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A politically viable strategy for limiting personal income tax deductions: The case for a global cap


For governments confronting rising fiscal deficits and substantial public debt, every tax inevitably comes under close scrutiny – especially the personal income tax because of its broad base and significant contribution to revenue. If increasing tax rates or broadening the income base is seen as inappropriate in difficult economic times, an alternative option is to reduce the availability of deductions against income. This paper compares and contrasts the approach taken in Australia, New Zealand, UK and the US to restricting the availability of deductions. Particular attention is given to managing the politics of such reforms and how Australia’s poor record at constraining the availability of deductions could be improved by learning from international experience.

The paper concludes that Australia should move away from its politically divisive approach of capping each specific deduction and towards one which puts a global cap on total deductions - an approach which is simpler to communicate in a politically charged environment and has the added benefit of potentially improving equity and economic efficiency in the tax system.

Author profile

Neil Warren
Neil is a Professor, School of Taxation & Business Law, UNSW Australia.
  • Current at 1 October 2016
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