I haven’t had time to even glance at the paper that the Henry Review released yesterday as the first step in its comprehensive review of the taxation and welfare transfer systems. It’s available here on the web in pdf form. Both Tim Dunlop and Peter Martin have some reflections in posts on their respective blogs.
Very clearly, the fact that it takes a major Treasury research paper to establish the dimensions and scope of our taxation system(s) suggests that complexity is a problem. However, simplification is only one of the possible economic and social goals that could flow from a review of our taxation arrangements. Well resourced business lobbies will be having their say. I’d be interested in any input from any resident tax policy wonks here, and also in a broader discussion about what sort of goals the taxation system should serve.
And if anyone’s clued up on all this and wants to do a guest post, do get in touch!
Hmmm. From what I understand, a lot of the complexity in personal taxation/welfare comes from a) the desire to shovel money towards families with dependent children, and b) the fact that, particularly for such families, the household finances are just that, whereas the income tax system treats each adult as an individual.
Robert, I thought the whole “income splitting” changes that were wrought in the 1970s were to simplify things so that high single income households couldn’t double dip on the tax free threshold. Unless you want to redefine income on a household basis (and I think that’s fraught with political as well as practical difficulties) the problems surrounding money being shoveled to families with dependents are already well addressed by having to nominate a single member of that household as beneficiary of such shovelings.
David: correct me if I’m way off base here, but there are a lot of such families who simultaneously a) pay tax, and b) receive welfare benefits through Centrelink. The administrative costs of doing so are regarded as a problem, IIRC.
Robert - agreed - by trying to target welfare to specific groups and means test it, it leads to a complex system which is difficult to understand with all the interactions between various welfare payments and tax.
David - Welfare payments are already (mostly) based on household income rather than individual income. I don’t see why income tax would be any more complicated or vulnerable to abuse.
Chris, welfare (and family tax benefits) are certainly defined on household income, but taxation as a whole isn’t - what Robert said is right in that there is plenty of administrative overhead in trying to reconcile the two, not to mention having to manage fortnightly payments for FTB part A for those that qualify.
What I think could be a problem is that to simplify this process, you’d almost need to redefine things as “married people with kids” and everyone else and change the tax scales, which I think would rightly cause something of an uproar. The Andrew Nortons of the world already describe it as “familist-leftist” (despite most of the boondoggle having been created by Howard). The rubbish system we have now is partly crafted to get around those kinds of objections.
So what’s the solution regarding families and singles, two working parents versus traditional single income earner? Kids versus no kids.
I’ll tell you what, the Howard approach sucked.
Joshua Gans has been talking about a HECS-style scheme for child-raising costs, including parents reducing or stopping paid work while they do so.
I dunno whether it’s a good idea or not, but it’s an idea.
Perhaps we should allow households to ‘incorporate’ for tax/welfare purposes. That could set the stage for some really radical moves in progressive consumption taxation.
BBB
Oh what I meant to say was that I don’t see why taxation couldn’t be based on household income, using the same tests as is done for welfare benefits. Welfare could mostly be handled by the tax system directly - eg one approach would be each child increases your tax free threshold by $X.
Another possibility for reform is payroll tax, which is a sort of wages-only pseudo-income tax which is flat-rate. You might be able to roll this straight into the income/corporate tax system.
However, given that it’s charged by the states, not the commonwealth, it might be problematic to negotiate its abolition. But it’s something that might be thought about - heck, if you’re being really ambitious there’s always the concept of state income tax …
Jesus, BBB, that’d be an awful idea. It’d make a mess of GST, just for a start. And divorce would be even more complex and disruptive than it is now.
Perhaps we could tattoo everyone’s forearm with their ABN at birth …
I don’t mean actually incorporating, David. Hence the quotation marks. I mean registering a household once for all tax and welfare purposes. Declarations like this are already required, only in twenty different ways using twenty different forms with varying effect. As everyone else is saying, there are all sorts of mismatches between taxes levied individually and welfare payments made on a household basis. Registration is one way to lay the foundation for a progressive consumption tax system that takes full account of children, etc.
