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In response to the Intergenerational Report's forecast of rising spending on essential services and social safety nets, the Australian Council of Social Service (ACOSS) recently proposed a series of tax reforms. While the intentions are noble, the framing of these reforms reflects a conventional understanding of government finances. As someone informed by Modern Monetary Theory (MMT), I'd like to offer a different perspective.
Understanding Modern Monetary Theory
Before delving into the specifics, let's clarify what MMT is. MMT challenges the conventional notion that a government that controls its own currency needs to raise revenue through taxation to fund public services. Instead, it posits that such a government can create more of its own currency to fund these services.
However, this does not negate the role of taxation. Taxation serves important functions like redistributing wealth, reducing inequality, discouraging certain types of economic activities, and maintaining the value of money by controlling inflation.
Re-evaluating ACOSS's Proposals
Let's now look at ACOSS's proposals through an MMT lens:
15% levy on post-retirement superannuation earnings: From an MMT viewpoint, this wouldn't "help fund" aged care services. Instead, it could reduce wealth inequality by taxing the financial gains of wealthier retired individuals.
10% Commonwealth royalty on offshore gas resources and reform of fuel tax credits: According to MMT, this wouldn't directly "fund" the energy transition. However, it could encourage cleaner energy sources by making fossil fuels more expensive.
Reform of negative gearing and capital gains tax discount: This wouldn't directly "invest" in housing, as ACOSS suggests. However, it could help reduce wealth inequality and moderate housing price inflation.
Prevention of Medicare Levy avoidance and extension of the surcharge: This wouldn't directly "fund" healthcare. Instead, it could improve equity in the healthcare system and discourage the overuse of services.
Abolition of Stage Three Tax Cuts: This wouldn't directly "fund" poverty reduction measures but could and would reduce income and wealth inequality.
In MMT, taxes aren't viewed as a means to "fund" government spending. Instead, they're a tool for achieving social and economic goals. So while ACOSS's proposed measures could be beneficial, the reasoning behind them would be different under MMT.
Income Support and MMT
ACOSS's call to lift income support payments to $76 a day would be supported by MMT advocates if it was seen as necessary to alleviate poverty, improve societal well-being, and stimulate economic activity. The affordability of such a measure wouldn't be questioned under MMT. On a personal note, I think it should be at least $93 a day.
Instead, the focus would be on its potential impacts on inflation and the broader economy. If the benefits of such a measure outweigh the potential inflationary pressures, then MMT would endorse it.
The Outcome
ACOSS's call for tax reform is laudable, but the framing of these reforms could benefit from an MMT perspective. A shift in understanding can lead to more effective policy proposals and better outcomes for society.
It's time we start rethinking our approach to public finance and policy-making.
With MMT, we can do just that.
IT’S TIME!
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I agree completely, Darren. 🤗