that people will spend money if it’s given to them. I understand that such a position is regularly touted in popular media and has a kind of gut level appeal, like “why should my taxes be given to someone that will just waste it”.

The problem is, that such sentiments, are just that. Sentiments. They pay no attention to the structural, systemic realities of poverty, joblessness, technological skills churn, incentive, dignity, privacy, administration costs and just the plain old human condition (some people have shitty lives)

I think there are numerous serious problems with that stance:

  1. It’s authoritarian. Pirates value liberty and culture.

  2. It fundamentally conflicts with human dignity. Putting people in a position where their poverty must be “worn on their sleeves” creates a cultural poverty trap. It stigmatises them and creates class boundaries. This is very non-pirate.
    The goal is elimination of social security as poverty trap, not to entrench that.

  3. Experiments in the actual use of of Basic Income have been done, and the results do not show increase bludging. Instead, people do things like studying to improve themselves, improved child care, waiting for the good job that suits them instead of the dead-end job, reductions in health care costs due to things like reduced depression etc.
    I recommend you go and read some of the linked references from the policy, starting with http://www.dominionpaper.ca/articles/4100, where a 4 year Canadian Basic Income experiment was run, then read https://decorrespondent.nl/541/why-we-should-give-free-money-to-everyone/31639050894-e44e2c00, showing the effect of free money on homeless people.
    It all relates back to points 1 and 2. People most fundamentally, do not want to be seen as useless leeches on society. They want to be proud of their lives and to be seen in a positive light.

  4. Administrative burden. One of the most fundamental premises of our Tax Policy, is the need to reduce administration and the massive associated costs.
    From the policy: "Administrative costs for tax and welfare run to over $5 billion annually, and over $80 billion is “churned” (collected as tax and then returned to the same taxpayers as welfare) each year. "
    Consider that that $5 Billion of administrative costs doesn’t produce anything of actual human value, not to mention the opportunity costs. i.e. That $5 billion could be spent doing things that actually benefit our society as a whole, like medical research or education or … pick any number of good things.

  5. Privacy: The idea of the government tracking and controlling every intimate detail of expenses of our most impoverished citizens is a gross violation of privacy and totally contrary to Pirate Party values. We believe in privacy as an innate human need. Without it, we are like slaves, looking over our shoulders in case the overlords are watching.

  6. Bludgers are gunna bludge regardless of what you do. There will always be a small portion of the population, that due to their current life condition, are just not going to be positive contributors to society. At least, not at that time.
    Think “horses and water”. You can try to force it to drink, but you’re mostly just going to piss the horse off.
    This is what work for the dole, and forcing people to do job applications achieves. It wastes every ones time, including the would-be employers who don’t want people who don’t want to work.

  7. Incentive to work: This has to be considered from a subjective perspective, because that’s what every individual involved will do. If getting a job at basic wage rates means I immediately lose my social security and associated benefits and also means that I now incur the costs of holding down a job (transport, feeding myself away from home), then its likely that I will actually be worse off. Why would I do that?
    An essential criteria for social security is to ensure that there is a smooth wealth gradient such that the transition from poverty to wealth is incremental. Every dollar earned should be a step up.
    The current system is not like that. Basic income is totally like that.

Simon, I hope that cover it for you.

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