As for the tattooing remark, it has nothing whatever to do with what I’m saying and is beneath contempt. Next you’ll be railing against Medicare cards with dependents on them and tax file numbers.
BBB
Lighten up, BBB, it was a joke.
Yeah, I’ll try. It’s hard sometimes.
BBB
I reckon page 47, where the discussion around Fringe Benefits Tax starts would be where I’d direct most of my energy. The sheer amount of tax that goes through that system suggests something is seriously wrong with the mechanism we use to tax non-PAYG benefits. Especially motor vehicles and the tax exemptions surrounding fuel and repair costs, which were a major league tax dodge when I was working in the finance industry.
Be very wary of words like “simplification” when it comes to tax. Right-wingers love the word simplification when what they really mean is doing away with the progressive nature of tax systems.
This should be a defining issue for the modern Left. I don’t mistrust the Rudd government, but we should fight tooth and nail against any attempt to make more of the tax burden fall on those on low and middle incomes.
If you care about social justice, the environment, good public services, pulbic education, public transport - in gerneral a decent society - then maintaining the integrity of our tax base is a first-order issue. Put pen to paper and write letters or submissions.
When 80% of the population is receiving an advantage of $4200 or more, and the remaining 20% receive on average $2100 it is time to just pay all the $4200 as a standard payment and then use this as a base to determine future transfers and benefits.
This is the case today iff 31.5% is treated as a standard tax rate and low tax rates are treated as advantage.
The cost of churn is not in paying, that is extremely simple and cheap. The cost is in assessing eligibility, and when you have 40 different “entitlements” that make up the basic $4200 advantage it is simply ridiculous.
From my reading of the paper they want to make it complex. No understanding, no argument.
If I read you correctly, you touched on a key point there, Glen. The real complexity in the tax system is trying to figure out what is someon’e taxable income in the first place. Getting rid of different tax rates or strange exotic taxes on different things won’t solve the complexity problem. Complexity will remain for as long as we live in a democracy and for as long as people try to minimize the amount of tax they pay. In other words, it’s not going anywhere.
Though it’s probably not a bad idea for every new government to take a fresh look at things and tidy them up a bit.
Sorry, missed an “n” Glenn.
I’ve been waiting a few years now for the discussion about family trusts to be dragged kicking and screaming back into the light of day. Had a quick look through the latest tax review’s contents, but it didn’t jump out.
It was big news in ‘98 and was used as a huge sop to ‘the workers’ for the introduction of the GST, but the low flying smirker broke his promise, not suprisingly, considering it would impact the Liberal and National parties constituency way more than the ALP’s:
http://www.treasurer.gov.au/DisplayDocs.aspx?pageID=&doc=pressreleases/2000/095.htm&min=phc
And it goes on - here is some helpful financial advice from the SMH online from 2008…
http://www.smh.com.au/news/tax/trusts-you-can-bank-on/2008/05/10/1210131318374.html
GB,
Australia’s income tax act and the associated rulings needed to help understand it (as far as that is possible) takes a box of books so heavy it is nearly impossible to pick up - and would certainly breach OH&S guidelines. It is the second largest on the planet; surpassed only by that of India. This is not complexity required to produce any meaningful outcome. There are several countries that are often feted as having more “progressive” tax regimes than ours. This is complexity on a truly gargantuan scale. Indeed (from memory) there was a case a few years ago where even the learned judges of the High Court could not understand some provisions of the ITAA.
The best solution (IMHO) would be to pick it up, walk to the nearest rubbish (recycling of course) bin and throw it in. The next step would be to walk to the nearest typewriter (to cut down the scope for revisions) and start again.
