Towards systemic reform of the Australian personal income tax: developing a sustainable model for the future (original) (raw)

Taming Complexity in Australian Income Tax

‘Simplification’ has been the mantra of tax reformers and tax deformers since the late 1950s and has frequently been cited as a rationale for tax changes in the closing years of the twentieth century and the opening years of the twenty-first. The near universal agreement by tax critics that simplicity is an object of tax reform is not mirrored by universal agreement as to what simplicity entails. This paper explores the phenomenon of complexity in the Australian income tax. The paper considers the causes of complexity, reviewing the possible contributions of the parties most closely connected to the tax system - the judges who interpret the legislation, the tax advisers who work with it, the drafters who write it, the Treasury that designs it, and the legislature that enacts it as law. The paper concludes that all parties must bear some blame for the complexity but prime responsibility falls on the legislature on two counts. First, the legislature has failed to eliminate the irrational distinctions in the law to which most complexity can be traced and, second, it has added new layers of complexity by using the tax system as a spending tool to distort market and social behaviour.

A stocktake of the tax system and directions for reform

2015

Tax reform is in the news daily. Calls for fundamental reform have become louder, but there are diverse views on the direction and scope of the reform that is needed. The Liberal/National Coalition Government has committed to a White Paper process on Tax Reform, which the Government has indicated will commence with the release of a discussion paper designed to prompt a national conversation about tax reform. The Government has also commenced a White Paper process for reform of the federation (DPMC 2014; 2015), which is examining the distribution of responsibilities between State and Commonwealth governments, with implications for federal financial relations, including taxation. But what is tax reform? What needs fixing in Australia's tax system, why, and what can and should be done? Hotly debated issues range from whether to broaden the base or increase the rate of the Goods and Services Tax (GST), to how we can properly tax multinational corporations. There is debate about ...

Who's Not Paying Their Fair Share: Public Perceptions of the Australian Tax System

Australian Journal of Social Issues, 2003

Data from the Community Hopes, Fears and Actions Survey are used to examine how pervasive the view is that the more privileged in society are failing to pay their fair share of tax, to understand the beliefs that underpin such perceptions, and the reforms that are needed to open dialogue with the Australian public about the issue. Support is found for five hypotheses. Economic self‐interest provides a partial explanation for perceptions of vertical inequity, but more important are disillusionment with the Australian democracy and perceptions of insufficient procedural justice from the tax office. Values about how Australian society should develop also play a part. Those looking for a more equal, caring and compassionate Australia perceive there to be a high level of vertical inequity. Such perceptions are not shared by those aspiring to an Australia that pursues competitive advantage either economically or politically.Tax authorities are brokers for social order and harmony in democ...

Reviewing Australia's Static Tax/Transfer Microsimulation Model

2011

In 2010, the Secretary to the Treasury of the Government of Australia (Ken Henry) chaired a review of Australia’s Tax system (called the Henry Review). This review outlined a number of significant changes to Australia’s tax system, which could be implemented over a number of years, including reducing the corporate tax rate; and the introduction of a new mining tax. This review provides a long term strategy for Australia’s tax system, but also shows that Australia’s current static Tax/Transfer model (STINMOD) will need to be re-configured to be able to respond to future demands for policy modelling. As a start to this, NATSEM and the Commonwealth Government have instituted a full review of the STINMOD model, from a full code review through to fundamental questions about how the model will be able to respond to future policy requirements. This paper will highlight how the model was reviewed, what was considered in the review, and what the conclusions of the review were.

Australian Business Income Tax Reform in Retrospect: An Analytical Perspective

Looking back on the evolution of taxation reform in developed economies over the post-war period, we observe that the early decades were marked by a determined effort to implement reforms based on Haig-Simons principles of a comprehensive income taxation. Under this approach all the various types and sources of capital income (as well as labour income) would be taxed alike, tax rates could be lowered, and inefficiency and associated inequity would thereby be kept to a minimum. Despite far-reaching recommendations by expert bodies in Canada, the US Treasury, Ireland, and Australia, achievements in the taxation of capital or business income have in all countries fallen far short of the ideal. Indeed, capital income can now clearly be seen as the Achilles Heel of income taxation, which continually threatens to bring down the whole structure. In the face of apparently intractable obstacles to implementation at the political level, support for comprehensive income taxation has progressively been undermined to the point where many tax economists now accept that any attempt to tax capital income in accordance with Haig-Simons principles should be abandoned. We strongly believe, however, that these arguments are completely misguided, as post-war experience with company income taxation in Australia and elsewhere amply serves to demonstrate. The company income tax provides the cornerstone of the capital or business income tax system. This paper focuses on Australian experience with the corporate tax and considers the range of options being considered by policy-makers, including Nordic-style dual income taxation and a return to classical company and shareholder taxation.

Globalisation and the dilemmas of income taxation in Australia

Australian Journal of Political Science, 2004

One of the most striking trends in corporate taxation over the past two decades has been the sustained fall in corporate tax rates. Most of the recent literature argues that the main cause of this trend is changing policy beliefs and objectives held by domestic elites, and that the consequences are minor because tax rate cuts have been compensated by a broadening of the corporate tax base. Focusing on Australian income tax reform in the 1980s and 1990s, the article both complements and challenges the literature by establishing three empirical facts. First, corporate tax competition was the crucial driving force behind corporate tax cuts. Second, and related, Australian policymakers continued to embrace investment incentives such as generous depreciation allowances as pragmatic ways to increase the level of investment, at a particular level of taxation. However, with increasing competitive pressure on the corporate tax rate, policymakers had to trade off fewer investment incentives against a more competitive corporate tax regime. Finally, competitive corporate tax cuts put pressure on income taxation as a whole, because low corporate rates provide opportunities for high-income taxpayers to avoid taxes which the high-rate corporate tax regime had successfully prevented. Indirectly, therefore, corporate tax competition led to far-reaching rate cuts in personal income taxation. The article analyses how governments in Australia dealt with the tradeoffs created by corporate tax competition and discusses the likely consequences of continuous tax competition.