With Australia facing a downgrading of the sovereign AAA credit rating, Senator Nick Xenophon has called for the top marginal tax rate to be lifted to 50% to bolster the revenue side of the Budget. From The AFR:
Nick Xenophon said he would be pressing for a permanent top marginal income tax rate of at least 50 per cent…
On Friday, he suggested the government make permanent the three-year temporary deficit levy, which is due to expire on June 30, 2017, and increase the Medicare levy a “smidgin”.
The deficit levy was a 2 percentage point increase to the top marginal tax rate, taking it to 49 per cent. A further 1 point increase to the Medicare levy would leave Australia with a 50 per cent top tax rate. Making the deficit levy permanent is already supported by Labor and the Greens.
“The so-called temporary deficit levy needs to be extended until we get the deficit under control,” Senator Xenophon said.
While I too support raising more Budget revenue, I do not believe that raising taxes on high income earners is the best way to do so.
Australia’s tax system is already too heavily reliant on working Australians, with 50% of the Australian Government’s tax take coming from personal income taxes. Worse, under current arrangements, this share is forecast to rise to 56% in the decade ahead on the back of bracket creep (aka “fiscal drag”), as inflation pushes workers into higher tax thresholds (see next chart).
Rather than raising the tax burden on workers even further, Australia should instead look to broaden the tax base.
The goal of reform should be to both improve Budget efficiency as well as more equitably sharing the burden of reform – both across the generations as well as between the owners of land, labour and capital.
My suggestion is to do a combination of the following:
- Abolish the planned cut to the company tax rate, from 30% to 25%.
- Further tighten tax concessions, such as negative gearing, the CGT discount, and fringe benefits on company cars.
- Abolish the private health insurance rebate, which let’s face it is inflationary and hasn’t reduced pressure on public hospitals.
- Tighten means testing of the Aged Pension by including one’s principal place of residence in the assets test, supported by an expansion to the Pension Loans Scheme, so that asset-rich retirees can continue to receive income support via a government-run reverse mortgage.
- Crack down on discretionary trusts and private companies, which allow relatively well-off individuals to avoid tax by diverting and ‘sheltering’ their income or income producing assets.
- Implement a broad-based Commonwealth land tax.
Of course, Xenophon has already shown that he is hopelessly conflicted on Budget policy. He owns four investment properties and has conveniently opposed negative gearing reform as well as supported Budget measures to boost property demand, not to mention argued to ramp up the population ponzi.
If Australia is to ultimately transform the economy and Budget into something that is sustainable, then it will require slaying the very property casino that is killing the nation’s competitiveness by raising the dollar and input costs like the price of land/rents, as well as costing the Budget billions through inefficient and inequitable tax concessions and lower productivity growth.
Rather than lazily raising income taxes, Mr Xenophon, how about advocating for genuine budgetary reform, including to the very sector underpinning your wealth?
