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Tax reform

Tax Benchmarks prove tax reform is an urgent priority

SYDNEY, 1 February 2022: Treasury statistics released yesterday as part of the Charter of Budget Honesty prove the need for reform. The statistics show tax benchmark variations – differences between actual and benchmark tax revenue due to tax exemptions, deductions or offsets which move our real-world taxation away from standard benchmark tax treatment – for better or worse.

The Tax Institute’s Director, Tax Policy and Technical, Andrew Mills, CTA (Life), said, “The statistics reveal as much in what they don’t address as what they do. They are measured against a benchmark – mostly the core settings in our tax system. There are no numbers that show the missed opportunities due to our broken tax system. That’s the piece of the puzzle we should be looking at and that The Tax Institute has already started to work towards in our Case for Change report.”

“Perhaps the most important insight to come out of these tax benchmarks, is that both sides of politics are shying away from doing their job – making better tax rules. Rules that reduce red tape, rules that collect tax in a way that encourages investment and helps create better jobs, rules that address the lack of productivity growth in our country that, if not addressed, will make us all poorer.”

“For example, rather than showing that the bad design of our tax rules is a burden on working parents facing ridiculously high effective marginal tax rates, the report includes the “cost” of tax concessions for childcare.”

“There are also no statistics in this report that properly convey the total $50 billion or more spent on compliance and navigating red tape in our current system. If we could rectify that inefficiency, that’s a huge dollar amount that could free up people and business owners to invest in their businesses and themselves.”

What can be gleaned from the report, is the impact of questionable tax concessions, which are often applied as band-aid fixes to an overly complex and inherently unfair tax system. Replacing band-aid fixes with robust, simple and fair tax policy is a key goal of recent reform discussion.

“Of course, the statistics are useful in showing the incredible cost of many of the current concessions in our tax laws. Some are justifiable, but many should be questioned. For example, is a CGT discount of 50% that forgoes over $14 billion of revenue appropriate? Should the concession be less and by how much? These are questions we should be asking ourselves and more importantly, our policymakers,” Andrew said.

“The statistics also show the missed opportunity in the design of our GST – around $22 billion of special treatment. There are no statistics that envision how a better designed GST could raise more revenue while allowing us to cut taxes and increase benefits for those most in need. Properly implemented GST reform could see your average working family better supported by meaningful, appropriate tax concessions, while revenue is collected from those spending more on luxuries.”

 

ENDS

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