Tax overhaul needs to end inequities
The nation needs to talk about tax. That’s not a new proposition. Every incoming government seems to think it’s a good idea to conduct endless reviews, and the tax system is often at the top of the list.
John Howard did it and actually came up with worthwhile reform with the goods and services tax. Kevin Rudd trumpeted a wholesale review of the tax system but deliberately left the GST out of calculations, and then left most of the subsequent recommendations in a drawer somewhere.
When Tony Abbott arrived in the Prime Minister’s Office, he promised a White Paper into the tax system, which would go further than the Rudd offering and put everything on the table. That process is under way now, with a report due early next year.
It is an encouraging step but Mr Abbott and Treasurer Joe Hockey have already hobbled the process by starting to rule out certain changes, before we even know what the White Paper will recommend. While the Labor Opposition has stepped tentatively into the fray, promising changes in the tax treatment of superannuation earnings for high-income earners, and even suggesting it would look at the rules around negative gearing, the Government quickly ruled out change in those areas.
This might be the smart thing to do politically, but it robs the White Paper process of some of its core purpose — to take a broad overview of the tax system and assess how it could be more effective in raising revenue in a way that is fair and equitable across the spectrum of taxpayers.
Reports last week underlined some of the existing and looming problems.
The tax office revealed that 55 Australians who earned more than $1 million in 2012-13 did not pay income tax. Between them, these people spent $42.5 million on managing their tax affairs in such a way to keep them from paying their share. Another 740 people who earned more than $180,000 also avoided paying tax.
Separate figures from the tax office highlighted the problem of bracket creep, where taxpayers are gradually pushed into higher tax brackets by incremental increases in wages. This process gradually puts more and more people in the top brackets, boosting the Federal Budget but distorting the structure of the income tax system.
These are issues that need to be cleaned up in the White Paper process.
Paying taxes is a basic obligation for every individual and business. Those who seek to avoid this obligation are just transferring the burden to other Australians.
They may not be breaking the law — plenty of tax minimisation schemes are legal — but it is hardly fair.
This applies to individuals as much as multinationals that shift their profits to offshore tax havens, as exposed by the current Senate inquiry.
The knowledge that some people are finding loopholes and creative accounting to reduce or evade tax fuels resentment among taxpayers who are doing the right thing. The system works on trust that the rules apply equally to ensure everyone makes a contribution
