How will we face this challenge? Will we keep the age pension down near the poverty line and continue to cut other government services in order to pay the rising total pension and healthcare costs as more and more baby boomers retire? Or will we take account of the shift in dependence we see in Figure 1, acknowledge the role that the baby boomers have played in the country’s economic prosperity over the last 50 years and provide them with a retirement income that allows them to live in dignity and with access to a few of the luxuries available to a modern developed country?
Australia is a low tax country by OECD standards. We can well afford to provide the baby boomers with a decent standard of living during their old age. But just how would we find the revenue? The possibility exists to use the end of the mining investment boom to finance the retirement of the baby boomers.
The distinction between mining investment and mining production is important here. It’s not the boom in mining itself which is slowing down; it’s the mining investment boom. Many more people are employed during the establishment of new mines than are employed running the mines once they are in production phase.
With the mining investment boom coming to an end, a mining production boom will follow. Most of the proceeds of the mining production phase will be exported as profits by largely foreign-owned mining companies or pocketed by the likes of Gina Rinehart and Andrew Forrest.
The Australian public owns the resources in the ground that the miners dig up and sell. When we talk about mining income, what we’re mostly referring to is asset sales, not real income. You don’t sell your car and call that money income. The mining companies add value to the resources by digging them up and putting them on a ship in an accessible form but they do not create the value of the resources themselves. Yet it is primarily the mining companies that benefit from high resource prices, rather than those who own the resources (Australian citizens). This is the very definition of economic rent; it is profit that the companies do nothing to earn which is in excess of industry expectations.
Australian citizens deserve a reasonable return for selling their assets to the mining companies and a well-designed resource rent tax would deliver that return. This revenue could be placed in a sovereign wealth fund, similar to Norway’s, the proceeds of which could assist with paying pensions or be used to maintain and improve public services such as education and health. The one-off sale of assets should be invested in the future in some way, rather than just be used to plug holes in the budget of the present day.
Of course, resource taxation is just one of the many possibilities for increasing tax revenue. The Henry Tax Review, completed in 2009, is full of very sound recommendations, 95% of which have been completely ignored by both Labor and the Coalition. Land taxes are another good option, as is a financial transaction tax. Even increasing the GST is a viable option assuming adequate compensation for low income earners is included as part of the package.
Tax reform is difficult. It takes leadership because there are always losers and losers shout louder than winners – who tend to slink away with their proceeds and quietly hope nobody notices. Is there a major party political leader on the horizon with the sort of courage, honesty and charisma necessary to convince us of the need for tax increases and to resist the inevitable, well-funded backlash? Not that I’ve seen. But for the sake of those baby boomers facing decades of retirement spent in poverty, I hope that one emerges soon.
Warwick is a research economist at the University of Melbourne.
This article was originally published at The Conversation. Read the original article.
