Tax Reform – Buffett Rule

The Labor opposition is currently undertaking its tax policy development ahead of the next election. 

We are not yet at the stage where we can comment on specific proposals such as the Buffett Rule, however, we will have the equity of the tax system at the front of mind as we consider the policies that we will take to the next election.

At the recent ALP National Conference, the Shadow Minister for Infrastructure and Transport, the Hon Anthony Albanese MP, spoke in support of an amendment to the ALP Platform calling on a potential future Labor Government to ‘give consideration’ to the introduction of the Buffett Rule on tax.  This amendment was supported by delegates.

The so-called Buffett Rule came about when US investor Warren Buffett came to realise that although he was a billionaire he paid less tax than the secretary who looked after his diary. 

This proposal is the creation of a minimum tax rate levied on the total income of high-income earners.  If adopted, wealthy Australians would continue to spend fortunes on accountants.  But once they reached a certain rate - 35% is what was proposed in the United States - no further deductions could be claimed. 

The National Centre for Social and Economic Modelling has done research that showed that just for the top 1% of income earners, this could produce $2.5 billion revenue each and every year – dollars that could be spent on infrastructure, on schools, on hospitals.  They found that 75 wealthy Australians earning more than $1 million a year paid no tax.  Of those 75 (they had a combined pre-tax income of $195 million) their accountants managed to reduce their collective taxable incomes to just $82.  That’s $82 in total out of $195 million that was earned. 

That means that those working men and women who are PAYG tax earners are the people who are doing the heavy lifting by paying the burden of tax.   

We hear a lot from the Government about lifters and leaners but, unlike the Abbott Government, Labor believes that tax reform must be fair.  Already, we have announced policies to curtail the rapid growth in superannuation tax concessions at the top end and to reduce debt-shifting by multinational firms.  Together, these two policies will raise over $20 billion over the coming decade. 

By contrast, the Coalition has rejected the idea that superannuation tax concessions should be pared back, putting them at odds with virtually every economic commentator in Australia.  Their only tax idea is to cut federal funding to schools and hospitals, starving the states and territories into supporting a GST increase. 

The recent ALP conference accepted a motion to amend Labor’s Tax Reform Policy Platform to include: 

“Remove opportunities for tax avoidance by wealthy individuals, through consideration of measures including a rule (also known as the 'Warren Buffett Rule') which requires very high income earners to pay at least a minimum average rate of tax on their total income, thereby ensuring that these very high income earners cannot end up paying a lower average rate of tax than low and middle income earners”. 

While this is a complex and difficult policy area, you can be certain that Labor will always take a principled and considered approach when it comes to tax reform.