“But the economic case is now much stronger because, whereas we were once a ‘high growth’ country, Australia has been stuck in the ‘low growth’ ranks for many years.”
Personal income tax provides about half of government tax revenue – among the highest in the advanced world – and is on track to hit a 30-year high later this decade, despite tax cuts of the Morrison government that largely result in tranche drift, according to analysis by the Parliamentary Budget Office. .
“Not suitable for use”
Dr Henry said there were strong ‘equity’ reasons for shifting the tax burden away from workers’ personal incomes.
“Our tax system is placing an increasing burden on the shoulders of a decreasing proportion of the population, due to the aging of the population.”
Businesswoman and Reserve Bank of Australia board member Alison Watkins said the tax system was ‘not fit for purpose’ to support revenue growth and pay down high public debt which is expected to reach $1 trillion.
“Tax reform must be at the center of the agenda of any future government,” she said.
“We rely too heavily on income tax to generate income, which blunts the incentives to work and invest.
“Our [30 per cent] the corporate tax rate is uncompetitive, making it difficult for Australia to compete for mobile global capital – and we have seen low rates of business investment in recent years.
“The stamp duty strongly discourages people from moving at a time when we need greater labor mobility.”
The left-leaning, Labor-aligned McKell Institute last week called for an Anthony Albanese government to be the party of lower personal income taxes, expanding other tax bases and scrapping loopholes.
Businessman and former competition regulator Graeme Samuel said proponents of tax reform must learn the lessons of the last major successful tax reform: the introduction of the GST in 2000 by the Howard government.
As one of the earliest participants at the time, Mr Samuel said tax reform needed to be ‘community-led’ by involving groups such as the Australian Council for Social Services, not just tax groups. companies that may seem interested.
“The GST is unfinished business – let’s remove all exemptions and make sure all the trade-offs of abolishing state taxes like stamp duty take place,” Samuel said.
We don’t just need tax reform, we need to reassess how a modern Australia is going to function over the next 25 years.
— Jeff Kennett
He recited the seven criteria for successful tax reform that he helped formulate in 1996: fairness, economic efficiency, revenue adequacy, simplicity, transparency, cost and tax avoidance.
Former Victorian Liberal Premier Jeff Kennett said he was “disillusioned” that there had been “no major economic reform” at federal and state level for many years.
“We don’t just need tax reform, we need to reassess how a modern Australia is going to function over the next 25 years.
“We need to reprioritize some of the things we spend money on, how we tax, how we distribute.
“We need to reassess responsibilities between federal and state governments,” he said, noting that elder care and education were areas of opportunity.
Chairman of the Abbott government’s budget audit and former chairman of the Business Council, Tony Shepherd, said Australia’s low productivity was a “disgrace” and the country’s international competitiveness was declining.
“You won’t get a lasting improvement in real wages until productivity really moves, and the tax system and all policies should be geared towards that,” Shepherd said.
“They need to work with the states to get serious tax reform.
“Raise the GST, remove payroll taxes and stamp duties which are huge brakes on growth.
“Dom Perrottet [NSW Premier] bravely put it forward, and he’s right. We need to.
Perrottet’s 2020 Federal Fiscal Relations Review, led by former CSIRO President David Thodey, recommended generating more revenue through GST, scrapping stamp duty, raising property taxes and to give states greater capacity to raise revenue and be less dependent on the Commonwealth to fund service delivery.
Credit rating agency Moody’s Investor Services warned last week that a slowdown in the housing market caused by affordability constraints and higher interest rates could crush stamp duty revenues and blow up vulnerable state and territory budgets.
The head of the Australian Banking Association and former Queensland Labor premier Anna Bligh said the next federal government after the election would face great challenges but also great opportunities.
“Out of every crisis comes opportunities to do things differently and better,” she said.
“Even without the pandemic, we were embarking on a massive economic transition – what people call the fourth industrial revolution in terms of technology and the low-carbon economy.
“Taxation is one element, but you also have to think about human capital – education, migration, skills – innovation, research and technology.”
But Ms Bligh acknowledged that it would be easier for politicians to enact major reforms if governments had clear parliamentary majorities to spend their political capital on.
Exposed fault lines
Dr Henry said there should be less reliance on Commonwealth taxes on workers, innovators and businesses, and more reliance on traditional state tax bases, including road user charges, consumption, land and other natural resources.
“Reforms along these lines mean that a greater share of national tax collection goes to the states,” Dr Henry said.
“And developing a package of national tax reforms would give us the opportunity to consider a significant reallocation of responsibilities between the Commonwealth and the States, particularly in areas of duplication, such as economic regulation, health, elderly care, education, disaster management and emergencies. services.
“The COVID crisis has exposed fault lines in all of these areas.”
Ms Watkins agreed, saying COVID-19 had “shone a light” on how the federation works in aged care, mental health, chronic care, vocational education and training.
“We’ve seen great examples of cooperation through the national cabinet process, but we’ve also seen how the inconsistency of approaches and the lack of clarity around who is responsible for things can impose real costs on people,” she said.
“A review of our federation would be timely, looking at roles and responsibilities, regulatory overlaps and funding issues.”
Dr Henry said fiscal repair should be achieved through an explicit economic growth strategy, combined with tax reforms that increase participation and boost productivity.
“It also makes sense now to overhaul our antiquated tax system so that if it is necessary to lift tax levies at some future time, which today seems very likely, this can be achieved with minimal economic damage.
“Australia’s tax system needs to rely less on income tax and transaction taxes like stamp duty and rely more on consumption, economic rents, land and other natural resources.
“Replacing stamp duties with annual property taxes makes a lot of sense.
“We should also have full road user charges in place of fuel excise duty and all the other charges associated with owning a motor vehicle.
“And we should modernize our indirect taxes, replacing the GST, payroll tax, insurance taxes and other nuisance taxes with a cash flow tax on broad-based businesses.
“And the [30 per cent] the corporate tax rate should be unified at the lowest 25 [per cent] rate currently only available to small businesses.