Jack Mintz: Affordability trumps productivity in Australian budget

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions Saved Articles My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomeFP CommentJack Mintz: Affordability trumps productivity in Australian budgetTax measures to help low-income people cope with higher prices are being financed by higher taxes on investment, which won't help growthLast updated 12 minutes ago You can save this article by registering for free here. Or sign-in if you have an account.Australian Prime Minister Anthony Albanese and Treasurer Jim Chalmers arrive at Parliament House on May 13 in Canberra, Australia. Photo by Hilary Wardhaugh/Getty Images filesFor finance ministers these days, affordability trumps productivity. Tuesday’s Australian budget is a perfect example Canadians need to pay attention to. Australia has a resource-based economy like ours and our two countries tend to learn from each other in framing economic and tax policies.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountUnlike the U.S., with its booming business investment climate, Canada, the EU and the U.K. face a dearth of non-residential investment. To boost productivity, we should cut the taxes that most discourage investment, work and risk-taking. Corporate taxes, capital gains taxes and high personal tax rates, including those arising from income-testing benefits, affect productivity most and should top the tax policy agenda.Affordability focuses on quite a different tax agenda: reducing taxes on the most vulnerable. Many voters facing tight budgets are demanding their governments help them deal with rising prices, especially for necessities like food, gasoline and housing.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againAs a result of the Iran war, many governments have introduced temporary fuel tax reductions. The effect on gas prices and productivity is modest but at least they provide some relief. As for housing, tax cuts focus on cheaper houses or new homebuyers even if they draw capital away from non-residential investment. Several governments are also providing personal tax relief for lower-income taxpayers, though likely with only minimal effects on work and saving.Australia is in many ways our southern hemisphere mirror image. Our two countries often seem to follow parallel courses. So it’s worth noting that this week’s Australian budget focuses on affordability, though it does add some virtue-signalling about productivity — since Australian productivity growth has slowed to just one per cent a year, which is at least better than Canada’s. To help with affordability, the budget combines cuts in personal taxes with tax increases on investors.The Labour government argues that people earning labour income pay more tax than investors with the same income. That’s actually not true, since investor taxes are systematically under-estimated. For instance, no account is given for taxes paid before companies’ profits are distributed, while capital gains taxes may involve taxation of purely inflationary gains. With profits taxes being ignored in these ways, it’s not surprising that investors seem to be taxed less than workers.On a lifetime basis, investors certainly pay more than consumers. Earnings that are consumed are taxed only once; saved earnings are taxed twice — when they’re earned but also when the income generated by saving them is taxed. Investors, including many workers who save for the future, are more heavily taxed than workers. The budget should have acknowledged all this. But what would you expect from a Labour government?The biggest tax hikes are on net capital gains, rental income, discretionary trusts and employer-provided benefits for electric cars. On capital gains tax, the cost base of assets will be indexed by inflation and net capital gains will now be fully taxed (instead of only partly, as in this country). Many governments have tried indexation but it encourages tax minimization: investors delay disposals when they expect their marginal tax rates to be lower and sell at a loss when they’re high. To try to curb tax avoidance, a minimum tax of 30 per cent will be imposed. This will be unfair to investors whose taxable capital gains are taxed at rates below 30 per cent (typically below AU$45,000).This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.The budget also contains tax measures to supposedly “boost home ownership.” But what are effectively increases in taxes on investors will be shifted — either forward in higher rental prices or backward as fewer homes become available for renting or owning.As for workers, because income-tax brackets aren’t indexed, they have been fleeced over the years by inflation. Instead, they get ad hoc adjustments such as the new Working Australians Tax Offset (AU$250 per year). They also get a cut in the lowest marginal personal income tax from 16 to 14 per cent, phased in over two years. The government argues these policies will encourage work and saving, though the impact is likely to be small. Their goal is to improve affordability, not productivity.The only significant productivity-related tax measure is a two-year carry-back for corporate tax losses, which may encourage risk-taking to some extent. But it would have been better to cut Australia’s 30 per cent tax rate on corporate income, fourth highest in the OECD. As for small businesses, capital expensing up to AU$20,000 is made permanent, though its impact on productivity will be marginal at best.Australia’s new tax proposals show that affordability can override productivity objectives: taxes are being cut for particular groups but not more broadly to encourage investment. Canada isn’t immune to these trends. At the federal level, the Carney government has cut only the lowest personal income tax rate. And it has tried to make housing more affordable by means of yet another GST exemption. As to whether these tax policies spur improvements in productivity, my guess is: not a chance.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.