Top economists, former Treasury officials and ex-politicians are warning that “Australia is fast approaching a fiscal nightmare” because the nation’s tax system isn’t ‘fit for purpose’:
The tax on $100,000 goes to the heart of one of the problems.
If you are on a salary of this amount, you will end up paying almost $23,000 a year in personal income tax.
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But if you happen to be in a small business partnership or trust that made $100,000, then you (and your partner) will pay $6717 in income tax – about $10,000 less than the salaried worker.
Make $100,000 selling shares in a company that you’ve held for at least 12 months and you have the same tax liability as the small business partnership.
If you make $100,000 selling the family home in the nation’s currently hot property market, you won’t pay a cent on the capital gain.
Then there’s the shareholder who’ll pocket a $5000 cheque from the Tax Office if the Australian company they invest in pays out $100,000 in fully franked dividends…
Former Treasury secretary Ken Henry… says the lack of progress on major reforms he identified 10 years ago is “heartbreaking” and “disappointing”.
“Today’s system is a much bigger mess now than it was when we were working on the review,” Henry says…
He is one of the experts growing increasingly worried about how the federal government will afford to pay an expanding bill for critical services as the proportion of working-age Australians shrinks and people live longer. “At some point, people are going to say: ‘What the hell is going on here?’”
The most important role of tax is to pay for government services…
“The ageing population is going to generate a lot of additional healthcare expenditures quite apart from the virus. The government of the day is going to have to find the revenue or cut expenditures and the first port of call will be to cut back [in other areas]. That will be unfortunate” [former Reserve Bank of Australia governor Bernie Fraser says].
The OECD’s latest Australian economic survey, released last month, illustrated Australia’s over-reliance on personal income taxes:
Like the Henry Tax Review, it recommended a package of tax reforms that I agree with:
- Increasing the contribution of the goods and services tax to the overall tax mix
- Further reducing personal income taxes
- Aligning the taxation of different forms of savings.
- Reducing the capital gains tax discount
- Replacing stamp duty with a recurrent land tax
- Better pricing road use and environmental externalities
- Review the taxation of corporate income.
- Continue to evaluate the approach to natural resource taxation
My only gripe is that almost everyone seems to ignore wealth as a potential source of tax revenue to fund an ageing population (explained in detail here).
Providing government services to the richest generation in history can easily be paid for by properly taxing the richest generation in history.
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