Here and there – How taxing it is

Part II

[This is the second part of a piece on the current debate on refunding tax credits.]

Secondly, the relevant law has been in place since 2000.  Very many people have conducted their affairs on the footing of that law.  As I said, this law is no mere wheeze.  I should here disclose that you are now talking to a paradigm case of a target of the proposed change.  My superfund is invested entirely in public companies that issue fully franked dividends.  No other course even comes close for my purposes – I see cash as pure waste.  I believe that my fund will support me, but if the income of the fund is reduced by 30 per cent as a result of this proposal, I will have to look seriously at the alternatives.

There is a well-established principle of our general law that if one party to an arrangement makes a representation that the other party relies on to their detriment, then the law will restrain the party making the representation from resiling from it.  Although I am prejudiced, that law seems to me to meet my case – and doubtless that of many thousands of others who have arranged their affairs in good faith in reliance upon the good faith of government.

We cannot preclude parliament from changing the law, but we can seek to hold politicians to their promises.  When the present government sought to legislate against retired fundholders about two years ago, I was struck by the vehemence of the opposition that came from members of the government’s own party.  Lawyers I respect said that the proposed legislation was retrospective.  I have some difficulty with that as a matter of law – but I have far less difficulty in envisioning some people feeling betrayed.  People were expressly invited to conduct their affairs on the ground chosen by government and now, in the middle of the game so to speak, the government wants to change the rules.  That is not fair – and as between parties subject to the general law, it would not be allowed.

Thirdly, the relevant law is horribly complex and looked at by most people, including most lawyers, with a blend of disgust and horror.  Whatever else may be said about the proposal, it will not ‘reform’ the law in the sense of making it better or clearer.  It will add another complication and inducement to people to get advice on how to beat it.  Those who clip the ticket – there are far too many of them – will be thrilled to bits.  The suspicion of government, and the system, will get worse – particularly if the proponents say that they are targeting the wealthy, or, worse, those who don’t vote for them anyway.  (That way lies the vice of Donald Trump.)  No one wants to see superannuation, something this country has done well, as what Alan Kohler calls ‘an object of political contest’ – or, put bluntly, a till to be tickled.  People who have worked hard and paid their taxes, and then followed the government’s advice and request to look after their own retirement, so relieving ongoing taxpayers, will justifiably resent and react to a government that seeks to go back on its word.  It’s no comfort to be told that a different party is in government – that’s like a company saying it can walk away from a contract because there is a new board of management.

My conclusion – which I agree is biased – is that although the proposal is justifiable on the theory of the original reform, it is at best unfortunate that its burden falls on the those who currently receive less income, and it is downright wrong unless the government moves to exempt or protect those who for about a generation have planned their retirement on the footing that the government of the Commonwealth of Australia can be trusted to keep its word.

We do, after all, have a long history of suspicion about tax and our parliaments.  In the book referred to I said:

In 1799, England was at war with revolutionary France.  France was then led by Napoleon Bonaparte, a man of military genius and unlimited ambition – and on the first count alone, he was a much more dangerous threat to England than Adolf Hitler would be.  The war was ruinously expensive.  How was the British government to fund it? 

William Pitt had become Prime Minister at the age of twenty four.  He was a leader of great authority, but the English parliament had been feisty about tax from its inception.  The national touchiness on revenue goes back at least as far as Magna Carta of 1215.  The American colonists had revolted over taxation – in the form of the Stamps Act – less than a quarter of a century ago.  (Ironically, France went bankrupt helping the Americans against their old enemy England and this bankruptcy had led to the Revolution and to the ascension of Bonaparte.  This could be the ultimate historical example of the cost of living beyond your means.)

Then the Prime Minister made a shocking proposal that was understandably denounced as ‘inquisitorial’.  He proposed a tax on incomes!  In the name of heaven, was no property to be sacred?  Well, it was just an emergency war-time measure.  It had to be – it was assessed at the demonic and confiscatory rate of two shillings (now, ten pence) in the pound (10%)! 

England went on to win the war – but not until Waterloo in 1815.  (Had England not won, we might be having this conversation in French.)  And some historians think that the victory of England owed more to revenue than naval or military successes.  But income tax reappeared, and has stayed, and it will be with us forever.  The only real change is that the law is more than ten times as long.  And it all started with an interim, emergency wartime measure.

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