I think what GB is referring to, Andrew, is an attempt by all sorts of lobby groups to sneak in all sorts of social goals under the guise of reducing “complexity”. In reading the commentary in the Fin today, various top end of town types were sternly warning against any attempt to use the review as a platform for making the tax system more progressive. Of course, they might have reason to be concerned as one of the terms of reference goes specifically to the impact of the tax and transfer system on the disadvantaged and lower income folks. I thoroughly endorse the objective of social democrats keeping their eye on the sorts of goals we would like to see realised by a Labor government.
What jo at 20 said. Has been and remains a disgrace. It is even more disgraceful in the currect context with tax free superannuation income as part of the mix.
Rorts galore. And they fly under the radar.
My recollection was that $weetie being rolled on this issue was explicitly claimed as a win by the National Party. Doesn’t give you much confidence in his leadership qualities.
“My recollection was that $weetie being rolled on this issue was explicitly claimed as a win by the National Party”
Indeed. And it was. But then again those who till the soil are the real Australians.
Oh absolutely. As opposed to the denizens of the “Paris End” of Collins Street. Hang on a sec?!!?
Indeed. We all remember the jokes about Collins St farmers, I’m sure.
“Doesn’t give you much confidence in his leadership qualities.”
Depends how desperate they are. But surely they have some standards? Whatever would Dr Kevin D think?
Collins street farmers (and Pitt Street farmers, don’t forget) are also benefiting to a large extent from drought relief alongside their family trust shenanigans.
Although, I’d also be wary of anyone extending the provisions of family trusts to all families - they only work if you have a metric sh*tload of assets and income.
It all needs to be knocked on the head (thanks jo for reminding us) and now.
One of the issues I think cries out for attention is the absurd changes to the tax status of super made during the Howard era designed to benefit those who were already very well provided for and in some instances to enable them to claim the pension or more of a pension. On another thread, someone was banging on about their tax dollars supporting welfare bludgers. In fact a lot of our tax dollars are going into dodges to make the well off better off.
From the CPA’s submission to Govt on the recent changes in this year’s Budget to these Trusts - but mainly note the number of Trusts.
And which is why I think the horse has bolted, and the Govt won’t touch this.
You mean we can’t include your drunk cousin Ken, who’s been living in Thailand since 1970 and Snooty the family labrador - what an outrage!!
http://www.aph.gov.au/Senate/committee/economics_ctte/tlab_4_08/submissions/sub02.pdf
That he’s being deprived of the chance to be the next Member for Higgins?
Andrew: any sane person would have a lot of sympathy with your point of view.
But even if we were to start from scatch, what’s the betting that in 20 yrs time many of the same exemptions and loopholes that are there now would creep back into the system? In a democracy it’s hard to avoid those pressures.
The main thing I’d like to see is the Left really take hold the tax issue - it really should be on a par with all the other issues that get Lefties riled up. I’d like to see closing overseas tax havens and other rorts elevated to almost a symbolic issue. Everything else flows from having a decent tax base.
A good rule is that whenever wealthy right-wingers offer to make our taxes simpler for us keep a very close eye on your wallet. They were the ones who made it complex in the first place! What they’re usually trying to do is figure out a clever way for the rest of us to pay their taxes for them. Always look out for that oldie but a goodie that reducing taxes will dramatically increase revenue.
GB,
I do not think that many of those “wealthy right-wingers” would complain about a minor increase in the tax rates if there was broad simplification. The only ones that would complain would be the tax partners at the major accounting firms. Tax advisory work has grown to be a major revenue earner for the firms over the last decade or more. Simplifying the regime would advantage all tax payers.
At least making a go at cutting it back now would mean that is 20 years saved. The old one was first written in 1933. 75 years it took the old one. 20 years for a new one would do.
Yeah the Tax Act is (once more) applied game theory. We would all benefit from a simpler clearer structure, and would all be able to pay less taxes and have a lot less transactional costs, while maintaining the social goods of a robust tax scheme. But the incentives for individuals to seek advantage mean that all the powerful actors go around spoiling it for everyone.
In my perfect world, most Australians wouldn’t even have to fill out a tax return, and there would be 1/100th as many tax lawyers and accountants able to be gainfully employed rentseeking.