Govt urged to simplify the tax system
The Federal Government should simplify the personal income tax base as much as possible and move further towards consumption-based taxes, according to the Tax Institute.
The Tax Institute has used a pre-Budget submission filed with Treasury to point out that Australia is ranked second in the OECD for rates on personal income and profits and gains.
The submission said that the Tax Institute believed certain trade-offs would have to be made between the current features of the Australian tax system in order to ensure a structurally sound tax system is set up in the future.
In doing so, the Tax Institute has referred to one of the key recommendations of the 2009 Henry Tax Review that revenue raising should be concentrated on four robust and efficient broad-based taxes:
• personal income, assessed on a more comprehensive basis;
• business income, designed to support economic growth;
• rents on natural resources and land; and
• private consumption.
The Henry Tax Review added that, “additional specific taxes should exist only where they improve social outcomes or market efficiency through better price signals. Such taxes would only be used where they are a better means to achieve the desired outcome than other policy instruments. The rate of tax would be set in accordance with the marginal spill-over cost of the activity”.
The Tax Institute said that Australia’s current tax mix relies heavily on income tax bases for the majority of revenue collection and that this is out of step with Australia’s counterparts in the OECD whose tax systems rely more heavily on broad-based consumption taxes.
The submission has urged the Government to simplify the personal income tax base as much as possible and has suggested a more transparent marginal tax rate system to enable individual taxpayers to clearly identify which marginal tax bracket they fall into and therefore which tax rate they face.
It said that there should also be a single corporate tax rate with a lower headline rate.
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